For more information on these and other developments, we encourage you to reach out to your regular Sullivan & Cromwell contact.
Highlights
- In this issue, we discuss key developments in Q2 2025, including recent rulemakings, enforcement actions and other key updates affecting the investment management industry.
- Our Q1 2025 newsletter provides detailed discussions of topics from early Q2 2025, such as Updated FAQs for Form PF, Multi-Class Exemptive Relief for Privately Offered BDCs, More Flexible Co-Investment Relief for BDCs and Closed-End Funds, and Grant of State AGs’ Motion to Intervene in Case Challenging SEC Final Climate Rules.
Recent Legislation, Rulemakings and Guidance
Senate passes GENIUS Act. On June 17, the U.S. Senate passed, by a vote of 68 to 30, the “Guiding and Establishing National Innovation for U.S. Stablecoins Act” or “GENIUS Act.” The GENIUS Act limits the issuance of payment stablecoins in the United States to “permitted payment stablecoin issuers” (“PPSIs”) and, among other things, amends the federal securities laws and the Commodity Exchange Act (the “CEA”) to provide that a payment stablecoin issued by a PPSI would not be a security under the securities laws or a commodity under the CEA, and that a PPSI would not be an investment company.
The legislation now moves to the U.S. House of Representatives, where a companion bill, “Stablecoin Transparency and Accountability for a Better Ledger Economy Act of 2025” or “STABLE Act of 2025,” which makes identical amendments to the above federal securities laws but not to the CEA, is under consideration. Although similar in many respects to the GENIUS Act, the STABLE Act includes several notable differences regarding the requirements for a state-qualified PPSI to transition to federal oversight and foreign payment stablecoin issuers. The procedural path towards enacting the GENIUS Act remains unclear and will depend in large part on whether the House passes the GENIUS Act or continues to consider the STABLE Act and whether the House pursues stablecoin legislation on a standalone basis (like the Senate) or seeks to combine stablecoin legislation with digital asset “market structure” legislation. For more information on the GENIUS Act, please refer to our publication here.
SEC withdraws 14 rule proposals. On June 12, the SEC withdrew 14 outstanding rule proposals issued between March 2022 and November 2023. In doing so, the SEC noted that it does not intend to issue final rules with respect to these proposals. Out of the 14 withdrawn proposals, five were recommended by the Division of Investment Management, addressing the following:
- Predictive Data Analytics: A proposed rule which was intended to address potential conflicts of interest associated with the use of predictive data analytics and similar technologies by broker-dealers, investment advisers, and their associated persons in interactions with investors (for more information on the proposed rule, please refer to our publication here);
- Safeguarding Client Assets: A proposed rule relating to the safeguarding of advisory client assets, which would have: (i) expanded the custody rule to apply to all client “assets,” not just client “funds and securities”; (ii) expanded the additional advisory activities covered by the rule (including explicitly covering discretionary trading authority); and (iii) created extensive new requirements for advisers and qualified custodians (including entry into written agreements with prescriptive requirements) (for more information on the proposed rule, please refer to our publication here);
- Cybersecurity Risk Management: A proposed rule which would have required (i) registered investment advisers, registered investment companies and business development companies to adopt cybersecurity policies and (ii) registered investment advisers to report significant cybersecurity incidents affecting the advisers, or their fund clients, to the SEC (for more information on the proposed rule, please refer to our publication here);
- ESG Disclosure: A proposed rule which would have required enhanced ESG disclosure by registered investment advisers, specified types of exempt advisers, registered investment companies and business development companies (for more information on the proposed rule, please refer to our publication here); and
- Outsourcing: A proposed rule which would have prohibited advisers from outsourcing specified services or functions without first meeting several additional requirements, including due diligence and monitoring (for more information on the proposed rule, please refer to our client memo here).
For more information on the withdrawal of the fourteen rules, please refer to our publication here.
SEC and CFTC grant further extension of Form PF amendments. On June 11, the SEC and the CFTC jointly announced a further extension of the compliance date for the amendments to Form PF that were adopted on February 8, 2024. The compliance date, which was previously extended to June 12, 2025, has now been delayed to October 1, 2025. Chairman Paul Atkins also directed the SEC staff to undertake a comprehensive review of Form PF, noting his concerns about whether the use of data provided in the form justifies the significant compliance burden on firms. The Form PF amendments from February 2024 significantly expanded the scope of information required from all private funds advisers and increased disclosure obligations. For more information on the Form PF amendments, please refer to our Q1 2024 newsletter; for information on FAQs published regarding the Form PF amendments, please refer to our Q1 2025 newsletter.
Department of Labor (the “DOL”) withdraws defense of Biden-era plan fiduciary ESG rule. On May 28, the DOL informed the Fifth Circuit that it would end its defense of its 2022 rule promulgated under the Employee Retirement Income Security Act (“ERISA”), which clarified how plan fiduciaries’ duties of prudence and loyalty apply to ESG and other considerations by fund fiduciaries when selecting investments and investment courses of action and exercising shareholder rights, such as proxy voting. Attorneys general from 26 states filed a lawsuit in January 2023 challenging the rule, alleging, among other things, that it violated ERISA by allowing fiduciaries to consider factors other than financial benefit to plan participants when selecting investments.
At the time of the withdrawal, the case was on appeal to the Fifth Circuit for the second time. In its letter to the Fifth Circuit, the DOL noted that it will engage in a new rulemaking, which will appear on its Spring Regulatory Agenda, and move through the rulemaking process as expeditiously as possible.
In 2020, the DOL under the first Trump administration promulgated a related rule, which required plan fiduciaries to select investments and investment courses based solely on pecuniary factors, as defined in the regulation. The 2020 rule was later rescinded by the Biden-era DOL.
The DOL rescinds Biden-era crypto guidance for 401(k) plans. On May 28, the DOL issued Compliance Assistance Release No. 2025-01 (“2025 Release”) regarding 401(k) plan investments in cryptocurrencies, which rescinds the DOL’s 2022 Compliance Assistance Release No. 2022-01 (“2022 Release”). The 2022 Release directed fiduciaries to exercise “extreme care” before considering whether to add a cryptocurrency option to a 401(k) plan’s investment menu, which deviated from the DOL’s historically neutral, principles-based approach to fiduciary investment decisions. The 2022 Release also stated that the DOL expected that it would conduct an investigative program aimed at plans offering investments in cryptocurrencies and related products, and take appropriate action to protect the interests of plan participants and beneficiaries with respect to these investments. Since the 2022 Release, investments in cryptocurrencies for 401(k) plans have remained low. The survey data in the November 2024 report by the Government Accountability Office suggests that participant investments in cryptocurrencies accounted for less than 1% of total retirement plan assets invested through self-directed brokerage windows.
The 2025 Release reaffirms the DOL’s historically neutral posture on specific investment categories, neither endorsing nor disapproving of plan fiduciaries who conclude that the inclusion of cryptocurrency in investment menus is appropriate. The 2025 Release advises that a fiduciary’s decision should be context-specific and consider all relevant facts and circumstances.
Developments regarding the SEC Staff’s historical position on closed-end funds’ investments in private fund investments. On May 19, SEC Chairman Paul Atkins shared remarks at the SEC Speaks Conference, in which he called upon the SEC to reconsider the SEC staff’s informal position that required closed-end funds investing 15% or more of their assets in private funds to impose a minimum initial investment requirement of $25,000 and restrict sales to investors that satisfy the accredited investor standard. Since 2002, the SEC staff had communicated these restrictions, which were not required under a statute or rule or published in SEC guidance, to closed-end fund registrants during the registration statement review process. Consistent with this position, the SEC staff would not grant acceleration of a closed-end fund’s registration statement without a commitment by the fund to impose these restrictions. On May 20, Division of Investment Management Director Natasha J. Greiner (who has since departed from the SEC) stated that the SEC staff, as of May 19, would no longer provide comments during the registration review process that limit the ability of retail investors to invest in registered closed-end funds that invest in private funds. She further noted that the SEC staff would continue to consider disclosures around conflicts of interests, liquidity and fees. The change in the SEC’s position is expected to increase investment opportunities in private funds for retail investors and spur the development of new products aimed at this audience.
On June 25, the House of Representatives Committee on Financial Services reported the Increasing Investor Opportunities Act out of Committee to the full House for consideration. This bill would, among other things, prohibit the SEC from imposing any limits or restrictions on closed-end funds’ investing in private funds, except as required by the Investment Company Act of 1940 (the “1940 Act”) and make the SEC’s change in position permanent.
SEC extends effective date of amendments to Form N-PORT. On April 16, the SEC delayed the effective date for the recently adopted amendments to Form N-PORT from November 17, 2025 to November 17, 2027. Likewise, the SEC extended the effective and compliance dates for the amendments to the rule under the 1940 Act associated with Form N-PORT reporting requirements. As a result, compliance with the amendments to Form N-PORT will now be required by November 17, 2027 for fund groups with $1 billion or more in net assets as of the end of their most recent fiscal year end and by May 18, 2028 for fund groups with less than $1 billion in net assets as of such date. The effective and compliance date for the amendments to Form N-CEN will remain November 17, 2025.
The amendments to Form N-PORT and Form N-CEN were originally adopted on August 28, 2024. These amendments require more frequent reporting of portfolio holdings and expanded disclosure on liquidity risk management. The Form N-PORT amendments will require funds subject to Form N-PORT reporting to file monthly reports within 30 days after month-end, with each reporting becoming public 60 days after month-end (rather than quarterly reporting under rules currently in effect). The Form N-CEN amendments will require open-end funds subject to the liquidity risk management program requirements to report certain information about service providers used to fulfill those requirements, including identifying information and asset classes covered.
Recent Enforcement Actions
Federal judge rejects the joint motion of the SEC and Ripple Labs Inc. (“Ripple”) to settle 2020 lawsuit over Ripple’s alleged sale of unregistered securities. On June 26, a federal judge denied the joint motion of the SEC and Ripple for Ripple to pay a reduced $50 million (from $125 million) fine and settle the SEC’s 2020 civil lawsuit, which had alleged that Ripple was engaged in an unregistered, ongoing securities offering through its sale of digital assets known as XRP. In July 2023, the court found that the sale of XRP on public exchanges did not qualify as a securities offering, but the sale of XRP to institutional investors did, fining Ripple and enjoining it from committing further violations of law. In its June 26 ruling, the court stated that the parties did not have authority to jointly agree not to be bound by its final judgment and that the parties had failed to show exceptional circumstances that outweigh the public interest or the administration of justice considerations required for the court to vacate its prior judgment.
The SEC previously announced in May that it had entered into a settlement with Ripple, which provided that the SEC would return $75 million in court-ordered collected fines to Ripple. As part of the settlement, the parties also agreed to drop their appeals to the United States Court of Appeals for the Second Circuit. Similar to its other recent crypto-related dismissals, the SEC noted that the resolution of the Ripple matter would facilitate its ongoing efforts to reform its regulation of the crypto industry.
SEC dismisses cryptocurrency enforcement actions to facilitate ongoing regulatory reform. From April 30 to May 29, the SEC dismissed three enforcement actions against cryptocurrency firms and their founders, including:
- The SEC’s action against Dragonchain, Inc., its founders and certain affiliates (“Dragonchain”), which alleged Dragonchain conducted an unregistered offering of DRGN tokens;
- The SEC’s action against a YouTube crypto influencer, which alleged that the influencer failed to disclose compensation he received from Sparkster Ltd. for publicly promoting SPRK tokens and for failing to file a registration statement with the SEC when he resold Sparkster’s tokens to an investing pool of at least 50 individuals; and
- The SEC’s action against Binance Holdings Ltd. and its affiliates, which had operated the largest crypto asset trading platform in the world. The SEC alleged, among other things, that Binance operated unregistered national securities exchanges, broker-dealers and clearing agencies; commingled investor funds; and was engaged in unregistered offers and sales of its own crypto assets. In addition, the SEC alleged that Binance’s founder was liable for the operation of the unregistered offerings as a control person.
The SEC’s press releases for the three dismissals note that the dismissals will facilitate the SEC’s ongoing efforts to reform and renew its regulatory approach to the crypto industry, and are not an assessment of the merits of the claims alleged in the actions.
On June 3, Chairman Atkins testified before the Senate Appropriations Subcommittee on Financial Services and General Government that “a key priority of [his] Chairmanship will be to develop a rational regulatory framework for crypto asset markets that establishes clear rules of the road for the issuance, custody and trading of crypto assets.” He stated that the SEC’s policymaking “will be done through notice and comment rulemaking not through regulation-by-enforcement.” The SEC plans to “set fit-for-purpose standards for market participants” and “police violations of [the] established obligations, particularly as they relate to fraud and manipulation.”
Other Recent Key Updates
Supreme Court to review whether Section 47(b) of the 1940 Act gives private plaintiffs a federal cause of action to seek rescission of contracts that would allegedly violate the Act.
On June 30, the Supreme Court of the United States granted certiorari in FS Credit Opportunities Corp. v. Saba Capital Master Fund, Ltd, which will be heard during the Court’s October 2025 term. The case will resolve a circuit split resulting from the Second Circuit Court of Appeals’ 2019 decision in Oxford University Bank v. Lansuppe Feeder, LLC that Section 47(b) of the 1940 Act creates an implied private right of action for shareholders of registered investment companies to bring claims to rescind fund contracts if the performance of those contracts would allegedly result in the violation of another section of the 1940 Act. The Second Circuit’s decision created a circuit split with the Third, Fourth, and Ninth Circuits and tension with language in the 1940 Act, which gives the SEC the sole authority to enforce the Act (other than Section 36(b), which creates a single express private right of action). Since Oxford University Bank, a number of activist investors have brought lawsuits under Section 47(b) against closed-end fund sponsors, several of which have been successful. The Supreme Court’s decision in FS Credit Opportunities Corp. will have significant implications for registered funds’ exposure to shareholder litigation.
The Investment Company Institute (the “ICI”), the Asset Management Group of the Securities Industry and Financial Markets Association, and the U.S. Chamber of Commerce filed amicus briefs in support of Supreme Court review of FS Credit Opportunities Corp. These briefs noted that the Second Circuit’s current interpretation would allow plaintiffs to second-guess the judgment of independent directors of funds that are intended to protect shareholder interests under the 1940 Act. The Solicitor General of the United States had also urged the Supreme Court to grant certiorari in order to resolve the circuit split.
SEC resumes processing of Swiss investment adviser registrations. On June 10, the SEC announced that it will immediately resume processing new and pending registration applications for investment advisers that have their principal office and place of business in Switzerland. The SEC had suspended processing these applications in 2018. The SEC’s decision to resume processing followed successful discussions regarding the SEC’s access to the books and records and conducting of on-site visits for SEC-registered and Swiss Financial Market Supervisory Authority (“FINMA”) registered advisers. According to Chairman Paul Atkins, these applications “have languished for too many years” and that interest from foreign investment advisers in registration “demonstrates the value of the U.S. regulatory framework.” The SEC’s announcement highlights the ongoing cooperation between the SEC and FINMA in facilitating cross-border investment advisory activities while maintaining effective regulatory oversight. The SEC lifted its moratorium on registration of UK-registered advisers, which had been in place since the adoption of the GDPR, in 2020, but has not yet lifted the stay on processing registrations for EU-registered advisers.
Multi-class exemptive relief applications progress. On May 29, Dimensional Fund Advisors LP (“DFA”) filed a second amended application with the SEC for exemptive relief that would allow offering mutual fund and ETF classes in the same fund. The amended application includes certain reporting and monitoring obligations, such as an initial adviser report prepared for the fund board prior to the first issuance of shares under a multiple class plan, fund board approval of numerical thresholds to measure a multi-class fund’s performance an ongoing basis, and the fund board finding at least annually that the multi-class plan continues to be in the best interest of each class and the fund. DFA’s amended application filing prompted more than 20 applicants to file applications that are substantially similar to DFA’s second amended application.
Since 2023, more than 60 applications have been filed requesting relief that would permit a mutual fund to offer an ETF share class and an ETF to offer mutual fund share classes. Until May 2023, Vanguard held an exclusive patent on the fund structure involving the offering by mutual funds of an ETF share class. At the Investment Company Institute’s Investment Management Conference held in March 2025, then-acting Chairman Mark Uyeda stated that he had directed the SEC staff to prioritize the review of the multi-class exemptive relief applications. Shortly afterwards, on April 1, DFA filed its first amended application for multi-class relief that included a reporting and monitoring framework that is largely similar to that included in its latest amended application. The SEC has not yet granted the requested relief to any applicant.
FTC and DOJ file statement of interest against asset managers for alleged antitrust violations. On May 22, the Federal Trade Commission (the “FTC”) and the Department of Justice (the “DOJ”) Antitrust Division jointly filed a Statement of Interest in support of a multistate antitrust lawsuit led by Texas Attorney General Ken Paxton and 10 other state attorneys general against BlackRock, State Street and Vanguard. The lawsuit alleges the asset managers conspired to suppress coal production as part of a “Net Zero” initiative. Specifically, these firms allegedly leveraged their shareholder positions in competing coal companies to coordinate a reduction in coal output, shared competitively sensitive information and engaged in conduct that allegedly raised coal prices and increased consumer energy costs.
The FTC and DOJ argue that institutional investors, including asset managers, may be held liable under the Clayton Antitrust Act for using their stock holdings in multiple competitors to further anticompetitive ends, including if that influence is rooted in social concerns. BlackRock released a statement the same day, stating that “this case is trying to re-write antitrust law and is based on an absurd theory that coal companies conspired with their shareholders to reduce coal production.”
SEC Commissioner Peirce criticizes crypto exchange traded funds (“ETFs”) approval process and calls for patience with new approvals. On May 5, Commissioner Hester Peirce discussed the approval process for crypto-related exchange-traded products. She described the SEC’s decade-long approval process for spot-Bitcoin exchange traded products (“ETPs”), which the SEC first approved in January 2024, as “terribly mismanaged.” In response to a question of whether similar bulk approvals could be expected for other crypto ETFs and ETPs, she described the circumstances leading up to those approvals as “unique.” However, she likewise indicated that she did not want to encourage a staggered “first-in first-out” application and approval process, anticipating that this could lead to “really terrible filings.” She previously criticized the SEC’s “unreasonable approach to these applications,” noting that the approach “has signaled that regulatory prejudice against new products and services can lead [the SEC] to sidestep the law and unreasonably delay product launches.” Commissioner Peirce emphasized that filers should be patient while the SEC processes applications, noting that ongoing litigation could also delay the review process.
Departure of Director of Investment Management. On June 10, the SEC announced that Natasha Vij Greiner, Director of the SEC’s Division of Investment Management since March 8, 2024, would depart the agency on July 4, after serving over 23 years in several key SEC divisions, including Enforcement, Examinations, and Trading and Markets. Brian T. Daly assumed the role of Director as of July 8. Daly was most recently a partner at Akin Gump Strauss Hauer & Feld LLP, where he advised investment managers on their compliance programs and fund formation. This transition signals a shift from long-tenured internal SEC leadership of the Division of Investment Management to a director from the private sector with no prior experience as a member of the SEC staff.