Idaho Joins the De-Banking Ban Wave
Starting July 1, 2025, Idaho will subject financial institutions with total assets over a certain threshold to new restrictions under the Transparency in Financial Services Act. The law follows a growing trend among states seeking to ensure fair access to banking and prevent financial denials based on political, religious, or ideological factors — often known as “de-banking.” Idaho’s statute has much in common with laws passed in Tennessee and Florida (which we covered here) over the past two years.
Covered Institutions and Activities
Like Tennessee (but unlike Florida), Idaho’s statute is crafted to target only larger institutions. Covered financial institutions include:
Banks with over $100 billion in total assets; and
Payment processors, credit card networks, or other payment service providers that processed over $100 billion in transactions in the previous year.
Idaho’s law extends beyond Idaho-chartered institutions, as national banks are specifically covered.
The law applies to any decision involving financial services, which is defined in general terms as “any financial product or service.” This presumably includes the full spectrum of lending, deposits, payments, and other activities offered by the covered institutions.
Prohibited Discrimination Based on “Social Credit Scores”
At the heart of the statute is a prohibition on financial institutions using “social credit scores” to deny or restrict “financial services.” The law defines “social credit scores” broadly, and it includes any analysis or rating that penalizes:
Religious beliefs or practices;
Political expression or associations;
Failure to conduct diversity, equity, or gender-based audits;
Refusal to assist employees in obtaining abortions or gender reassignment services; and/or
Lawful business activities in the fossil fuel or firearms sectors.
The statute allows institutions to apply financial risk-based standards to firearms and fossil fuel businesses, but only if the standards are impartial, quantifiable, and disclosed to customers.
New Explanation Requirement
If a financial institution denies or restricts services, an Idaho customer can request a written explanation. The institution must respond within 14 days and provide:
A detailed basis for the decision;
A copy of the applicable terms of service; and
Specific contract provisions that justify the denial.
Enforcement and Private Rights of Action
Violations of the Transparency in Financial Services Act are treated as violations of Idaho’s Consumer Protection Act. The state attorney general may investigate violations and initiate enforcement actions. But the statute also creates a private right of action: Individuals harmed by violations can sue directly and seek remedies under Idaho’s consumer protection framework.
Preparing for Compliance
Financial institutions covered by the law should begin preparing in advance of the July 1, 2025, effective date. Key steps include:
Evaluating whether service denial or risk assessment practices may encompass any of the prohibited “social credit” criteria.
Familiarizing compliance teams with the law’s requirements to ensure they understand the distinctions between legal risk management and impermissible discrimination.
Assigning personnel to process and respond to customer requests for explanation in a timely fashion.
A National Trend to Watch
Idaho is now the third state to pass a fair access to banking law, and it may not be the last. Financial institutions should give careful thought to their policies and models insofar as they touch on the hot-button activities and issues that animate the de-banking debate.
HM Treasury and FCA Proposals to Reform Regulation of UK AIFMs
On 7 April 2025, HM Treasury (HMT) published a consultation (Consultation) on the reform of the UK regulatory regime for alternative investment funds (AIFs) and their managers, alternative investment fund managers (AIFMs[CM1] ), and the Financial Conduct Authority (FCA) simultaneously published a call for input (Call for Input) on how to create a more proportionate, streamlined and simplified regime (the Call for Input and the Consultation together, the Proposals). The Proposals follow the UK’s implementation of the EU Alternative Investment Fund Managers Directive (UK AIFMD) in 2013 and the UK’s withdrawal from the European Union (Brexit) in 2020.
The Proposals aim to simplify the regulations relating to AIFMs and streamline the existing framework with the intention to make the UK more “attractive” for investment and to encourage growth within the UK economy.
The Current AIFM Regime
The current AIFM regime derives principally from the EU Alternative Investment Managers Directive (EU AIFMD). The application of this regime and the accompanying rules depend on whether an AIFM’s assets under management (AUM) exceed certain thresholds.
In the Consultation, HMT explains that these thresholds have not been updated or reviewed since the introduction of the EU AIFMD in 2013. HMT also describes the current regime creating a “cliff edge effect” where sudden market movements or changes in AUM valuations have inadvertently brought smaller AIFMs within the full scope of the AIFM regime, subjecting such firms to sudden and substantial compliance burdens which it believes has the potential to discourage growth.
HMT Consultation
As a result of the “cliff edge effect”, the Consultation proposes to remove the thresholds and allow the FCA to determine proportionate and tailored rules.
Additionally, HMT proposes two “sub-threshold” categories of “small registered AIFM” that are yet to be authorised:
unauthorised property collective investment schemes; and
internally managed investment companies.
In particular, the Consultation discusses the following key items:
relocating definitions of “managing an AIF”, “AIF”, and “Collective Investment Undertaking” to the Regulated Activities Order, with no change to the regulatory scope;
confirming that there are no plans to amend the UK National Private Placement Regime;
potentially removing the FCA notification requirements when certain AIFMs acquire control of unlisted companies;
prudential rules for AIFMs;
at this stage, there are no proposals to change the rules applying to depositaries, but the FCA is calling for further evidence on whether any changes could be warranted;
reviewing the requirement for appointing external valuers; and
regulatory reporting under AIFMD.
Call for Input
Three New AIFM Thresholds
In the Call for Input, the FCA proposes new categorisations for AIFMs relating to their AIFs’ aggregate net asset value (NAV) (rather than the AUM) of their funds. This metric should be friendlier for managers on the basis that the NAV takes also into consideration the firm’s liabilities and is closer to the “actual value” of the firm, instead of purely considering the value of all assets of the firm.
The Call for Input proposes three divisions and the ability to opt-up to a higher category:
1. Small firms (NAV of £100m or less)
This category of firms would be subject to essential requirements to ensure consumer protection and will “reflect a minimum standard appropriate to a firm entrusted with managing a fund.”
2. Mid-sized firms (NAV more than £100m but less than £5bn)
This category of firms would have a comprehensive regulatory regime that is consistent with the rules that apply to the largest firms, but with fewer procedural requirements. This should, it is hoped, result in the regime for mid-sized firms being more flexible and less onerous than for the largest firms.
3. The largest firms (NAV of £5bn or more)
This category of firms would be subject to rules that are similar to the current full scope UK AIFM regime but tailoring the rules to specific types of activities and strategies. The FCA also intends to simplify AIFMs’ disclosure and reporting requirements.
Other Key Points
Additionally, the Call for Input also considers the following points:
new rule structure for UK AIFMs managing unauthorised AIFs; and
tailoring the rules to UK AIFMs based on the activities they undertake – for example, differentiating between venture capital firms, private equity firms, hedge funds and investment trusts – and their category.
What This Could Mean for UK Asset Management
Driving economic growth is a fundamental point of the current Labour government’s agenda and can be seen through the Proposals. This is also one of, if not the, first time that the UK government and HMT have taken advantage of and embraced Brexit to deviate from the retained EU regulations in an effort to strengthen London as a finance hub.
While the rules relating to Undertakings for the Collective Investment in Transferable Securities (i.e., EU and UK mutual funds, known as UCITS) are unaffected by the Proposals, the Proposals suggest a significant rethink of the UK asset management framework. The Proposals could reduce the regulatory burden on many UK AIFMs, which should be a great benefit to the UK asset management industry post-Brexit. The Proposals therefore focus on emerging and smaller AIFMs in a bid to provide an environment where such firms can continue to grow, without restrictive administrative and regulatory burden.
We expect that this regulatory shift will be welcomed by the market as it has been a complaint for a long time that the current UK AIFMD regime has had too broad of an approach to apply to differing business models.
The Call for Input and the Consultation close on 9 June 2025. The FCA intends to consult on detailed rules in the first half of 2026, subject to feedback and to decisions by HMT on the future regime, while HMT intends to publish a draft statutory instrument for feedback, depending on the outcome of the Consultation.
The Call for Input and the Consultation are available here and here, respectively.
Leander Rodricks, trainee in the Financial Markets and Funds practice, contributed to this advisory.
Ten Minute Interview: Bridging M&A Valuation Gaps with Earnouts and Rollovers [VIDEO]
Brian Lucareli, director of Foley Private Client Services (PCS) and co-chair of the Family Offices group, sits down with Arthur Vorbrodt, senior counsel and member of Foley’s Transactions group, for a 10-minute interview to discuss bridging M&A valuation gaps with earnouts and rollovers. During this session, Arthur explained the pros and cons of utilizing rollover equity, earnout payments, and/or a combination thereof, and discussed how a family office may utilize these contingent consideration mechanics, as tools to bridge M&A transaction valuation gaps with sellers.
The More You Know Can Hurt You: Court Rules Financial Institutions Need ‘Actual Knowledge’ of Mismatches for ACH Scam Liability
On March 26, the US Court of Appeals for the Fourth Circuit issued a decision that has important ramifications for banks and credit unions that process millions of Automated Clearing House (ACH) and Electronic Funds Transfer (EFT) transactions daily, some of which are fraudulent or “phishing scams.” In Studco Buildings Systems US, LLC v. 1st Advantage Federal Credit Union, No. 23-1148, 2025 WL 907858 (4th Cir. amended Apr. 2, 2025), the Fourth Circuit held that financial institutions typically have no duty to investigate name and account number mismatches — commonly referred to as “misdescription of beneficiary.” Instead, they can rely strictly on the account number identified before disbursing the funds received. The financial institution will only face potential liability for the fraudulent transfer if it has “actual knowledge” that the name and the account number do not match the account into which funds are to be deposited.
A Phishing Scam Results in Misdirected Electronic Transfers
A metal fabricator (Studco) was the victim of a phishing scam in which hackers penetrated its email systems. Once inside, the scammers impersonated Studco’s metal supplier (Olympic Steel, Inc.) and sent an email with new ACH/EFT payment instructions purporting to be those of Olympic Steel. The instructions designated Olympic’s “new account” at 1st Advantage Credit Union for all future invoice payments. The new account number, however, had no association with Olympic and was controlled by scammers in Africa.
Studco failed to recognize certain red flags in the payment instructions and sent four payments totaling over $550,000. Studco sued 1st Advantage for reimbursement, alleging the credit union negligently “fail[ed] to discover that the scammers had misdescribed the account into which the ACH funds were to be deposited.” Studco claimed that 1st Advantage was liable under Virginia’s version of UCC § 4A-207 because it completed the transfer of funds to “an account for which the name did not match the account number.” Following a bench trial, the district court entered judgment in Studco’s favor for $558,868.71, plus attorneys’ fees and costs. It found that 1st Advantage “failed to act ‘in a commercially reasonable manner or exercise ordinary care'” in posting the transfers to the account in question.
UCC § 4A-207 and Financial Institution Duties and Liability
1st Advantage appealed, and the Fourth Circuit reversed. The Court began by noting that Studco itself failed to spot warning signs in the imposter’s emails: the domain did not match Olympic’s email domain; the new account was at a credit union in Virginia, not Ohio (where Olympic was based); and there were multiple grammatical and “non-sensical” errors contained in the imposter’s instructions.
The Court then turned to 1st Advantage and whether it had a duty to act on any mismatch between the name on the payment instructions (Olympic) and the account number (a credit union customer with no obvious association to Olympic). It first noted the absence of actual knowledge by the credit union. 1st Advantage used a system known as DataSafe that monitored ACH transfers. The Court observed that the “DataSafe system generated hundreds to thousands of warnings related to mismatched names on a daily basis, but the system did not notify anyone when a warning was generated, nor did 1st Advantage review the reports as a matter of course.” The Court further noted that the DataSafe system generated a “warning of the mismatch: ‘Tape name does not contain file last name TAYLOR'” which was the name of the credit union’s account holder, not Olympic.
The Court then assessed Virginia’s version of § 4A-207(b)(1), Va. Code Ann. § 8.4A-207(b)(1), which says in relevant part: “‘If a payment order received by the beneficiary’s bank identifies the beneficiary both by name and by an identifying or bank account number and the name and number identify different persons’ and if ‘the beneficiary’s bank does not know that the name and number refer to different persons,’ the beneficiary’s bank ‘may rely on the number as the proper identification of the beneficiary of the order.'” The Court further noted that the provision states that “[t]he beneficiary’s bank need not determine whether the name and number refer to the same person.” Based upon this, the Court concluded that it “protects the beneficiary’s bank from any liability when it deposits funds into the account for which a number was provided in the payment order, even if the name does not match, so long as it “does not know that the name and number refer to different persons.” [Emphasis added.] Studco argued that constructive knowledge was sufficient or could be imputed to 1st Advantage. The Court disagreed, concluding that “knowledge means actual knowledge, not imputed knowledge or constructive knowledge” and that a “beneficiary’s bank has ‘no duty to determine whether there is a conflict’ between the account number and the name of the beneficiary, and the bank ‘may rely on the number as the proper identification of the beneficiary.'”
In the concurring opinion, however, one judge disagreed that there was no evidence of actual knowledge because 1st Advantage may have received actual knowledge of the misdescription when an investigation of a Federal Office of Foreign Asset Control (OFAC) alert led to a review of the transfers at issue. Because the first two (of four) overseas transfers from the infiltrated 1st Advantage account triggered an OFAC alert, 1st Advantage opened an ongoing investigation into the wires, including a review of the member’s account history. Thus, the concurrence noted that a “factfinder could infer that [the officer’s] investigation led to a [credit union] employee obtaining actual knowledge of a misdescription between account name and number prior to Studco’s two November deposits.”
Lessons Learned Post-Studco
In the age of ubiquitous cyber and other sophisticated scams running throughout the US financial system, the financial services industry surely welcomes this Fourth Circuit decision. The trial court in Studco ruled that 1st Advantage was liable for scam-related ACH transfers in excess of a half-million dollars because 1st Advantage’s core system had triggered a warning regarding the name and account discrepancy, which 1st Advantage did not review or investigate. The fact that 1st Advantage did not undertake to review warnings from its core system appears to have saved 1st Advantage as the Court concluded that “actual knowledge” of the discrepancy was a prerequisite to liability. There was no proof of actual knowledge in this case.
On April 9, 2025, Studco petitioned the Fourth Circuit for rehearing, and alternatively, rehearing en banc with the full court. Studco argues that the panel erred in holding that there was no actual knowledge, pointing out that “1st Advantage opened the scammer’s account and reviewed the account at least 33 times over an approximate 40-day period – each time related to the scammers conducting a suspicious transaction.” Studco argues that a full en banc hearing should be permitted because the application of “UCC Article 4A-207 presents a question of exceptional importance.”
In the end, Studco stands as a warning to banks and credit unions alike that the more they know about the name mismatch issue for any particular transaction, the more liability they may take on. Banks and credit unions should consult their bank counsel to discuss their ACH and EFT review processes and ensure that their processes do not tip into “actual knowledge” and potential liability for transfers rooted in fraud.
Mergers and Acquisitions in Australia in 2025
A Recap: Expectations for 2025 Versus Reality to Date
2025 began with optimism that mergers and acquisitions (M&A) activity would continue to increase this year. In Australia and globally, 2024 saw the value of M&A activity increase on the prior year, with many surveys recording cautious optimism for increased deal flow in the year ahead across sectors and regions.
The key drivers of the expected upturn in M&A were the following:
Record levels of dry powder in private capital and private equity (PE) hands.
An expectation of further interest rate reductions.
The benefits of reduced regulation—cutting red tape was a mainstay of the policy promises of many of the political parties elected in 2024’s election cycles around the globe.
Greater political certainty following the unusually high number of elections globally in 2024.
Hot sectors, including technology, especially digital transformation, and artificial intelligence starting to deliver (or not) on its transformative promise, energy transition and financial services.
However, Q1 did not deliver on these early promises in the manner expected. In the United States, the expectations of greater certainty that dealmakers looked forward to because of single-party control of the White House and both houses of Congress was tempered by a lack of clarity on implementation.
Whilst directionally it remained clear through Q1 that significantly higher tariffs will be imposed by the United States on imports from many countries in addition to China, the extent remained unpredictable and the real motivations for introducing them uncertain. Similarly, whilst the new administration’s efforts to remove red tape were eagerly anticipated by many, the pace and extent of executive orders has surprised and is leading to widespread challenge, again undermining certainty.
Citing productivity and wage growth concerns, the Reserve Bank of Australia indicated at the end of March that further target rate cuts were unlikely in the near term.
Then the US “Liberation Day” tariffs were announced on 2 April, and the hopes of a more stable economic and political environment for M&A in 2025 were confounded. The sharp declines in global market indices immediately following their announcement is testament to the significant underestimation of the scope and size of the tariffs initially announced. Pauses on implementation, retaliatory and further tariffs, as well as bi-lateral tariff reduction negotiations, are set to continue to bring surprises for some time. Market sentiment will continue to decline as recessionary fears abound.
Meanwhile, Australia is gearing up for its own federal elections in May 2025, and economists currently predict that interest rate cuts of around one percentage point (in aggregate) are likely over the next 12 months, with the first cut predicted in May.
So, what for M&A in the balance of 2025?
Predictions
Trade Instability
In terms of the political forces shaping Australian M&A, Australia’s federal elections have already been trumped by US tariff announcements.1 We are at the start of the biggest reworking of international trade relations in over a century. With only 5% of our goods exports going to the United States, and (so far) the lowest levels of reciprocal US tariffs applied to Australia, the direct impacts to Australia’s economy are likely to be far outweighed by the indirect effects of the tariffs applied to China and other trading partners. Capital flows, including direct investment, must shift in anticipation of and in response to these changes, but forecasting the impacts on different sectors and businesses (and their effect on valuations) will remain complex for some time, weighing heavily on M&A activity until winners and losers start to emerge.
Foreign Investment
With a weak dollar and a stable political and regulatory environment, Australia will continue to be an attractive destination for inbound investment, not least in the energy transition, technology and resources sectors. Rising defence expenditure around the globe, and AUKUS, remain tailwinds for Australian defence sector investment. We expect further increases in Japanese inbound investment driven by their own domestic pressures. However, a report prepared by KPMG and the University of Sydney2 pours cold water on a further strengthening of interest from Chinese investors, despite the 43% year-on-year increase in 2024, citing Foreign Investment Review Board (FIRB) restrictions on critical minerals and, more generally, a move toward greater investment in Southeast Asia and Belt and Road Initiative countries.
FIRB
Last year, FIRB made welcome headway in shortening its response times for straightforward decisions. The recent updates to FIRB’s tax guidance and the new submissions portal are likely to require front-loading of the provision of tax information by applicants, which should further support a shortening of average approval times. These changes are welcome, as is the introduction of a refund/credit scheme for filing fees in an unsuccessful competitive bid. Whilst these changes will not affect the volume of M&A, they may well facilitate an increase in the speed of execution of auction processes.
Regulatory Changes
Whilst we do not expect the outcome of federal elections to be a key driver of M&A activity in 2025 overall, the slowing of FIRB approvals during caretaker mode and the potential backlog post-election will lead some inbound deal timetables to lengthen in the short term, especially if there is a change in government. In Q2, we expect Australia’s move to a mandatory and suspensory merger clearance regime will have the opposite effect. Even as full details of the new merger regime continue to be revealed, we expect some activity will be brought forward to avoid falling under the new regime at the start of 2026.
Larger Deals
Although surveys report an increase in total transaction value in 2024, they also show there were fewer transactions overall. After the rush of transaction activity in 2021 and 2022, and the proximity to the end of post-pandemic stimulus, it is perhaps too easy to characterise the current environment as one of caution. However, market perception is still that deals are taking longer to execute, with early engagement turning frequently into protracted courtship and translating into longer and more thorough due diligence processes. This favours a concentration on deals with larger cheque sizes, a trend mirrored in Australian venture capital (VC) investing in 2024 and which we see set to continue in 2025.
PE
Globally, PE deal volumes surged in 2024, with Mergermarket reporting PE acquisitions and exits exceeding US$25.3 billion and US$18.9 billion, respectively. There remains an avalanche of committed capital to deploy and a maturity wall of capital tied up in older funds to return. It is these fundamentals that are expected to drive sponsor deal activity, in spite of the ongoing global sell-off in equities. PitchBook’s Q1 results for Oceania PE bear this out. Corporates looking to refocus away from noncore operations or requiring cashflow will continue to find healthy competition for carve outs among PE buyers, and an increase on the relatively low value of PE take-privates in Australia in 2024 is predicted. Family-owned companies with succession issues are also expected to provide opportunities for PE buyers. Nevertheless, we expect more secondary transactions, including continuation funds, will be required to grease the cogs in these circumstances.
VC Exits
The rising prevalence of partial exits via secondary sales is shown neatly in the State of Australian Startup Funding 2024 report.3 Whilst those surveyed still rate a trade sale as their most likely exit, secondaries were next and IPOs were considered the least likely. The report notes 59% of surveyed Series B or later founders said they had sold shares to secondary buyers, and 23% of investors said they sold secondaries in 2024. Following the success of secondaries like that of Canva and Employment Hero, secondaries will continue to provide much-needed liquidity to founders and fund investors alike. There is also a recognition of the value of such transactions in advance of an IPO, because they bring in new investors who may be expected to stay invested longer post-float. With valuations settling following their retreat from pandemic highs, PE acquisitions of Australian venture-backed companies rose in 2024 especially from overseas buyers. With the launch of more local growth funds targeting these assets, we expect that trend to increase.
Footnotes
1. President Trump Announces “Reciprocal” Tariffs Beginning 5 April 2025 | HUB | K&L Gates2. Chinese investment in Australia shifts from acquisitions to greenfield – KPMG Australia3. State of Australian Startup Funding 2024 | Insights
Brussels Regulatory Brief: March 2025
Antitrust and Competition
European Commission Launches Evaluation of the Geo-Blocking Regulation
On 11 February 2025, the European Commission launched a call for evidence to seek stakeholders’ views on the Geo-Blocking Regulation (EU) 2018/302 to assess its effectiveness. The Geo-Blocking Regulation prohibits geography-based restrictions that limit online shopping and cross-border sales within the European Union.
Financial Affairs
Commission Proposes to Amend CSDR and Shorten Settlement Cycle, ESMA Consults on Technical Amendments to Settlement Standards
The Commission is proposing to shorten the settlement cycle under the Central Securities Depository Regulation (CSDR) while the European Securities and Market Authority (ESMA) is consulting on technical amendments to standards in relation to settlement discipline.
Omnibus Simplification Package: Parliament and Council Start Internal Discussions
Member States and Members of the European Parliament (MEPs) started examining the simplification proposal put forward by the European Commission (Commission), outlining next steps and indicative timeline for its adoption.
Other
European Commission Proposes Simplification CBAM Ahead of Full Entry into Force
The European Commission has proposed a series of measures to simplify the implementation of the EU Carbon Border Adjustment Mechanism (CBAM), which is set to take full effect in January 2026.
ANTITRUST AND COMPETITION
European Commission Launches Evaluation of the Geo-Blocking Regulation
On 11 February 2025, the European Commission (Commission) launched a call for evidence on the Geo-Blocking Regulation (EU) 2018/302 (Geo-Blocking Regulation) aimed at evaluating its effectiveness. Geo-blocking refers to the practice used by online sellers to restrict online cross-border sales based on nationality, residence, or place of establishment. This type of conduct can be implemented in different forms, such as blocking access to websites, redirecting users to country-specific sites, or applying different prices and conditions based on the user’s location.
The Geo-Blocking Regulation, which entered into force on 3 December 2018, lays down provisions that aim at preventing these practices. It implements the “shop-like-a-local” principle, under which customers from other Member States should be able to purchase under the same conditions as those applied to domestic customers. Thus, the Geo-Blocking Regulation aims at eliminating unjustified geo-blocking and other forms of discrimination based on nationality, place of residence, or establishment within the European Union (EU).
The call for evidence seeks feedback from stakeholders, including consumers, businesses, and national authorities, to assess whether the Geo-Blocking Regulation has met its objectives and to identify any remaining barriers to cross-border trade or whether further measures are needed to enhance its effectiveness. In particular, the evaluation will cover issues raised by stakeholders, such as territorial supply constraints and cross-border availability of (and access to) copyright-protected content. The call for evidence is based on the review clause set forth in Article 9 of the Geo-Blocking Regulation, which requires the Commission to report on its evaluation to the European Parliament, the Council of the EU, and the European Economic and Social Committee. The scope of the evaluation includes the period running from 3 December 2018 to 31 December 2024 and will cover the entire European Economic Area (EEA) which comprises the EU 27 Member States and Liechtenstein, Iceland, and Norway.
The evaluation should help the Commission to determine whether further measures are needed to address perceived barriers and strengthen cross-border trade in the EU. Therefore, based on the feedback received during the call for evidence, the Commission may consider changes to the current Geo-Blocking Regulation to enhance consumer protection, promote cross-border trade, and foster a more integrated and dynamic EU economy. Stakeholders were invited to provide feedback until 11 March 2025. Subsequently, the Commission will launch a public consultation consisting in the form of a questionnaire.
Geo-blocking is also relevant from a competition law enforcement perspective. In 2021, the Commission imposed a fine on Valve and five video game publishers of €7.8 million for bilaterally agreeing to geo-block video games within certain EEA Member States in breach of Article 101 of the Treaty on the Functioning of the European Union. The Commission found that the agreement between Valve and each publisher inadmissibly partitioned the EEA market. Likewise, in May 2024, the Commission fined one of the world’s largest producers of chocolate and biscuit products €337.5 million for engaging in anticompetitive agreements or concerted practices aimed at restricting cross-border trade of various chocolate, biscuit, and coffee products.
The continued focus on geo-blocking practices confirms the Commission’s strong stance against any perceived restrictions to the detriment of the EU single market.
FINANCIAL AFFAIRS
Commission Proposes to Amend CSDR and Shorten Settlement Cycle, ESMA Consults on Technical Amendments to Settlement Standards
On 12 February, the Commission adopted a proposal to amend the Central Securities Depositories Regulation (CSDR) to shorten the securities settlement cycle from two business days to one.
This initiative builds on the European Securities and Markets Authority (ESMA) report, which assessed the feasibility, impact, and implementation roadmap for the transition to a shorter settlement cycle. The Commission’s proposal amends Article 5 of the CSDR, mandating that transactions in transferable securities be settled no later than the first business day after trading. Following ESMA’s recommendations, the Commission proposes that the new cycle take effect on 11 October 2027. The proposal is now under review by the European Parliament’s Economic and Monetary Affairs Committee (ECON), with Johan Van Overtveldt (European Conservatives and Reformists Group (ECR), Belgium) serving as leading rapporteur, and by Member States at the Council of the EU. Once both institutions agree on their positions, negotiations will take place with the Commission to finalize the legislative text.
In a related development, on 13 February, ESMA launched a public consultation on amendments to the regulatory technical standards on settlement discipline, addressing key operational challenges in settlement efficiency. The amendments propose stricter requirements for timely trade confirmations, automation through standardized electronic messaging formats, and improved reporting mechanisms for settlement failures. ESMA welcomes feedback and comments on the amendments by 14 April 2025.
Omnibus Simplification Package: Parliament and Council Start Internal Discussions
On 10 and 11 March, Members of the European Parliament (MEPs) and Member States representatives at the Council of the EU started internal discussions on the proposed Omnibus simplification package, which aims to (i) postpone the entry into force of the requirements under the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CS3D)—renamed “Omnibus I,” and (ii) simplify sustainability requirements under CSRD, CS3D, the Taxonomy Regulation and specific provisions of the Carbon Border Adjustment Mechanism (CBAM)—renamed “Omnibus II.”
European Parliament
During a plenary session on 10 March, MEPs held an initial exchange of views on the package highlighting the positioning of each party on the proposal. MEPs from the European People’s Party (EPP) strongly support the package and advocate for a swift adoption of the first part of the proposal postponing the application of CS3D and CSRD. For that, on 3 April, MEPs approved a request for urgent procedure introduced by the EPP.
MEPs from Renew Europe Group (Renew) expressed only limited support for the Omnibus II proposal and, while they recognize the need for simplification to foster economic growth, they emphasized the importance of ensuring that the rules remain effective through negotiations. Representatives from the Socialists & Democrats and the Greens largely opposed the proposal, expressing strong concerns about the potential dilution of previously agreed requirements. Other MEPs from the far-right ECR Patriots for Europe and Europe of Sovereign Nations supported the package but called for further deregulation, while representatives from The Left were entirely opposed to the proposal and rejected the Commission’s approach to simplification in this context.
In a related development, on 19 March, the European Parliament Committee on Legal Affairs, the Committee responsible for the Omnibus package, appointed MEP Jörgen Warborn (EPP, Sweden) as lead negotiator for the Omnibus II proposal. Pascal Canfin (France) has been appointed as shadow rapporteur for Renew, while other political groups are expected to shortly communicate shadow rapporteurs involved on the file. Other committees involved (Foreign Affairs; International Trade; ECON; Employment and Social Affairs; and Environment, Climate and Food Safety) are expected to also announce whether they will provide an opinion on the file. The next meeting on this part of the proposal has been set for 23 April 2025.
Council of the EU
On 11 March, Member States in the Economic and Financial Affairs configuration of the Council of the EU also discussed the proposal. All governments showed strong support for the postponement of the rules and welcomed the Commission’s approach in this area. However, not all Member States agreed on the substantial amendments introduced to CSRD and CS3D; France opposes eliminating civil liability rules, while the Czech Republic, Italy, and Hungary push for deeper deregulation to boost competitiveness. Trade and business ministers further examined the package on 12 March during a Competitiveness Council meeting, showing general support for the amendments put forward. While it seems that an agreement will be quickly reached for the Omnibus I, Member States will need to further negotiate on the substantial amendments introduced by the second part of the proposal (so called “Omnibus II”).
Timeline
For both proposals, Member States and MEPs will need to negotiate the final content of the directives through interinstitutional negotiations. The Omnibus I will likely be adopted in the next three to six months, with transposition into national law by end of this year, meaning that the postponement will presumably happen before an additional wave of companies would have been obliged under the directives in their current form. The substantial amendments introduced by Omnibus II will likely involve lengthier negotiations within the Council of the EU and the Parliament.
OTHER
Commission Proposes Simplification of CBAM Ahead of Full Entry Into Force
CBAM, the world’s first carbon border tariff, is set to come into full force in January next year. This means that importers of goods covered by CBAM legislation (iron and steel, cement, fertilizers, aluminum, electricity, and hydrogen) will be required to declare the emissions embedded in their imports and surrender corresponding certificates, and be priced based on the EU Emissions Trading System (ETS). However, even before CBAM is fully implemented, the Commission has already proposed changes to the legislation in response to economic competitiveness and geopolitical challenges.
As part of the Omnibus simplification package announced on 26 February, the Commission proposed several changes to streamline CBAM implementation.
Firstly, the Commission aims to simplify CBAM requirements for small importers, primarily small and medium-sized enterprises and individuals, by introducing a new CBAM de minimis threshold exemption of 50 tons per shipment. This will exempt over 182,000 or 90% of importers from CBAM obligations, while still covering over 99% of emissions in scope.
Secondly, for importers that remain within the scope of CBAM, the proposed changes aim to simplify compliance with its obligations. Specifically, the proposal simplifies the calculation of embedded emissions for certain goods, clarifies the rules for emission verification, and streamlines the process for calculating the financial liability of authorized CBAM declarants.
These changes will now have to be approved by the European Parliament and EU Member States before they come into force.
Additionally, a comprehensive review of CBAM is expected later this year to assess the potential extension of the mechanism to additional ETS sectors (potentially including aviation and maritime shipping), downstream goods, and indirect emissions. As part of this review, the Commission will also explore measures to support exporters of CBAM-covered products facing carbon leakage risks. A legislative proposal is anticipated to follow in early 2026.
Covadonga Corell Perez de Rada, Simas Gerdvila, Antoine de Rohan Chabot, Kathleen Keating, Lena Sandberg, and Sara Rayon Gonzalez contributed to his article.
CFTC Clarifies that FX Window Forwards are Not “Swaps”
On April 9, 2025, the Markets Participants Division and the Division of Market Oversight (collectively, the “Divisions”) of the Commodity Futures Trading Commission (the “CFTC”) published a Staff Letter (the “Staff Letter”) clarifying the Divisions’ views on the regulatory treatment of certain foreign exchange products. The Divisions clarified that certain foreign exchange window forwards (“Window FX Forwards”) should be considered “foreign exchange forwards” under the CFTC’s regulations and, as a result, exempt from most CFTC regulations relating to swaps. The Divisions also clarified that package foreign exchange spot transactions that settle within T+2 are to be treated as “spot” transactions and outside the scope of most of the CFTC’s swap regulations.
Background
All “swaps” as defined in the Commodities Exchange Act and the CFTC’s regulations are subject to regulation by the CFTC. There are a number of products that either fall outside the scope of, or are otherwise exempted from, the definition of “swap” and therefore exempted from most CFTC regulations as they relate to swaps. These include “spot” transactions and “foreign exchange forwards”, among others. A spot transaction is an agreement to physically exchange currencies within the customary timeline for the relevant spot market (generally T+2). A “foreign exchange forward” is an agreement to exchange currencies at an agreed price on a specific future date.
Window FX Forwards
Window FX Forwards are transactions where the parties enter into an agreement to exchange two currencies at an agreed price on one or more dates during a set period or “window”, sometimes specific identified dates and sometimes any date within the specified window. The Window FX forward will settle on the last day of the window if the electing party does not elect an earlier date for settlement.
Market participants have been uncertain as to the regulatory treatment of Window FX Forwards because the definition of “foreign exchange forward” requires that the transaction be settled on a “specific future date.” Some market participants have been treating Window FX Forwards as “swaps” subject to CFTC regulations and others treating them as exempted “foreign exchange forwards.” The Staff Letter clarified that the Divisions interpret “specific future date” to mean a “clearly identified future date.” Since the exchange under a Window FX Forward will take place on one or more dates clearly identified upon entering into the transaction, they fall within the definition of “foreign exchange forward” and are exempt from the definition of “swap.” As a result, most regulatory requirements applicable to “swaps”, including the exchange of regulatory margin, will not apply to these transactions.
Package FX Spot Transactions
Package foreign exchange spot transactions (“Package FX Spot Transactions”) are two transactions where, in the first transaction, the parties agree to physically exchange two currencies on the next business day after the trade date (T+1) and, in the second transaction, agree to exchange the same two currencies in the opposite direction on the second following business day after the trade date (T+2). There can be variations where the parties exchange currencies on the same day they agree to the trade (T+0) under the first transaction and the next business day (T+1) for the second transaction, or a “roll” where the parties agree to exchanges over a series of consecutive days. While each transaction is documented separately, they are entered into as a “package”, meaning both parties agreeing to the first transaction is contingent on both parties agreeing to the second transaction and both transactions are priced together as a “package.” However, because each transaction is documented separately, they are separate legal obligations and performance under the second transaction is not linked to, or dependent upon, performance under the first transaction. The Staff Letter clarifies that these Package FX Spot Transactions should be treated as individual spot transactions outside the scope of the definition of “swap” and applicable CFTC regulations, provided that they are executed, confirmed and settled as individual transactions within the customary timeline for the relevant spot market (generally T+2).
What does this mean for Window FX Forwards and Package FX Spot Transactions?
As a result of being exempted or excluded from the definition of “swap” Window FX Forwards and Package FX Spot Transactions are not subject to most of the CFTC’s swap regulations. These products are not required to be traded on a registered exchange or cleared through a registered clearinghouse. Swap Dealers are not required to post or collect regulatory margin on these products, making them more affordable to market participants. It is important to note that foreign exchange forwards, and therefore Window FX Forwards, remain subject to certain trade reporting requirements and business conduct standards.
DOJ Sets New Focus and Priorities in Digital Assets Enforcement
On April 7, 2025, U.S. Deputy Attorney General Todd Blanche issued a memorandum titled “Ending Regulation by Prosecution” (the “Memorandum”), which set out clear and direct enforcement priorities for the U.S. Department of Justice (“DOJ”) relating to digital assets. The Memorandum clarifies that DOJ is not a digital assets regulator and that it will not continue with what it characterizes as the prior Administration’s “regulation by prosecution” strategy. Rather, DOJ will now prioritize enforcement actions that target individual bad actors that use digital assets to perpetuate scams or are engaged in other criminal activity involving digital assets such as organized crime, narcotics, and terrorism. Importantly, the Memorandum scales back the scenarios in which DOJ will pursue enforcement actions against digital asset exchanges or other platforms (e.g., mixers or tumblers) that bad actors may use to conduct illegal activity.
In setting out the DOJ’s new enforcement priorities, the Memorandum adheres to the principles contained in Executive Order 14178 (“Strengthening American Leadership in Digital Financial Technology,” January 23, 2025), which outlines the Trump Administration’s policy of promoting “responsible growth and use of digital assets.” The Memorandum also cites Executive Order 14157 (“Designating Cartels and Other Organizations as Foreign Terrorist Organizations and Specially Designated Global Terrorists,” January 20, 2025), which reflects the U.S. government’s decision to seek the “total elimination” of certain international cartels, criminal organizations, and terrorists.
The Memorandum directs prosecutors to refrain from charging regulatory violations involving digital assets, including unlicensed money transmission, registration requirement failures, and Bank Secrecy Act (“BSA”) violations, unless the defendant “willfully” did not comply with the licensing or registration requirement. Additionally, prosecutors are instructed not to pursue charges in situations where DOJ would be required to litigate whether a digital asset is a “security” or a “commodity,” as long as there is a “an adequate alternative criminal charge available, such as mail or wire fraud.”
To carry out these new priorities, DOJ will shift its enforcement resources related to digital assets. Specifically, DOJ will disband the National Cryptocurrency Enforcement Team (“NCET”), which was established in February 2022 and has supported several recent high-profile digital assets investigations and prosecutions. Additionally, the DOJ’s Market Integrity and Major Frauds Unit will no longer enforce cryptocurrency actions and instead will focus on Trump Administration priorities such as immigration and procurement fraud. The DOJ’s Computer Crime and Intellectual Property Section will continue to liaise with the digital asset industry as needed.
Finally, the Memorandum addresses an issue relating to the way in which victims of digital asset fraud are compensated. Currently, regulations only allow victims to recover the value of their investment at the time of the fraud, rather than at the current fair market value. To rectify this issue, the Memorandum directs the Office of Legal Policy and the Office of Legislative Affairs to propose new legislation and regulations that would allow victims to recover a greater amount of their digital asset losses in situations involving fraud or theft.
Key Takeaways:
The Memorandum neither creates nor eliminates any current laws. Rather, it presents new enforcement and staffing priorities for DOJ, which are tied closely to recent Executive Orders and statements from the Trump Administration.
The DOJ is focused on prosecuting digital asset scams and the illicit, underground use of digital assets by terrorists, narcotics traffickers, and other organized crime elements. It will prioritize those cases by “seeking accountability from individuals” who perpetuate these crimes, as opposed to pursuing “regulatory violations” at digital asset companies.
Regulatory failures can still pose a legal risk for companies, however, particularly if the DOJ finds them to be “willful.” Additionally, it remains to be seen how U.S. states will react to the potential “enforcement vacuum” in the digital assets industry, and whether they will seek to fill the void with a more aggressive enforcement approach.
Regulatory Update and Recent SEC Actions: April 2025
Recent SEC Administration Changes
Senate Confirms Paul Atkins as SEC Chairman
The Senate, on April 9, 2025, confirmed Paul Atkins as the Chairman of the Securities and Exchange Commission (“SEC”). Atkins takes over the Chairman role from the current Acting Chair, Mark T. Uyeda, who was appointed in January 2025 to serve in the interim until Atkins was confirmed. Atkins previously served as a Commissioner from 2002 to 2008, and most recently served as CEO and founder of risk-management firm Patomak Global Partners. He also served as co-chairman of the Digital Chamber’s Token Alliance, where he led industry efforts to develop best practices for digital asset issuances and trading platforms.
Recent SEC Staff Departures
In addition to the departures of SEC Chairman Gary Gensler and Commissioner Jaime Lizarriga on January 20 and January 17, respectively:
Paul Munter, Chief Accountant;
Jessica Wachter, Chief Economist and Director of the Division of Economic and Risk Analysis;
Sanjay Wadhwa, Acting Director of the Division of Enforcement;
Scott Schneider, Director of the Office of Public Affairs;
Amanda Fischer, Chief of Staff;
YJ Fischer, Director of the Office of International Affairs; and
Megan Barbero, General Counsel.
SEC Restructuring and Hiring Freeze
The Trump administration, on January 20, 2025, issued a memorandum that implemented a federal hiring freeze across the executive branch, including the SEC. Further, the SEC plans to restructure the Enforcement and Exams divisions by removing the top leaders at its 10 regional offices across the country and replace them with deputy directors, Katherine Zoladz, Nekia Jones, and Antonia Apps, who will oversee one of three regions–West, Southeast, and Northeast. There will also be a deputy director for specialized units. Additionally, the SEC announced the closures of Los Angeles and Philadelphia offices and a review of the lease for the SEC’s Chicago Regional Office.
SEC Rulemaking
SEC Issues Temporary Exemption from Exchange Act Rule 13f-2 and Related Form SHO
The SEC announced on February 7, 2025, it was providing a temporary exemption from compliance with Rule 13f-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and from reporting on Form SHO, which generally requires certain institutional investment managers to report short positions and daily trading activity for equity securities exceeding certain thresholds. The effective date for Rule 13f-2 and Form SHO was January 2, 2024, and the compliance date for such rule and form was January 2, 2025, with initial Form SHO filings originally due by February 14, 2025. The exemption, for certain institutional investment managers that meet or exceed certain specified thresholds, pushes the due date for the initial Form SHO reports to February 17, 2026.
SEC Announces Exemption from Reporting of Certain Personally Identifiable Information to Consolidation Audit Trail
The SEC, on February 10, 2025, announced it was providing an exemption from the requirement to report certain personally identifiable information (“PII”) – names, addresses, and years of birth – to the Consolidated Audit Trail (“CAT”) for natural persons. CAT was established by the SEC to track trading activity for National Market System securities including stocks and options, allowing regulators to monitor trading activity. The SEC has justified the exemption because the inclusion of this information may allow bad actors to impersonate a customer or broker-dealer and gain access to a customer’s account.
SEC Extends Compliance Dates for Funds Name Rule Amendment and Updates FAQ
The SEC announced, on March 14, 2025, a six-month extension of the compliance dates for amendments adopted in September 2023 to the “Names Rule” (Rule 35d-1) under the Investment Company Act of 1940, as amended (the “Investment Company Act”). The compliance date for larger fund groups is extended from December 11, 2025 to June 11, 2026, and the compliance date for smaller fund groups is extended from June 11, 2026 to December 11, 2026. The SEC indicated that the extension is designed to balance the investor benefit of the amended Names Rule framework with funds’ needs for additional time to implement the amendments properly, develop and finalize their compliance systems, and test their compliance plans. The Commission further indicated that the compliance dates have been aligned with the timing of certain annual disclosure and reporting obligations that are tied to the end of a fund’s fiscal year in order to help funds avoid additional costs when coming into operational compliance with the Names Rule amendments.
Additionally, the SEC has updated the Names Rule FAQ, releasing a new 2025 Names Rule FAQ on January 8, 2025. Key clarifications include:
Shareholder approval is not required for a fund to add or revise a fundamental 80 percent investment policy unless the change would permit a “deviation from the existing policy or some other existing fundamental policy;”
The 2025 FAQ expanded the SEC staff’s note that the term “tax-sensitivity” indicates a fund’s strategy instead of a focus on particular types of investments to terms “similar” to tax-sensitive (such as “tax-advantaged” or “tax-efficient”); and
The use of the term “income” in a fund’s name does not refer to “fixed-income” securities, and instead is used to emphasize an investment goal of generating current income. As such, the use of the term “income” in a fund’s name would not alone require the adoption of an 80 percent investment policy.
SEC Votes to End Defense of Climate Disclosure Rules
The SEC, on March 27, 2025, voted to end its defense of the rules requiring disclosure of climate-related risks and greenhouse gas emissions. The rules, adopted by the SEC on March 6, 2024, required registrants to provide certain climate-related information in their registration statements and annual reports. Following the SEC’s vote, the SEC staff sent a letter to the Eighth Circuit (who was hearing Iowa v. SEC, No 24-1522 (8th Cir.) evaluating the legality of the rules) stating that the SEC withdraws its defense of the rules and that the SEC counsel are no longer to authorized to advance the arguments in the brief filed on behalf of the SEC. SEC Acting Chairman Mark T. Uyeda stated that “[t]he goal of today’s Commission action and notification to the court is to cease the Commission’s involvement in the defense of the costly and unnecessarily intrusive climate change disclosure rules.”
The SEC did not, however, withdraw the actual climate disclosure rules. Commissioner Caroline Crenshaw issued a statement challenging the decision, that if the SEC chose not to defend the rules, then it should ask the court to stay the litigation while the agency comes up with a rule that it is prepared to defend and that if not, the court should hire counsel to defend the rules. Although the SEC is no longer defending the rules, 20 democratic attorney generals (the “AGs”) have intervened in the lawsuit to defend them. In April 2025, the court ruled that the AGs, led by those from Massachusetts and the District of Columbia, can themselves defend the rules.
SEC Enforcement Actions and Other Cases
Airline Faulted for ESG Focus in 401(k) Plan
A Texas judge issued a 70-page finding of fact and conclusion of law that an international airline company (the “Defendant”) violated federal benefits law by emphasizing environmental, social, and governance factors (“ESG”) in its 401(k) plan decisions. The judge found that the Defendant’s corporate commitment to ESG, the influence and conflicts of interests with the investment manager, and the lack of separation between the corporate and fiduciary roles all attributed to the fiduciary lapse. Despite finding the Defendant breached the Employee Retirement Income Security Act’s (“ERISA”) duty of loyalty, the judge determined the Defendant had not breached ERISA’s fiduciary duty of prudence because the practices fell within the prevailing industry standards.
12 Firms to Pay More Than $63 Million Combined to Settle SEC’s Charges in Connection with Off-Channel Communications
In its continued focus on off-channel communications, the SEC announced charges against nine investment advisers and three broker-dealers (each a “Firm” and collectively, the “Firms”) on January 13, 2025. The charges are for failures by the Firms and their personnel to maintain and preserve electronic communications, in violation of recordkeeping provisions of the federal securities laws. The Firms admitted to the facts set out in their respective SEC orders and have begun implementing improvements to their compliance policies and procedures to address these violations. One Firm self-reported and, as a result, paid significantly lower civil penalties.
“In order to effectively carry out their oversight responsibilities, the Commission’s Examinations and Enforcement Divisions must, and indeed do, rely heavily on registrants complying with the books and records requirements of the federal securities laws. When firms fall short of those obligations, the consequences go far beyond deficient document productions; such failures implicate the transparency and the integrity of the markets and their participants, like the firms at issue here,” said Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement. “In today’s actions, while holding firms responsible for their recordkeeping failures, the Commission once more recognized and credited a registrant’s self-report, demonstrating yet again that there are tangible benefits to be gained from proactive cooperation.”
SEC Charges Advisory Firm with Misrepresenting its Anti-Money Laundering Procedures to Investors
The SEC charged a Connecticut-based investment adviser (the “Adviser”) with making misrepresentations about its anti-money laundering (“AML”) procedures and related compliance failures. The SEC’s order finds that the Adviser’s offering documents stated that the Adviser was voluntarily complying with AML due diligence laws despite those laws not applying to investment advisers. However, according to the order, the Adviser did not always conduct due diligence with respect to an entity owned by an individual who was publicly reported to have suspected connections to money laundering activities. The order further found that the Adviser failed to adopt and implement written policies and procedures reasonably designed to ensure the accuracy of offering and other documents provided to prospective and existing investors.
“This case reinforces the fundamental duty of investment advisers to say what they do and do what they say,” said Tejal D. Shah, Associate Regional Director of the SEC’s New York Regional Office. “Here, [the Adviser] failed to follow the AML due diligence procedures that it said it would, thus misleading investors about the level of risk they were undertaking.”
SEC Charges Two Affiliated Investment Advisers for Failing to Address Known Vulnerabilities in its Investment Models
The SEC announced, on January 16, 2025, that it had settled charges against two affiliated New York-based investment advisers (the “Advisers”) for breaching their fiduciary duties by failing to reasonably address known vulnerabilities in their investment models and for related compliance and supervisory failures, as well as violating the SEC’s whistleblower protection rule. According to the SEC’s order, around March 2019, the Advisers’ employees identified and recognized vulnerabilities in certain investment models that could negatively impact clients’ investment returns, but did not take any action to remedy the situation until August 2023. The Advisers failed to adopt and implement written policies and procedures to address these vulnerabilities and failed to supervise an employee who made unauthorized changes to more than a dozen models. Further, the Advisers required departing individuals to state as a fact—in separate written agreements—that they had not filed a complaint with any governmental agency. The SEC’s order finds that the Advisers willfully violated the antifraud provisions of the Investment Advisers Act of 1940, as amended (the “Advisers Act”), the Advisers Act’s compliance rule, as well as Rule 21F-17(a) under the Exchange Act.
SEC Charges Advisory Firms with Compliance Failures Relating to Cash Sweep Programs
The SEC, on January 17, 2025, settled charges against two affiliated registered investment advisers and a third unaffiliated investment adviser (collectively, the “Advisers”) for failing to adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder relating to the Advisers’ cash sweep programs. According to the SEC’s order, the Advisers offered their own bank deposit sweep programs as the only cash sweep options for most advisory clients and received a significant financial benefit from advisory client cash in the bank deposit program. The order finds that the Advisers failed to adopt and implement reasonably designed policies and procedures (1) to consider the best interest of clients when evaluating and selecting which cash sweep program options to make available to clients and (2) concerning the duties of financial advisors in managing client cash in advisory accounts.
SEC Charges Dually Registered Broker-Dealer/Investment Adviser with Anti-Money Laundering Violations
The SEC announced charges against a firm that is registered as both a broker-dealer and investment adviser (the “Firm”) with multiple failures related to its AML program. According to the SEC’s order, from at least May 2019 through December 2023, the Firm experienced longstanding failures in its customer identification program, including a failure to timely close accounts for which it had not properly verified the customer’s identity. Furthermore, the Firm failed to close or restrict thousands of high-risk accounts that were prohibited under the Firm’s AML policies.
Financial Institution to Pay More than $100 Million to Resolve Violations Related to Target Date Funds
The SEC announced on January 17, 2025, that an institutional investment management company (the “Company”) has agreed to settle charges for misleading statements related to capital gains distributions and tax consequences for retail investors who held the Company’s Investor Target Retirement Funds (“Investor TRFs”) in taxable accounts. The SEC’s order finds that in December 2020, the Company announced that the minimum initial investment amount of the Company’s Institutional Target Retirement Funds (“Institutional TRFs”) would be lowered from $100 million to $5 million. A substantial number of plan investors redeemed their Investor TRFs and switched to Institutional TRFs due to the latter having lower expenses. The retail investors of the Investor TRFs who did not switch and continued to hold their fund shares in taxable accounts, faced historically large capital gains distributions and tax liabilities due to the large number of redemptions. The order also finds that the Investor TRFs’ prospectuses, effective and distributed in 2020 and 2021, were materially misleading because they failed to disclose the potential for increased capital gains distributions resulting from redemptions of fund shares by newly eligible investors switching from the Investor TRFs to the Institutional TRFs.
“Materially accurate information about capital gains and tax implications is critical to investors saving for their retirements,” said Corey Schuster, Chief of the Division of Enforcement’s Asset Management Unit. “Firms must ensure that they are accurately describing to investors the potential risks and consequences associated with their investments.”
SEC Charges Investment Adviser and Two Officers for Misuse of Fund and Portfolio Company Assets
The SEC filed settled charges on March 7, 2025, against a registered investment adviser (the “Adviser”), former managing partner (the “Managing Partner”) and its former chief operating officer and partner (the “COO”) for breaches of the fiduciary duties for their misuse of fund and portfolio company assets. According to the SEC’s orders, from at least August 2021 through February 2024, the COO misappropriated approximately $223,000 from portfolio companies of a private fund managed by the Adviser. This included transactions for vacations, personal expenses, and the payment of compensation in excess of the COO’s salary. The SEC order states that the Managing Partner failed to reasonably supervise the COO despite red flags of misappropriation and that they caused the fund to pay a business debt that should have been paid by an entity the Managing Partner and COO controlled, resulting in an unearned benefit to the entity of nearly $350,000. Additionally, the order finds the Adviser failed to adopt and implement adequate policies and procedures and to have the fund audited as required.
SEC Charges New Jersey Investment Adviser and His Firm with Fraud and Other Violations
The SEC, on March 17, 2025, announced it filed charges against an individual investment adviser and his advisory firm (collectively, the “Adviser”) for misconduct and for investing more than 25 percent of a mutual fund’s assets in a single company over multiple years, causing losses of $1.6 million. In November 2021, the Adviser settled charges that the Adviser violated its policy by investing more than 25 percent of a fund’s assets in one industry between July 2017 and June 2020, committing fraud and breaching its fiduciary duties. Despite being ordered to stop the conduct, the Adviser continued violating its 25 percent industry concentration limit and making associated misrepresentations about it between November 2021 and June 2024. The SEC’s complaint alleges the defendant Adviser engaged in further misconduct during this same period by operating the fund’s board without the required number of independent trustees and misrepresenting the independence of one board member in filings. The complaint also alleges that the Adviser failed to provide or withheld key information from the board and hired an accountant for the fund without the required vote by the board.
“As alleged, the defendants not only ran the fund contrary to its fundamental investment policies, but they actively misled investors and the fund’s board about their conduct,” said Corey Schuster, Chief of the Division of Enforcement’s Asset Management Unit. “Undeterred by their prior SEC settlement involving these very same issues, we allege that the defendants repeatedly violated fundamental rules designed to protect investors in mutual funds.”
Business Development Company and Directors Sued for Causing Fund’s Value to Decline
Directors of a business development company (the “BDC”) have been sued for allegedly approving fraudulent valuations, and the BDC’s investment adviser (the “Adviser”) is accused of extracting millions of dollars in fees from the BDC while its assets dipped. According to the complaint, the Adviser caused the BDC’s $200 million portfolio to decline while extracting nearly $30 million in fees and concealed the decline from shareholders through fraudulent, inflated asset valuations that the directors repeatedly approved before the fund went into liquidation in 2023. When shareholders proposed ways for the shareholders to realize value (such as a tender offer or merger), the complaint alleges that the Directors amended the BDC’s bylaws to illegally restrict shareholder voting powers. The lawsuit seeks a trial and alleges violations of Section 10(b) and Section 20 of the Exchange Act, breach of fiduciary duty by the directors, aiding and abetting a breach of fiduciary duty, and breach of contract.
Revenue Sharing Ruling Struck Down by First Circuit Court of Appeals
In 2019, the SEC initiated an enforcement action against a dually registered broker-dealer and investment adviser (the “Adviser”). The SEC alleged that, from July 2014 through December 2018, the Adviser failed to adequately disclose that its revenue sharing agreement with a national brokerage and custody service provider (the “Provider”) created a conflict of interest by incentivizing the Adviser to direct its clients’ investments (through client representatives) to mutual fund share classes that produced revenue-sharing income for the Adviser. At the close of evidence, the district court granted partial summary judgment for the SEC which included an order for the firm to pay $93.3 million (including disgorgement of nearly $65.6 million in revenue-sharing related profits), which the Adviser appealed. On April 1, 2025, the United States Court of Appeals for the First Circuit, finding that there was a material issue of fact to be decided by a jury, reversed the order and remanded it back to district court to be heard by a jury. Applying the “total mix” test from Basic Inc. v. Levinson, the Court of Appeals concluded that a “reasonable jury could find” that the additional disclosure about the Adviser’s conflict of interest would not have “so significantly altered the ‘total mix’ of information made available, that summary judgment was appropriate.” Importantly, the Court of Appeals noted that the district court relied on cases predating the U.S. Supreme Court’s decision in SEC v. Jarkesy, decision which held that the Seventh Amendment right to a jury trial applies to SEC enforcement actions of its administrative orders. Additionally, the Court of Appeals found that the SEC failed to adequately show a reasonable approximation or casual connection sufficient to support the district court’s disgorgement award.
Other Industry Highlights
SEC Announces Record Enforcement Actions Brought in First Quarter of Fiscal Year 2025
The SEC announced on January 17, 2025, that, based on preliminary results, it filed 200 total enforcement actions in the first quarter of fiscal year 2025, which ran from October through December 2024, including 118 standalone enforcement actions. This is the most actions filed in the respective period since at least 2000. The SEC filed more than 40 enforcement actions from January 1, 2025, through January 17, 2025, indicating that the Division’s high level of enforcement activity continues into the second quarter of fiscal year 2025.
DRAO Issues Observations Relating to Website Posting Requirements
The Division of Investment Management’s Disclosure Review and Accounting Office (“DRAO”) is responsible for reviewing fund disclosures. As part of this effort, the staff recently observed several issues relating to the website posting requirements under various Commission rules and certain exemptive orders, including those related to the use of summary prospectuses, exchange-traded funds (“ETFs”), and money market funds (“MMFs”). Some of the DRAO’s observations include:
Summary Prospectuses
Some summary prospectuses did not include a website address that investors could use to obtain the required online documents, while other addresses were generic links to the registrant’s homepage.
A number of registrants did not include any links from the summary prospectus to the statutory prospectus and the Statement of Additional Information, or only partially satisfied the linking requirement.
ETFs
Some ETFs failed to include their daily holdings information, expressed their premiums and discounts as a dollar figure rather than as a percentage, or used alternative terminology when referring to premiums and discounts that have potential to confuse investors.
Some ETFs did not disclose timely historic premium and discount information on their websites, or the information was not easily accessible on the website.
Some ETFs used alternative terminology when referring to the 30-day median bid-ask spread, by omitting the term “30-day,” such that the nature of the figure presented may be unclear to investors.
MMFs
Several MMFs did not post on their websites the required link to the Commission’s website where a user may obtain the most recent 12 months of publicly available information filed by the MMF on Form N-MFP.
Acting Chairman Uyeda Announces Formation of New Crypto Task Force
SEC Acting Chairman Mark Uyeda, on January 21, 2025, launched a crypto task force dedicated to developing a comprehensive and clear regulatory framework for crypto assets. The SEC announced that Commissioner Hester Peirce will lead the task force with a focus on drawing clear regulatory lines, providing realistic paths to registration, crafting disclosure frameworks, and deploying enforcement resources. With the disbandment of the Crypto Asset and Cyber Unit, the task force will be the Commissioners’ primary adviser on matters related to Crypto. On March 3, 2025, Commissioner Peirce announced the members of the Crypto Task Force staff.
Executive Order Halts All Pending Regulations
The Trump administration issued an executive order on January 20, 2025, freezing all pending regulations. The order also suggests that agencies should postpone the effective date for any regulations that have been published in the Federal Register for 60 days. Additionally, the order states that federal agencies should withdraw any regulations that have been sent to the Office of the Federal Register but have not yet been published. Finally, the order recommends that agencies should consider reopening comment periods for pending regulations and should not propose or issue any new regulations until a department or agency head appointed by President Trump has reviewed and approve such regulations.
New Executive Order Imposes Increased Presidential Oversight and Control of Independent Regulatory Agencies
The Trump administration, on February 18, 2025, issued a new Executive Order, “Ensuring Accountability for All Agencies,” (the “Executive Order”) that seeks to increase presidential oversight of independent regulatory agencies. The Executive Order imposes new constraints on independent regulatory agencies, like the SEC, including:
The independent regulatory agencies must submit “significant regulatory actions” to the White House’s Office of Information and Regulatory Affairs before publication in the Federal Register;
The Director of the White House’s Office of Management and Budget (“OMB”) will establish performance standards and management objectives of independent agency heads, like the Commissioners of the SEC, and for OMB to report to the President on the agencies’ performance and efficiency;
The Director of OMB will review the agencies’ obligations for “consistency with the President’s policies and priorities” and will change an agencies’ activity or objective, as necessary, to advance the “President’s policies and priorities;”
Chairs of independent regulatory agencies must now meet with and coordinate policies and priorities with the White House, including establishing a position of White House Liaison and submitting strategic plans to OMB for clearance; and
Members of independent regulatory agencies cannot “advance an interpretation of the law” that vary from the president and the attorney general’s authoritative interpretation of the law including, but not limited to, interpretations of regulations, guidance, and positions advanced in litigation (which may include enforcement actions).
SEC Announces Cyber and Emerging Technologies Unit
The SEC announced, on February 20, 2025, the creation of the Cyber and Emerging Technologies Unit (“CETU”) to focus on combatting cyber-related misconduct and to protect retail investors from bad actors in the emerging technologies space. Specifically, the CETU will focus on the following priority areas:
Fraud committed using emerging technologies, such as artificial intelligence and machine learning;
Use of social media, the dark web, or false websites to perpetrate fraud;
Hacking to obtain material nonpublic information;
Takeovers of retail brokerage accounts;
Fraud involving blockchain technology and crypto assets;
Regulated entities’ compliance with cybersecurity rules and regulations; and
Public issuer fraudulent disclosure relating to cybersecurity.
CETU replaces the SEC Enforcement Division’s Crypto Asset and Cyber Unit, which brought more than 100 enforcement actions. CETU’s establishment is a part of a series of initiatives highlighting the SEC’s new, more positive, approach to crypto products. See Acting Chairman Uyeda Announces Formation of New Crypto Task Force above.
ICI Issues Recommendations for Reform and Modernization of the 1940 Act
The Investment Company Institute (“ICI”), on March 17, 2025, issued key recommendations for the reform and modernization of the 1940 Act, titled Reimagining the 1940 Act: Key Recommendations for Innovation and Investor Protection. The ICI worked closely with its members and Independent Directors Council members over three years to develop their “blueprint” to reform the 1940 Act. The 19 recommendations focus on fostering ETF innovation, expanding retail investors’ access to private markets, eliminating unnecessary regulatory costs and burdens, and leveraging the expertise and independence of Fund directors. The ICI has called for the SEC to address these recommendations, including to:
Enable a new or existing fund to offer both mutual fund and ETF share classes;
Allow closed-end funds to more flexibly invest in private funds;
Create more flexibility for closed-end funds to provide repurchase opportunities to their investors;
Adopt electronic delivery of information as the default delivery option;
Update requirements for in-person voting by directors;
Permit streamlined board approval of new sub-advisory contracts and annual renewals;
Revise the “interested person” standard;
Permit fund boards to appoint a greater number of new independent directors; and
Update fund board responsibility with respect to auditor approval.
What Are the Key Takeaways for Managing HMRC In a UK Restructuring Plan (Rps) and Beyond?
Much will depend on the specifics of a company’s financial position, but there are some themes from the OutsideClinic and Enzen judgments that are helpful – and arguably so even beyond the context of RPs for a company’s managing its relationship with HMRC.
Is HMRC in or out of the money?
In OutsideClinic HMRC had reservations about the valuation evidence put forward by the plan company in support of its position that administration was the relevant alternative. Under the RP HMRC stood to recover 5p in the £ but nil in the relevant alternative – HMRC was therefore out of the money.
The valuation evidence was based on certain assumptions in respect of the recoverability of book debts which if those turned out to be inaccurate would have entitled HMRC to a distribution in the alternative – meaning it would have been in the money. It was acknowledged by the plan company that it would only take a “relatively small shift” in the assumptions for this to be the case.
Recognising the likelihood of HMRC being an in the money creditor on a contested application the parties negotiated an improved outcome for HMRC – funded by the plan investors – which would not impact the returns to other creditors.
Take Away
HMRC is different to other creditors given its secondary preferential status, and its voice as a creditor that is potentially in the money, where there is a prospect (even small) of it being paid in the relevant alternative should be listened to. This voice may in fact be louder now, following the Court of Appeal confirming in Thames Water that the views and treatment of out of the money creditors can be relevant when considering whether a plan is fair – particularly so given the elevated status that HMRC has on insolvency.
Recognising HMRC’s role
HMRC has preferential status on an insolvency such that its claims for certain tax liabilities rank ahead of other claims as preferential claims. That status does not exist on an RP where a plan company is free to ignore the statutory order of priorities (provided it can be justified).
Not only that, but HMRC’s as a creditor is also different to other creditors. It has not chosen to trade with the company but is an “involuntary creditor” that continues regardless of whether HMRC is paid or not. HMRC cannot “opt” out of that relationship like other creditors might do.
The judge in Enzen observed that HMRC’s treatment under the Enzen plans (of which there were two) reflected:
the standing of HMRC as preferential creditor;
the commercial leverage that it is able to exert in consequence of Naysmyth and the Great Annual Savings Company; and
the inevitability of an ongoing relationship as trading continues.
Take Away
What we have seen as a consequence of these particular RPs (and those before) is judicial acknowledgement of HMRCs status as a “prominent” creditor which could be translated to – treat them differently and better than unsecured creditors.
That is all well and good, but we think it is probably fair comment to say that HMRC’s role in supporting a failing business can sometimes be seen as lacking or at least taken to be unsupportive. But perhaps now is the time for both practitioners and HMRC to reflect on their historic views.
What HMRC did demonstrate in both cases is that it was willing to engage, something that Mr Justice Norris said in Enzen was a “welcome development”. This signals a positive change, not only, we hope for RPs but also more generally.
On the flip side, if a company is prepared to recognise at an earlier point that HMRC is an involuntary and ongoing creditor in its business then surely that would help manage that relationship in a positive way (whether in the context of an RP or otherwise).
To pay or not to pay HMRC, that is the question?
What we can gauge from OutsideClinic is that although certain HMRC liabilities were unpaid for three months in 2024, its remaining 2024 liabilities were paid in full and continued to be paid during 2025.
In Enzen too, there were historic arrears but from June 2024 tax liabilities were being paid as they fell due, and current liabilities were excluded from the plan – in other words the companies did not seek to compromise those.
Take Away
Although there is no comment in the judgments about whether paying current liabilities influenced HMRC’s attitude, HMRC’s guidance makes it clear that it will consider whether other creditors are being paid when HMRC is not, and whether the company will make future payments in full, and on time, when deciding whether to support a plan,
Paying HMRC current liabilities is likely to encourage engagement and willingness to re-schedule or compromise historic liabilities. Falling further into a black hole with tax debts, not paying HMRC and trading at its expense is likely to do the opposite.
Arguably the starting point for any company requiring HMRC’s support (whether that be for an RP or a time to pay agreement) is to be able to demonstrate that at least it will be able to meet future liabilities.
Concluding Comments
We have seen a positive change in HMRC’s approach in these cases which is very encouraging, but do we as practitioners need to do the same when it comes to managing relationships with HMRC generally? That may depend on whether HMRC’s change in attitude extends beyond RPs.
If there is more of a willingness to recognise HMRC’s role as an involuntary preferential creditor in negotiations, then perhaps we will see that reciprocated by HMRC showing a greater willingness to compromise in return. However, given that the thorny relationship runs quite deep, we expect practitioners will first want to see HMRC engage more regularly in a positive manner outside of RPs, and that would be a “welcome development”.
Governing Health Podcast | 2025 Executive Compensation Committee: Key Priorities and Strategic Insights [Podcast]
This special quarterly series of the Governing Health podcast with SullivanCotter highlights developments in and offers support to the board’s executive compensation committee as it navigates a range of complex operational, technical, and strategic challenges.
In this episode, Michael Peregrine, Tim Cotter, Bruce Greenblatt, Kathy Hastings, and Jeff Holdvogt offer recommendations for the committee to focus on in 2025, including:
Establishing appropriate incentive goals in an evolving health system
Prioritizing executive succession planning/leadership development
Keeping appraised of regulatory and market trends
Ensuring flexibility and defensibility in committee approval processes
Aligning key governance documents to fulfill committee fiduciary duties
Evaluating committee reporting and coordination with other board committees
Overseeing executive compensation in for-profit and not-for-profit ventures subsidiaries
Considering board compensation trends in not-for-profit health systems
Determining the need to evolve committee composition
Addressing executive compensation scrutiny
Sustainability-Related Governance, Incentives and Competence – FCA Confirms No New Rules for Now
Background
In February 2023, the United Kingdom Financial Conduct Authority (“FCA”) published a discussion paper (DP23/1) to encourage an industry-wide dialogue on firms’ sustainability-related governance, incentives, and competence (the “Discussion Paper”).
On 2 April 2025, the FCA published a summary of the feedback received on the Discussion Paper, as well as its own responses and planned next steps. The FCA is not currently considering introducing new rules on the themes in the Discussion Paper.
Industry Feedback
The responses received by the FCA were generally positive about the importance of sustainability matters and the role of the themes outlined in the Discussion Paper. The feedback covered several areas, including:
Objectives, purpose, business model, and strategy;
Board and senior management roles;
Accountability structures;
Incentives and remuneration practices;
Investor stewardship; and
Training and competency development.
The FCA noted that a common theme across the responses was the need for new regulations (such as the Consumer Duty and Sustainability Disclosure Requirements (“SDR”)) to “bed in” before determining whether any additional rules would be needed.
In addition, some respondents cited the existing rules at the time as sufficient and some also mentioned the role of the International Sustainability Standards Board (“ISSB”) standards, and previously the Task Force on Climate-Related Financial Disclosures (“TCFD”) recommendations, in establishing a global baseline for sustainability disclosures.
FCA’s Response
The FCA welcomed the level of engagement from respondents and the importance with which they generally regarded the themes and issues in the Discussion Paper. The FCA also noted that the insights gained from the feedback have been important to assist their understanding of the current market.
The FCA drew attention to the recent introduction of rules relating to some of the themes, which many respondents recognised the importance of – in particular:
The Consumer Duty;
SDR and related labelling requirements; and
The Anti-Greenwashing Rule.
The FCA also recognised the importance of allowing time for new measures to be implemented before introducing further rules in these areas. For themes in the Discussion Paper not captured by the measures above, the FCA will continue to work with the industry to enable market-led solutions and guidance – for example, through the Climate Financial Risk Forum (CFRF) and the Adviser’s Sustainability Group (ASG).
Next Steps
Although the FCA is not currently considering introducing new rules on sustainability-related governance, incentives, and competence, it will continue to monitor market developments and promote these themes to help the sustainable finance market grow responsibly, as well as to continue to promote the UK as a leading financial centre.