Enforcement

Custody Rule and Compliance Failures Draw SEC Charges

Summary: The SEC charged a registered investment adviser for violations of the Custody Rule and broader compliance program failures. The order found that the adviser had custody of client assets but failed to obtain required annual surprise examinations by an independent public accountant over multiple years. The SEC also cited deficiencies in the adviser’s compliance policies and procedures, which were not reasonably designed to prevent violations of the Advisers Act.

Why it matters: Custody remains a core SEC exam and enforcement priority. The action reinforces that advisers must strictly comply with surprise examination requirements and maintain robust, well-documented compliance programs, particularly where custody arises through complex structures or operational practices.

Potential action: Reassess custody determinations across all client accounts and fund structures, including indirect custody scenarios. Confirm that required surprise examinations are conducted where applicable and that compliance policies and procedures are appropriately designed, implemented, and documented.

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SEC Obtains Final Judgment Against Adviser to Private Venture Capital Funds

Summary: The SEC obtained a final consent judgment against an investment adviser to five private venture capital funds. According to the SEC, the adviser was previously charged with defrauding the funds and their investors by causing undisclosed and excessive incubator fees to be charged to portfolio companies, in breach of fiduciary duties owed to clients. The final judgment permanently enjoins future violations of certain anti-fraud provisions of the Advisers Act and imposes a civil penalty.

Why it matters: This action reinforces the SEC’s continued focus on undisclosed fees, conflicts of interest, and fiduciary duty breaches in the private fund context. For private fund advisers, it is another reminder that compensation arrangements and affiliated-party economics must be fully disclosed and handled consistently with governing documents and investor expectations.

Potential action: Review all fees, expenses, and affiliated-party compensation arrangements tied to portfolio companies and fund structures. Confirm that disclosures are complete, consistent across offering and governance documents, and supported by controls designed to identify and escalate conflicts of interest.

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What Regulators are Saying

SEC Focuses on Private Markets and Potential Disclosure Changes

Summary: In remarks at SEC Speaks 2026, Commissioner Uyeda emphasized that the SEC should focus on facilitating capital formation and preserving investor choice, rather than limiting access to investment opportunities. He highlighted ongoing work to modernize the shelf registration process, review Regulation S-K disclosure requirements, consider allowing semi-annual rather than quarterly reporting, and revisit the thresholds for Emerging Growth Companies and Smaller Reporting Companies. He also signaled continued interest in expanding retail investor exposure to private markets, including through defined contribution plans and closed-end funds.

Why it matters: The speech offers a clear window into the current Commission’s policy direction. For investment managers and market participants, it suggests potential movement toward reduced disclosure burdens for public companies, renewed efforts to widen access to private markets, and a broader regulatory philosophy favoring investor choice and capital formation.

Potential action: Monitor for rule proposals or staff actions involving shelf registration, Regulation S-K, reporting frequency, and private market access. Firms with products tied to private assets or retirement channels should also watch for further SEC and Department of Labor coordination that could affect product structure, disclosures, and distribution strategy.

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CFTC Launches Innovation Task Force Focused on Emerging Market Technologies

Summary: The CFTC announced the formation of an Innovation Task Force dedicated to developing clearer regulatory frameworks for emerging technologies and products in U.S. derivatives markets. The task force will focus on crypto assets and blockchain technologies, artificial intelligence and autonomous systems, and prediction markets and event contracts, and will coordinate with other federal agencies, including the SEC, on related initiatives.

Why it matters: This signals a more formal CFTC effort to shape regulatory expectations around fast-evolving areas of market innovation. For firms operating in or adjacent to derivatives, digital assets, AI-driven systems, or event-based products, the announcement suggests continued regulatory attention and a potential push toward more defined oversight standards.

Potential action: Firms with exposure to digital assets, AI-enabled trading or surveillance tools, or prediction-market-related activity should monitor further guidance from the CFTC and assess whether current governance, disclosures, and compliance frameworks are prepared for more tailored regulatory expectations.

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In the News

Private Credit Faces Liquidity Stress Test as Redemption Pressures Build

Summary: Reuters reports that private credit markets are facing increasing stress as semi-liquid funds encounter rising redemption requests. Many of these vehicles offer periodic liquidity (often capped at ~5% per quarter) while holding inherently illiquid loan portfolios, creating pressure when investor withdrawals exceed available liquidity. Funds are responding by limiting redemptions, relying on cash buffers, or considering additional leverage to meet demand.

Why it matters: The mismatch between investor liquidity expectations and the underlying illiquid nature of private credit assets is becoming more visible as market conditions tighten. This dynamic is drawing attention from regulators and market participants, particularly as private credit continues to scale and expand into retail and semi-liquid structures.

Potential action: Reassess liquidity management frameworks and redemption terms to ensure alignment with underlying assets; conduct stress testing under elevated redemption scenarios; enhance disclosures to clearly communicate liquidity constraints and risks to investors.

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Events

SEC Announces Roundtable on Options Market Structure Reform

Summary: On March 5, 2026, the SEC announced that it will host a public roundtable on April 16, 2026, to discuss listed options market structure. The discussion will focus on competition in a quote-driven market, the customer experience, and opportunities and challenges tied to the market’s continued growth. The roundtable will be held at SEC headquarters, streamed live on SEC.gov, and will also accept public comments under File No. 4-887.

Why it matters: The announcement reflects continued SEC attention to the rapid growth of the U.S.-listed options market, particularly among retail investors. For market participants, the roundtable may offer insight into how the SEC is thinking about competition, investor experience, and potential future market structure reforms in the listed options space.

Potential action: Broker-dealers, exchanges, market makers, and other firms active in the options market should consider monitoring the roundtable and any related agenda materials, speaker announcements, or comment submissions. Firms with a stake in listed options market structure may also want to evaluate whether submitting comments would be appropriate.

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