A new day at the SEC: What asset managers need to know about the Spring 2025 Regulatory Flexibility Agenda

The Securities and Exchange Commission (SEC) Spring 2025 Regulatory Flexibility Agenda (Spring 2025 Reg Flex Agenda) was announced on September 4, 2025, with particular emphasis on crypto and market efficiency as anticipated. As Chairman Paul Atkins declared, “It is a new day” at the SEC—a renewed commitment to its core mission of investor protection, fair and efficient markets, and capital formation.¹ This mandate is evident throughout the Spring 2025 Reg Flex Agenda, which includes initiatives to modernize custody rules, refine anti-money laundering (AML) requirements and dealer registration exemptions, streamline disclosure obligations, and ease compliance burdens through updates to the “small entity” definition and other targeted reforms. This alert highlights key considerations for asset managers navigating this evolving landscape. It also draws on the President’s Working Group Report (PWG Report) for additional insights.

Custody Rule Modernization

According to the Spring 2025 Reg Flex Agenda, “[t]he Division is considering recommending that the [SEC] propose amendments to existing rules and/or propose new rules under the Investment Advisers Act of 1940 and the Investment Company Act of 1940 to improve and modernize the regulations around the custody of advisory client and fund assets, including to address in each case crypto assets.”² Although this proposal has not yet been issued for public comment and review, this description of the proposal as well as certain insights that can be gleaned from the PWG Report suggest the proposal will be a significant departure from the “Safeguarding Rule”³ proposal issued under the prior administration, which would have made significant amendments to Rule 206(4)-2 (Custody Rule) under the Investment Advisers Act of 1940, as amended (Advisers Act), and was met with notable industry pushback in various respects and withdrawn by the current administration.⁴

The PWG Report provides further insight into the potential nature of the changes to the custody rules this administration intends to propose, as it advises the SEC to clarify the custody of digital assets that qualify as securities for registered investment companies and registered investment advisers by updating the regulatory framework under Section 17(f) of the Investment Company Act of 1940, as amended (Investment Company Act) and the Custody Rule.⁵ The PWG Report also recommends that the SEC evaluate whether certain state-chartered trusts should be recognized as “qualified custodians” under Rule 206(4)-2(a)(6) of the Advisers Act or meet the definition of a “bank” under the Investment Company Act.⁶ According to the PWG Report, “trading platforms should be permitted to custody customer digital assets with appropriate controls.”⁷ Such safeguards may include “ . . . asset segregation, disclosures, principles-based cybersecurity standards, bankruptcy remoteness, separation of legal entities, separation from margin and rehypothecation entity, capital requirements, liquidity and redemption requirements, and regulatory supervision.”⁸ While these recommendations are primarily aimed at addressing the custody of digital assets, they may have broader implications for custody practices across asset classes.

In addition to the changes related to digital assets, the SEC may be asked by industry participants to consider various other changes to the Custody Rule. For example, the SEC may be asked to use this rulemaking process as an opportunity to (i) address aspects of the Custody Rule that some believe are “. . . ill-fitting, overly complex, and unduly burdensome . . . ” or (ii) provide clarification for the treatment of alternative assets.⁹

Customer Identification Program Rule

In July, the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) announced its intention to delay the effective date for certain investment advisers to implement anti-money laundering/countering the financing of terrorism (AML/CFT) compliance programs and comply with suspicious activity reporting requirements until January 1, 2028.¹⁰ At the same time, FinCEN also announced its intention to revisit the scope of the impending AML/CFT requirements and certain other proposed requirements through future rulemaking.¹¹ As part of this review, FinCEN indicated it would coordinate with the SEC to revisit the Customer Identification Program (CIP) rule proposal for investment advisers.¹²

A CIP rule for investment advisers is included in the Spring 2025 Reg Flex Agenda with an expected final action date of April 2026.¹³ The CIP rule would require SEC-registered investment advisers and exempt reporting advisers to “implement reasonable procedures to verify the identities of their customers.”¹⁴ Curiously, the rule is listed in final rule stage without explanation. However, Regulatory Flexibility Agendas are generally submitted to the White House Office of Management and Budget months before they are released to the public for review, so it is possible the Spring 2025 Reg Flex Agenda was submitted prior to the announcement of the delay, and that as a result, the anticipated final action and the timing thereof may not hold. As the SEC and FinCEN evaluate the CIP rule for investment advisers, they may consider how obligations can be better tailored and clarified for digital asset intermediaries, as recommended by the PWG Report. The PWG Report also advised the Commodities Trading Futures Commission to “collaborate with FinCEN to provide guidance regarding CIPs utilizing new technologies for eligible intermediaries and other market participants who carry customer accounts holding digital assets on behalf of customers. This collaboration can explore intermediaries’ and other market participants’ reliance on other financial institutions’ identification and verification functions.”¹⁵

Definition of “Dealer”

The Spring 2025 Reg Flex Agenda indicates that “[t]he [SEC’s] Division [of Trading and Markets] is considering recommending that the [SEC] propose amendments regarding the scope of, and exceptions from, the term ‘dealer.’”¹⁶ Amendments could provide exemptive relief for certain decentralized finance service providers from broker-dealer, exchange, and clearing agency registration requirements under the Exchange Act, as recommended by the PWG Report.

Exempt Offerings

According to the Spring 2025 Reg Flex Agenda, “[t]he [SEC’s] Division [of Corporate Finance] is considering recommending that the [SEC] propose rule amendments to facilitate capital formation and simplify the pathways for raising capital for, and investor access to, private businesses.”¹⁷ Changes could include updates to Regulation D, Regulation A, Regulation S, and Regulation Crowdfunding.¹⁸

Amendments to the Small Entity Definition

The Spring 2025 Reg Flex Agenda indicates that “. . . the [SEC’s] Division of Investment Management is considering recommending that the [SEC] propose amendments to rule 0-7 under the . . . Advisers Act . . . and rule 0-10 under the Investment Company Act . . . to increase the asset-based thresholds used in the definitions of ‘small business’ and ‘small organization’ for purposes of the Regulatory Flexibility Act along with corresponding amendments to Form ADV.”¹⁹

Conclusion

Although it is evident from the Spring 2025 Reg Flex Agenda that the current leadership of the SEC intends to pursue an agenda and a set of priorities much different from those of the prior administration, it is worth noting that this agenda is not necessarily binding in terms of the nature, scope, or timing of anticipated regulatory actions by the SEC. Nevertheless, the Spring 2025 Reg Flex Agenda can be viewed as a document reflecting the current administration’s overarching intent to recalibrate the regulatory framework to address emerging risks while remaining technology neutral and promoting market efficiency. Although many agenda items are focused on crypto-related issues, asset managers may wish to take note of potentially broader implications. Key developments include proposed changes to the rules governing custody and customer identification requirements. Depending on a firm’s business model, asset managers may also be impacted by potential amendments to the small entity definition, the scope of and exceptions from the term dealer, and the exempt offering regulatory framework.

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