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Amy Jane Longo Shares Insight Into Proposed SEC Outsourcing Rule

Practices: Litigation, Government Enforcement / White Collar Crime

The Securities and Exchange Commission recently proposed a rule that would require fund companies and other advisors to complete due diligence and consistently monitor service providers that handle functions that are “necessary” for them to provide advisory services and, if performed improperly, would “result in material negative impact to clients.”

Litigation & enforcement partner Amy Jane Longo told Ignites that, “[T]here appears to be significant room for interpretation around what functions are ‘necessary’ to the provision of advisory services or could have a ‘material’ negative impact if performed negligently or not performed at all.”

The proposal lays out what criteria advisors must assess to determine if a service provider would be covered by the rule. “Likely, the hope is that by utilizing a flexible standard based around core advisory functions, the rule could adapt to cover new kinds of service providers in the future,” she said. “However, without setting forth specific categories of providers, the proposed rule would introduce significant uncertainty around what activities are within scope.”

“And it's possible that a service provider may provide covered services for one advisor but not another,” Amy noted.” For example, a small advisor may use a data analytics provider for extensive research that triggers the rule, but similar research from the same provider for a large advisor would not.”

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