Executive Summary

In October 2022, the U.S. Securities and Exchange Commission published a proposed rule that, if adopted as proposed, will have significant impacts for registered investment advisers who engage in outsourcing.

The proposal would require registered investment advisers that want to outsource to:

conduct due diligence prior to engaging a service provider to perform certain services or functions; and

periodically monitor the performance and reassess the retention of the service provider in accordance with due diligence requirements to reasonably determine that it is appropriate to continue to outsource those services or functions to that service provider.

If you would like to read more about the requirements under this proposal, you can access our November 21, 2022 summary of the proposal.

Please contact James Delaney with any questions regarding this proposal.

Practical Implications

If these changes are adopted as proposed, registered investment advisers will have 10 months to:

identify all of its covered functions (i.e., functions necessary for the adviser to perform its investment advisory services and which, if performed negligently, would be reasonably likely to a cause material negative impact on clients or on the adviser's ability to provide advisory services); and
identify the relevant service providers;
perform the required due diligence; and
amend any service provider contracts that do not contain the types of monitoring and recordkeeping provisions required to comply with the rule.

Timeline

AIMA has categorized this proposal as Medium Priority/Medium Impact and it is therefore represented in mid-dark blue in the AIMA Regulatory Horizon Scan gantt chart.

Key Dates
Estimated Compliance Date	No estimate	New
Estimated Effective Date	No estimate	New
Estimated Publication Date	No estimate	New
Further joint trades comment letter filed	July 9, 2024
Joint trades statutory authority letter	May 3, 2024
Comment deadline	December 27, 2022
AIMA response to proposal filed	December 19, 2022
AIMA summary for members published	November 21, 2022
Joint trades request for extension submitted	November 16, 2022
Proposal published by SEC	October 26, 2022

Future AIMA Work

We will be preparing a summary of the final requirements and holding a webinar to walk through what the new rules will require within 4 weeks of the SEC's publication of the final rules. Watch this space for details.