CFPB Will Not Enforce Small Business Lending Rule
On April 30, 2025, the Consumer Financial Protection Bureau (CFPB) announced that it “will not prioritize enforcement or supervision actions” related to obligations imposed by its Small Business Lending Rule (under Regulation B) against entities not covered by the Fifth Circuit Court of Appeals’ stay in Texas Bankers Association v. CFPB, No. 24-40705.
The Small Business Lending Rule requires commercial lenders to begin collecting certain data, including loan purpose, amount, business industry, and ownership demographics (such as race, ethnicity, gender, and LGBTQI+ status of small business owners). For more details on the Small Business Lending Rule, see our detailed April 2023 GT Alert.
In its press release, the CFPB stated it “will instead keep its enforcement and supervision resources focused on pressing threats to consumers, particularly servicemen and veterans.” The statement explained that, even absent resource constraints, “the Bureau would deprioritize enforcement of this rule because of the unfairness of enforcing it against entities not protected by the court’s stay but similarly situated to parties that are protected by the stay. The Bureau looks forward to resolving the status of this regulation and ensuring fair, consistent treatment for all entities impacted by the regulation.”
The announcement to deprioritize the Small Business Lending Rule is unsurprising. In a recent court filing for Revenue Based Finance Coalition v. CFPB, No. 1:23-cv-24882-DSL (S.D. Fla. Apr. 3, 2025), the CFPB confirmed that the Bureau’s new leadership had directed staff “to initiate a new Section 1071 rulemaking” and that a stay was appropriate in that matter because “the anticipated rulemaking may moot or otherwise resolve [the] litigation.”
Takeaways
Some companies may have invested significant resources to prepare new loan programs, documents, and applications in order to comply with the Small Business Lending Rule. But companies that are still building out their compliance programs may benefit from pausing their efforts, as the CFPB has clearly signaled that the Rule is unlikely to be enforced as written. In any event, the CFPB indicated in its 2025 supervision and enforcement memo that, moving forward, it intends to engage in fewer supervisory exams and will focus less on fintechs and Biden administration priorities.
The Serious Fraud Office’s Guidance on How to Best Avoid Prosecution
The United Kingdom’s Serious Fraud Office (SFO) recently published updated guidance on how corporates can best avoid or reduce the risk of prosecution in cases involving economic crimes such as bribery, fraud and corruption (the Guidance). The Guidance builds upon the draft guidance published for consultation last year and updates the earlier 2019 guidance by setting out the SFO’s position on self-reporting and the meaning of “genuine” co-operation by corporates in order to secure “cooperation credit.” For the first time in this updated Guidance, the SFO has set out clearer time frames in responding to a report within 48 hours and making a decision on opening an investigation within six months of the initial report.
Corporation Credit
The Guidance stipulates that corporates who self-report suspected wrongdoing and fully and “genuinely” co-operate with investigators will receive “cooperation credit” allowing them to negotiate and enter into a Deferred Prosecution Agreement (DPA) in lieu of prosecution, subject to exceptional circumstances. These exceptional circumstances include, but are not limited to, a lack of cooperation and inadequate remedial actions, repeat offending, a violation of terms of a previous DPA agreement and where the alleged criminal conduct is so serious that it would be in the public interest to prosecute.
Under the DPAs, prosecutors will agree to suspend legal proceedings in exchange for the company agreeing to conditions such as fines, compensation payments and corporate compliance programmes.
Why Self-Report?
Prior to the publishing of the Guidance, companies who self-reported to the SFO could still run the risk of a criminal conviction if the SFO decided that a DPA was not appropriate. The updated Guidance further encourages and emphasises the necessity of self-reporting as a mark of a reasonable and reflective organisation, with a legitimate expectation that, where possible, this will result in a DPA. A failure to self-report, or a failure to do so promptly within a reasonable time, could impact the SFO’s assessment of co-operation, thereby threatening the eligibility to negotiate a DPA. What amounts to a reasonable time to self-report will depend on the circumstances and is assessed on a case-by-case basis.
Co-operation
Companies that fully and “genuinely” cooperate with SFO investigations will be eligible to be invited to negotiate a DPA. Co-operation during an investigation means providing assistance to the SFO that goes above and beyond what the law requires. This is case-specific but is likely to include behaviour such as providing access to documents (digital and hard copy) likely to be relevant to the investigation, identifying potential witnesses, identifying persons involved in the alleged misconduct and early engagement with the SFO, amongst other things. A non-exhaustive list is set out in the Guidance here. Examples of cooperation include promptly reporting suspected misconduct; preservation of data; providing information to the SFO in a structured, user-friendly manner; identifying potential witnesses; identifying money flows and briefing the SFO on the background to the issue. A corporate which maintains a valid claim of legal professional privilege (LPP) will not be penalised; however, a waiver of LLP will be a significant co-operative act and would help expedite matters. This may be a significant issue where witness accounts have been taken during any internal investigation prior to the self-report.
The Guidance also sets out what the SFO views as unco-operative. This includes seeking to overload the investigation and tactically delaying it by providing an unnecessarily large amount of material or “forum shopping” by unreasonably reporting offending to another jurisdiction for strategic reasons and thereby seeking to exploit differences between international law enforcement agencies or legal systems.
Internal Investigation and Practical Guidelines on Self-Reporting
The SFO has acknowledged that the Guidance does not specify in sufficient detail what level of investigating the corporate should undertake prior to self-reporting. However, the Guidance does set out a series of core principles. The SFO expects the corporate to follow and adhere to the below self-reporting procedures and expectations as soon as the corporate learns of direct evidence indicating corporate offending:
Report directly to the Intelligence Division, which includes a legal team, headed by a senior lawyer, who will manage the initial engagement with the corporate and their legal representatives. The initial contact can be made through a secure reporting form (found here). This reporting form allows the firms or their legal representatives to discuss the reporting process with an Intelligence Division representative before making a portal submission.
The self-report should identify all relevant known facts and preserve all evidence concerning:
The suspected offences;
The individuals involved (both inside and outside the organisation);
The relevant jurisdiction;
The whereabouts of key material and any risk associated with the destruction of said material;
Any previous relevant corporate criminal conduct and how it was remediated; and
If digital material is provided, the corporate should agree with the SFO on the correct digital format for such material to be received.
It is important that corporates present a thorough analysis of any and all compliance programmes and procedures in place at the time of the offending, as well as what remedial action has been taken or planned. Information that may not be available immediately during the time of the initial self-report should be provided as soon as possible thereafter to indicate full cooperation.
Self-reporting through a suspicious activity report to the National Crime Agency or to any other agency (domestic or foreign) does not equate to self-reporting to the SFO unless done so simultaneously or after self-reporting to the SFO.
Clearer Deadlines
The Guidance also makes transparent the SFO’s responsibility when receiving a secure reporting form. In return for self-reporting, a company can expect the Intelligence Division to do the following:
Personally establish contact within 48-hours of the report or other initial contact with the Intelligence Division.
Provide regular updates to the corporate on the status.
Provide a decision as to whether to open an investigation within six months of a self-report.
Conclude the investigation within a reasonably prompt time frame. The length of the investigation will depend on the complexity and level of proactive cooperation.
Conclude DPA negotiations within six months of sending an invite.
Conclusion
This Guidance makes the SFO position clearer: The best way for corporates to avoid prosecution is through prevention, transparency, and accountability by proactively self-reporting misconduct. In return, the SFO has committed to more timely deadlines on the decision to investigate and concluding DPA negotiations, once initiated. That sharpens the timescales involved at the start and the end of the process. But what of the investigation process? The length of any SFO investigation may still take some considerable time to conclude, depending on the complexity involved.
Ninth Upends Internet Personal Jurisdiction Law–Briskin v. Shopify
In a landmark ruling, the Ninth Circuit expanded the application of specific personal jurisdiction principles to the realm of nationwide e-commerce. On April 21, 2025, an en banc panel issued a 10–1 decision ruling that allegations that Shopify embedded cookies that tracked a California consumer’s location data were sufficient to establish specific personal jurisdiction over Shopify in California (reversing the Court’s prior opinion on this exact issue). In the wake of this decision, businesses may face increased legal challenges in various states. To protect against far-flung lawsuits in unwanted jurisdictions, e-commerce businesses should, if practicable, refrain from collecting location data and engaging in other online activities that may be seen as targeting consumers of a particular state.
The case—Brandon Briskin v. Shopify, Inc.—involves Brandon Briskin, a California resident, who accused Shopify, Inc., a Canadian corporation, along with its U.S. subsidiaries, of privacy violations during an online transaction. Briskin alleged that Shopify unlawfully collected and used his personal information, including location data, without consent, focusing on Spotify allegedly installing tracking cookies and creating consumer profiles from collected data. The district court dismissed the case for lack of specific personal jurisdiction, ruling that an e-commerce platform such as Shopify, which operates nationwide, does not specifically target California residents. The Ninth Circuit affirmed the district court’s ruling but later agreed to reconsider the personal jurisdiction determination en banc.
Applying traditional personal jurisdiction principles to Shopify’s e-commerce activities, the Ninth Circuit panel held that because Shopify’s geolocation technology allowed it to know where Briskin’s smartphone was located in California when it installed cookies on his device, Shopify’s conduct of intercepting Briskin’s information deliberately targeted a California resident, meeting the purposeful direction requirement for specific personal jurisdiction. Accordingly, per the Ninth Circuit, an interactive platform “expressly aims” its wrongful conduct toward a forum state when its contacts are its “own choice and not ‘random, isolated, or fortuitous,’” even if that platform cultivates a “nationwide audience[] for commercial gain.
A significant aspect of the decision was the panel’s rejection of the necessity for “differential targeting,” which refers to the concept that a defendant’s actions within a forum state create specific personal jurisdiction only if the defendant acted with “some prioritization of the forum state”—rather than a general, nationwide focus. This ruling indicates that a business model like Shopify’s, which operates nationwide and utilizes consumer data, can be subject to jurisdiction in any state where it (1) gathers data from a resident of such state and (2) the business has some indication of the resident’s physical location when interacting with the business.
Judge Callahan dissented, expressing concerns that Shopify’s conduct was not expressly aimed at California. The dissent cautioned that the majority’s approach could lead to companies facing jurisdiction based solely on the plaintiff’s location during transactions and noted “[b]y holding that California courts can exert specific jurisdiction over Shopify because Briskin used his iPhone while ‘located in California,’ […] the majority opinion departs from the longstanding principle that jurisdiction turns on ‘the defendant’s contacts with the forum State itself, not the defendant’s contacts with persons who reside there.’”
Putting it Into Practice: The Ninth Circuit’s decision is a major sea change to personal jurisdiction of businesses in the digital age, particularly e-commerce businesses. This ruling serves as a reminder for e-commerce platforms to consider their interactions with consumers in various states, as their business activities may subject them to jurisdictions across the map. To lessen the impact of the Shopify ruling and the likelihood of personal jurisdiction being established in states in the Ninth Circuit businesses can consider geofencing, refraining from collecting online location data, and making sure that other aspects of the business’s online activities are not purposefully directed at a particular state.
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United States: The Continuing Shift to Modern Money Transmission Laws
Within the past two months, three states have adopted the Money Transmission Modernization Act (MTMA). The governors of Virginia, Mississippi, and most recently Colorado, signed bills that implement the MTMA, and two other states are currently considering similar bills (Alaska and Nebraska).
Mobile wallets, peer-to-peer payments, and digital assets are modern methods of moving money, but have been historically regulated by laws that in some states have been around for over one hundred years. These laws were originally designed for older forms of non-bank payments, such as money orders, Western Union style remittance services, and travelers checks. The recent boom in financial technology has enabled fintechs to provide nationwide and instant payments, which heightens the need for more uniform laws governing non-bank money transmission. To keep up with the pace of financial technology, the Conference of State Bank Supervisors created the MTMA to bring state money transmission laws into the 21st century. To date, more than half of the states have enacted at least part of the model law. As the rest of the country continues to converge on the MTMA’s model
provisions, money transmission licensing for non-banks will grow more streamlined, enabling more efficient compliance, and thus more efficient payments.
Source: Conference of State Bank Supervisors, CSBS Money Transmission Modernization Act (MTMA) (updated Apr. 30, 2025 ), https://www.csbs.org/csbs-money-transmission-modernization-act-mtma.
The three recent states’ bills enacting the MTMA will go into effect over the next year: Mississippi HB1428 (effective 7/1/2025); Colorado HB1201 (expected to be effective around 8/6/2025); and Virginia HB1942 (effective 7/1/2026). Interestingly, all of these new laws omitted one provision from the model act. Each bill excluded the optional “virtual currency” provisions of the MTMA, which would have explicitly treated certain virtual currency activity as money transmission. Moreover, Virginia also excluded “virtual currency” from the definition of money, indicating a legislative intent to exempt virtual currency from the law. These differences demonstrate that, despite the MTMA efforts to bring general uniformity in state laws, nuances among the states still exist.
FinCEN’s New Reporting Requirements for Non-financed Residential Real Estate Transactions
Effective 1 December 2025, the Financial Crimes Enforcement Network (FinCEN) has implemented comprehensive nationwide regulations aimed at increasing transparency and combating money laundering in the United States residential real estate sector. These regulations were set forth in the final rule 89 Fed. Reg. 70258 (Final Rule) published on 29 August 2024, by the US Department of the Treasury.
Historically, the US residential real estate market has been vulnerable to exploitation by illicit actors who purchase residential real estate in nonfinanced (i.e., all-cash) transactions under the veil of legal entities or trusts. Such transactions are an attempt to obscure the illicit actor’s identity and to evade scrutiny from financial institutions that have anti-money laundering and countering the financing of terrorism programs (AML/CFT) and Suspicious Activity Report (SAR) requirements in place. These nonfinanced transactions have allowed criminals to integrate ill-gotten gains into the legitimate economy, posing significant threats to national security and economic integrity.
The Final Rule mandates that certain individuals in real estate closings and settlements report specific information to FinCEN about nonfinanced transfers of residential real estate to legal entities or trusts. The reporting of these transfers is an attempt to curtail the anonymous laundering of illicit proceeds by increasing transparency of nonfinanced purchases of residential real property. The Final Rule applies nationwide and is designed to address transactions that present a high risk for illicit financial activity.
A transaction becomes reportable under the following conditions:
Property Type
The property involved is residential real estate located within the United States. Under the Final Rule, residential real estate means (a) real property containing a structure designed principally for occupancy by one to four families, which includes single-family houses, townhouses, and entire apartment buildings; (b) vacant and unimproved land on which the transferee intends to build a structure designed principally for occupancy by one to four families; (c) a unit designed principally for occupancy by one to four families within a structure (e.g., a condominium); or (d) shares in a cooperative housing corporation. Additionally, a transfer of mixed-use property may be reportable if a portion is considered residential real estate (e.g., a single-family residence located above a commercial enterprise).
Financing
The transfer is nonfinanced, meaning it does not involve a loan or other forms of financing from a financial institution subject to AML/CFT programs and SAR requirements. All-cash transactions and transfers that are financed only by a lender without an obligation to maintain such programs and requirements (e.g., a nonbank private lender) are treated as nonfinanced transfers.
Transferee
The property is transferred to a legal entity or trust, rather than an individual.
Exemptions
The transaction does not fall under any specified exemptions outlined in the Final Rule—such exemptions include transfers associated with an easement, death, divorce, or bankruptcy or that are otherwise supervised by a court in the United Sates, as well as certain no consideration transfers to trusts, transfers to a qualified intermediary for purposes of 1031 Exchanges, and any transfer for which there is no reporting person.
The Final Rule identifies “reporting persons” as individuals responsible for performing specific closing or settlement functions in covered transactions. These individuals are required to submit detailed reports to FinCEN, including information about the parties involved, the property itself, and information concerning payments. To provide flexibility and reduce compliance burdens, the Final Rule incorporates a “cascade” system to determine primary filing responsibility and allows industry professionals to designate compliance duties among themselves. To illustrate this system, the reporting person may be the closing or settlement agent, or if there is no such person then the person listed to prepare the closing or settlement statement for the transfer, or if there is no such person then the person that files the deed or other transferring instrument with the recordation office, and so forth.
There has been legislative activity aimed at overturning FinCEN’s upcoming rule. On 5 February 2025, Senator Mike Lee introduced Senate Joint Resolution 15 to nullify FinCEN’s rule by expressing congressional disapproval of the Final Rule. Similarly, on 12 February 2025, Representative Andrew S. Clyde introduced House Joint Resolution 55 with the same objective. If either is passed by both the House and Senate and signed by the president, the rule on anti-money laundering regulations for nonfinanced residential real estate transactions would be rendered without force or effect.
The regulatory development outlined herein represents a significant shift in the US residential real estate sector’s approach to anti-money laundering compliance.
Breaking Down the First Legislative Compromise on Commercial Litigation Funding
On April 8, Kansas Senate Bill No. 54 (SB54) became law. SB54 is the first-ever legislative compromise between the commercial legal finance industry and the U.S. Chamber of Commerce (the “Chamber”). The law represents a sensible balance between legitimate regulatory goals, such as identifying conflicts of interest, while protecting privileged and confidential information from the prejudice associated with overbroad, forced disclosure. SB54 has elements in common with other approaches to limited disclosure, such as Judge Polster’s procedures in the Opioids MDL, the 2023 recommendations of the Delaware Judiciary, and District of New Jersey Local Civil Rule 7.1.1.
I negotiated the language of SB54 on behalf of the International Legal Finance Association (“ILFA”). Representatives of the Chamber and the Kansas Chamber of Commerce participated directly in the negotiation of the compromise, which was aided by members of the Senate Judiciary Committee. This article provides an overview of what SB54 does—and does not—require, and why.
Disclosure
SB54 requires the automatic production of commercial litigation funding agreements to the court in camera, with limited disclosures made to opposing parties.
Prior to the negotiation, the Chamber had insisted upon automatic production of full funding agreements to parties. ILFA opposed this provision—as it does consistently—on the grounds that funding agreements: (1) contain sensitive work product, (2) have been held by a “chorus of courts” to be irrelevant and/or protected from disclosure, and (3) contain information that may be used by opposing parties for inappropriate strategic advantage.
As a result of our negotiation, the Chamber softened its previous position that opposing parties in litigation should have the right to automatically obtain funding agreements. Instead, the Chamber agreed to the following limited disclosures regarding the funding agreements, which can be verified by the court’s in camera review.:
The funder’s identity and place of incorporation;
Whether a funder has control or approval rights for litigation decisions;
Whether a funder has the right to review materials designated confidential under a protective order;
Known conflicts between a funder and the adverse party, its counsel, or the court;
A description of the nature of the funder’s financial interest; and
Whether the funder has capital from adverse foreign countries.
These representations address various arguments—many of which, to be clear, are purely hypothetical—that the Chamber has asserted in its effort to advance broader proposals that would mandate prejudicial forced disclosure of full funding agreements under the guise of transparency. For example, the Chamber has argued for full disclosure because “everyone involved in a lawsuit should know who is funding it” and “to avoid conflicts of interest” with the judiciary. The Chamber has also argued for full disclosure on the basis that “funders can exercise immense control over litigations in which they invest,” and could be backed by adverse foreign interests that “may even seek to access confidential trade secret information for state purposes.” These unsupported concerns, as far-fetched and implausible as some of them may seem, are nevertheless addressed by SB54 in a tailored manner that does not afford defendants strategic advantage or lead to satellite litigation, while also providing appropriate levels of transparency and protecting the court’s inherent authority to manage its cases.
Scope
SB54 only requires disclosure regarding agreements between funders and parties. It does not require disclosure concerning financing agreements between funders and counsel, as funders are not in contractual privity with parties under such arrangements. Accordingly, SB54 only requires representations about agreements “if a party has entered into a third-party litigation funding agreement,” which is logical in light of the fact that lawyer-directed financing does not implicate the lion’s share of concerns articulated by the Chamber due to the lack of privity. In addition, disclosure of law firm financing would necessarily ensnare more traditional financing arrangements, such as recourse lines of credit provided by financial institutions.
Foreign Capital
SB54 requires disclosure of capital from “foreign countries of concern,” i.e., those federally designated as foreign adversaries or terrorist organizations, consistent with the approach taken in other states such as Louisiana. ILFA has no objection to this provision, notwithstanding that the Chamber’s articulated bases for seeking such disclosure—that hostile foreign powers may use litigation financers as a conduit to finance cases that are contrary to the U.S. national interest or as a means of obtaining sensitive material produced in discovery—are baseless. Legal finance firms do not control the matters in which they invest. Nor do funders have access to sensitive documents and information produced in discovery. Such information, such as trade secrets, are already protected from improper disclosure through strict protective orders. Investors in legal finance firms are even further attenuated from underlying litigation. They generally have no role in the selection of investments, much less the materials produced via discovery. As one legal expert recently said, the speculation regarding national security is “evidence-free,” and requires “conspiracy thinking to believe this would or could happen.”
The Chamber’s initial bill language required disclosure of capital from all foreign entities, which would have unnecessarily reduced litigants’ access to capital because a significant share of the funding market has been historically domiciled in foreign, allied countries. The Chamber agreed to this compromise, and ILFA accepted the Chamber’s definition of “foreign country of concern.”
Other Provisions
Notably, SB54 does not contain a number of other problematic provisions that are present in disclosure bills proposed in other states, many of which would operate as de facto funding prohibitions. Examples include indemnification for adverse costs, registration, discovery concerning funding and admissibility of funding-related information, mandatory contract language, and return limitations.
Outlook
SB54 demonstrates that compromise is attainable in the historically polarized litigation funding disclosure debate. For states considering pending legislation—many of which face fatigue from perennial bills that seek to solve nonexistent problems—precedent now exists for a rational level of disclosure that protects against prejudice and preserves access to justice.
Dai Wai Chin Feman is a managing director at Parabellum Capital, where he oversees commercial litigation investments and public policy.
The opinions expressed in this article are those of the author and do not necessarily reflect the views of The National Law Review.
UK Cryptoassets: Draft Legislation and FCA Discussion Paper Published
On 29 April, UK Chancellor Rachel Reeves announced the publication by HM Treasury of near-final legislation to bring cryptoassets within the scope of the UK’s regulatory perimeter. Shortly after, on 2 May, the UK Financial Conduct Authority (FCA) also published a discussion paper (DP25/1) seeking views on its approach to regulating cryptoasset trading platforms, intermediaries, cryptoasset lending and borrowing, staking, decentralised finance (DeFi), and the use of credit to purchase cryptoassets.
The draft legislation, titled the Financial Services and Markets Act 2000 (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Order 2025 (the Cryptoassets Order), and DP25/1 follow, and are closely aligned with, HM Treasury’s consultation and subsequent response on the future financial services regulatory framework for cryptoassets in the UK, which were each published in 2023.
The Cryptoassets Order
The Cryptoassets Order has been published in draft form to allow stakeholders to make technical comments. HM Treasury has stated, however, that the policy behind the Cryptoassets Order is settled and will not change.
The Cryptoassets Order amends a number of pieces of existing legislation to bring certain activities relating to cryptoassets within the UK’s regulatory perimeter. More specifically, and among other things, the Cryptoassets Order:
amends the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (the RAO) to include new specified activities and specified investments relating to cryptoassets. Any person undertaking such activities in the UK will, therefore, need to be authorised by the FCA or benefit from an exemption to carry on such activities. Such specified activities include:
issuing qualifying stablecoins in the UK;
safeguarding (custody) of qualifying cryptoassets;
operating a qualifying cryptoasset trading platform;
dealing in qualifying cryptoassets as principal, which is intended to include lending and borrowing services;
dealing in qualifying cryptoassets as an agent;
arranging deals in qualifying cryptoassets, which is intended to include operating a cryptoasset lending platform; and
making arrangements for qualifying cryptoasset staking;
amends the Financial Services and Markets Act 2000 (FSMA), in particular to establish the geographic perimeter for the new regulated activities. The geographical scope of the new regulated activities can vary depending on the specific activity, but generally, firms providing any such services to UK retail customers will need to be authorised in the UK;
amends the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 to ensure alignment with the updated FSMA regulatory framework and the RAO; and
amends the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the MLRs) to reflect the new regulatory perimeter. Notably, firms authorised by the FCA for the new cryptoasset activities will not be required to additionally register as “cryptoasset exchange providers” or “custodian wallet providers” under the MLRs, but will still be subject to the non-registration requirements thereunder.
The Cryptoassets Order also provides for a transitional period, to be determined by the FCA, during which firms can apply to the FCA for authorisation to conduct the new regulated activities (or to apply for a variation of permission, if the firm is already FCA authorised to undertake non-cryptoasset activities).
DP25/1
DP25/1 seeks views on how the FCA should regulate the following entities and activities, and sets out key policy proposals in relation to each:
Cryptoasset trading platforms. These are entities that will be authorised to operate a qualifying cryptoasset trading platform pursuant to the Cryptoassets Order;
Intermediaries. This includes entities that will be authorised to deal in qualifying cryptoassets as principal, deal in qualifying cryptoassets as agent and/or arrange deals in qualifying cryptoassets;
Cryptoasset lending and cryptoasset borrowing. This includes operating a cryptoasset lending platform, which, while not itself a specific regulated activity, will be covered by the other new regulated activities, including arranging deals in qualifying cryptoassets;
Restricting the use of credit to buy cryptoassets. The FCA is exploring whether to restrict firms from accepting credit as a means for consumers to buy cryptoassets. However, the FCA expects that qualifying stablecoins issued by an FCA-authorised stablecoin issuer will not be subject to such restrictions;
Staking. The FCA aims to address technological, customer understanding and safeguarding risks related to staking; and
DeFi. DeFi activities are not covered by the new Cryptoasset Order regime where they are truly decentralised. However, when DeFi involves the proposed regulated activities, and where there is a clear controlling person(s) carrying on an activity, then such activities will be covered. The FCA provides the example of services involving an identifiable intermediary or entity controlling business operations and product features.
Next Steps
Technical comments on the Cryptoassets Order can be submitted to HM Treasury until 23 May 2025. HM Treasury intends to legislate for the new cryptoassets regulatory regime by the end of the year, subject to Parliamentary time allowing.
Feedback on DP25/1 has been requested by 13 June 2025. If any proposals in DP25/1 are adopted as part of the FCA’s final rules, the FCA will consult on them.
The Cryptoassets Order and DP25/1 are available here and here, respectively.
More information on HM Treasury’s 2023 consultation and response is available here.
Financial Planning Strategies for Founder-Owned Law Firm Transitions
Transitioning from a first-generation to a second-generation law firm is a complex and multifaceted process. It requires careful planning, clear communication, and a thorough understanding of the financial, operational, and cultural implications. This section provides a comprehensive overview of the essential financial planning components of a successful transition plan, offering insights and strategies to law firm leaders.
Understanding the Transition Process
The transition process in founder-owned law firms involves a series of steps that significantly impact the firm’s future. Healthy firms with accurate information can expedite the process, while those lacking profitability and strong financial reporting may need remedial action.
Action Step:
Conduct a thorough financial assessment of the firm to identify areas needing improvement before starting the transition process.
The Importance of Financial Planning
A transition-oriented financial plan must address several critical elements:
Cash flow, debt, and equity over the transition period
Effect of transition compensation on earnings for the firm and assuming equity owners
Profitability of transitioned work
Effect of multiple transitions occurring simultaneously
Scenario planning at various levels of transitioned work
Exit costs in the event of a failed implementation
Action Step:
Develop a detailed financial plan that includes projections for cash flow, debt, equity, and profitability.
Cash Flow, Debt, and Equity
The capital structure of many firms relies on a combination of trade credit, bank and other interest-bearing debt obligations, and owners’ equity (direct contributions and undistributed earnings). Preparing equity owners for the possible need for additional capital ensures that sufficient cash is available for retirement payments.
Action Step:
Communicate with partners about the potential for increased debt or capital contributions to support the transition.
Effect of Transition Compensation
The impact of a retiring partner’s compensation is either distributed among all partners or only those participating in the transition plan. Firms must decide on the most equitable method.
Action Step:
Calculate the pro forma effect on remaining partners’ compensation to ensure transparency and fairness.
Profitability of Transitioned Work
Projecting future profits post-transition is crucial. This includes considering changes in the staffing mix and the impact on profitability.
Action Step:
Perform profitability analysis for key client relationships to determine post-transition financial viability.
Multiple Transitions
Simultaneous transitions can strain a firm’s resources. To manage the financial burden, some firms cap combined transition costs at a percentage of net income.
Action Step:
Establish guidelines for managing multiple transitions to prevent overtaxing the firm’s resources.
Scenario Planning
We recommend modeling best and worst-case scenarios to prepare for various outcomes. This includes considering the risks and additional resource costs in case of failure.
Action Step:
Develop a monitoring system to detect issues early in the transition process and allocate resources accordingly.
Exit Costs
Firms must also consider the costs associated with a failed transition. Clear agreements on compensation can mitigate financial risks.
Action Step:
Define exit costs within the transition agreement to handle potential failures effectively.
Establishing a Credible Process
A well-defined and repeatable process adds credibility to a firm’s transition strategy. This competitive advantage can attract and retain top talent, ensuring the firm’s long-term success.
Action Step:
Document the transition process and communicate it clearly to all stakeholders.
Summary
Transitioning a founder-owned law firm to a second-generation leadership involves meticulous financial planning, transparent communication, and strategic scenario planning. Firms can successfully navigate this complex process by addressing critical elements such as cash flow, profitability, and multiple transitions. Establishing a credible and repeatable process ensures long-term stability and growth.
What a Relief! Co-Investments Get Easier for Interval Funds, Tender Offer Funds, and Business Development Companies
The US Securities and Exchange Commission (SEC) has approved a streamlined framework for co-investments involving certain closed-end funds and business development companies (together, Regulated Funds).1 This updated approach offers a more practical path for advisers managing both private funds and Regulated Funds, easing compliance burdens—particularly for boards of trustees or directors (each, a Board and collectively, Boards)—compared to the prior co-investment framework.
While the new framework does not address every challenge associated with co-investments by Regulated Funds, it represents a significant and welcome development. The relief has been well received across the industry,2 and funds operating under existing co-investment orders should consider submitting amendments to align with the updated relief.
Background
The new co-investment framework is outlined in an exemptive application submitted by FS Credit Opportunities Corp. et al. (FS), seeking an order to permit certain joint transactions among affiliated FS funds.3 On 3 April 2025, the SEC issued a notice of its intent to grant the requested relief, which includes streamlined terms and conditions relative to prior co-investment orders. The SEC formally granted the order on 29 April 2025.4
Key Changes
As noted above, the new conditions provide for significant flexibility in connection with co-investments. Among others, some of the key changes of the relief are as follows:
Streamlined Co-Investment Transaction Procedures
Pre-Existing Investments in an Issuer No Longer Outright Prohibited
Under the prior co-investment framework, Regulated Funds and their affiliates were prohibited from participating in an initial co-investment transaction if an affiliate already held a security of the same issuer.
Under the new co-investment framework, a Regulated Fund may now participate in such a transaction where an affiliate already holds an investment in the same issuer, provided the Required Majority5 of the Board approves the investment and makes specified findings regarding the transaction. In addition, Regulated Funds may acquire securities of issuers in which affiliates already hold interests—without Required Majority approval—if the Regulated Fund already holds the same security and all affiliated entities invest on a pro rata basis.
Reduction in Frequency of Board Approvals
Previously, a Regulated Fund’s Board was required to approve: (i) each new co-investment transaction; and (ii) any follow-on investments or dispositions, unless the transaction was allocated on a pro rata basis or involved only tradable securities.
Under the new co-investment framework, Board approval is required only when an affiliate of a Regulated Fund has an existing investment in the issuer and either: (i) the Regulated Fund does not already hold an investment in that issuer; or (ii) the Regulated Fund and its affiliates are not participating in the transaction on a pro rata basis relative to their existing holdings.
Elimination of “Board-Established Criteria” and Reduced Board Reporting Requirements
Board-Established Criteria
Under the prior co-investment framework, investment advisers were required to offer all potential co-investment opportunities that aligned with a Regulated Fund’s investment objectives and any objective, “board-established criteria.”
The new co-investment framework eliminates this specific requirement. Instead, investment advisers may allocate co-investment opportunities to Regulated Funds based on their fiduciary duty and in accordance with their allocation policies. A Regulated Fund may participate in such transactions so long as the Board—including a Required Majority—has reviewed and approved the fund’s co-investment policies and procedures.
Streamlined Reporting
Under the previous co-investment framework, advisers were required to submit detailed, transaction-specific quarterly reports. These reports included information on co-investment opportunities not offered to the Regulated Fund, follow-on investments and dispositions by affiliated entities, and any declined or missed opportunities.
The new framework significantly reduces the reporting burden on advisers and chief compliance officers (CCOs). Advisers will now only need to provide periodic reports to the Regulated Fund’s Board, in the form requested by the Board, along with a summary of any significant issues related to compliance with the relief. Additionally, the CCO will deliver an annual report to the Board outlining the Regulated Fund’s participation in the co-investment program, affiliated entities’ participation, and any material changes to the investment adviser’s co-investment policies. The CCO will also be required to notify the Board of any compliance issues related to the relief.
Expanded Flexibility for Joint Ventures, Sub-Advised Regulated Funds, and 3(c) Funds
Joint Ventures
The new co-investment framework expands eligibility for participation in co-investment transactions by including joint venture subsidiaries (i.e., an unconsolidated joint venture subsidiary of a Regulated Fund, in which all portfolio decisions, and generally all other decisions in respect of such joint venture, must be approved by an investment committee consisting of representatives of the Regulated Fund and the unaffiliated joint venture partner, with approval from a representative of each required) of a Regulated Fund, formed with an unaffiliated joint venture partner. Previous co-investment relief generally did not allow such joint venture subsidiaries to participate in negotiated co-investments in reliance on the exemptive relief.
Sub-Advised Funds
Sub-advised Regulated Funds, where the primary adviser and sub-adviser are unaffiliated, can now participate in co-investment transactions. Previously, most exemptive orders did not allow these types of entities to participate in such co-investment transactions. A Regulated Fund may rely on the relief obtained by its adviser to co-invest with adviser affiliates, as well as the relief obtained by the applicable sub-adviser to invest with sub-adviser affiliates, by indicating to the Board which relief the Regulated Fund is relying on.
Broader Range of Affiliated Private Funds
The new framework extends to a broader array of affiliated private funds, permitting any entity that would be considered an investment company but for Section 3(c) of the Investment Company Act of 1940, as amended (the 1940 Act) or Rule 3a-7 thereunder to rely on the relief, provided it is advised by an adviser affiliated with the applicant. Previously, exemptive orders were generally limited to entities relying on Section 3(c)(1), 3(c)(7), or 3(c)(5)(C). Additionally, insurance company general accounts are now treated as private funds.
Takeaways for Sponsors of Interval Funds, Tender Offer Funds and Business Development Companies
Simplified Governance
The new co-investment framework adopts a more practical approach by eliminating the requirement for Board approval for nearly every investment. This change significantly reduces the governance burden, allowing Boards to focus on strategic oversight rather than routine transaction approvals. By streamlining the approval process, advisers can make investment decisions more efficiently, minimizing delays and administrative overhead.
Clearer Roles
The updates provide greater clarity regarding the respective roles of the adviser and the Board in investment decisions. This clearer delineation of responsibilities enhances governance and ensures smoother operations. More specifically, the new relief does not require that a Regulated Fund’s Board be presented with all relevant co-investment transactions that were not made available to the Regulated Fund and an explanation of why such investment opportunities were not made available. Instead, the Regulated Fund’s Board simply must (i) review the adviser’s co-investment policies to ensure they are reasonably designed to prevent the Regulated Fund from being disadvantaged by participation in the co-investment program and (ii) approve policies and procedures that are reasonably designed to ensure compliance with the terms of the new relief.
Expanded Investment Opportunities
Regulated Funds can now participate in a broader range of investment opportunities, even if an affiliate already holds an investment in the same issuer where the Regulated Fund has not previously participated. The ability to engage in follow-on investments without requiring stringent Board approval further enhances the flexibility and appeal of co-investment opportunities, broadening access to private markets for retail investors.
Efficient Allocation
The new framework eliminates cumbersome requirements for special allocation determinations, placing the allocation process squarely within the adviser’s fiduciary responsibility.
The New Co-Investment Framework Facilitates Private Fund to Regulated Fund Conversions
The updated co-investment framework removes the “pre-boarded assets” distinction, facilitating the conversion of private funds to Regulated Funds. This change reduces the burden on converted assets, lowers associated costs, and eliminates the need for independent counsel with respect to these pre-boarded assets, further alleviating financial and administrative burdens.
If you have any questions on co-investments or want further advice on taking advantage of the new relief, please do not hesitate to contact the authors listed in this alert.
Footnotes
1 See SEC, Investment Company Act Release No. 35520; File No. 812-15706 (Apr. 3, 2025), available here.
2 See Letter from Paul G. Cellupica & Kevin Ercoline, Inv. Co. Inst., to Vanessa Countryman, SEC (Mar. 4, 2025), available here.
3 See In re FS Credit Opportunities Corp., No. 812-15706 (Feb. 20, 2025), available here.
4 See SEC, Investment Company Act Release No. 35561; File No. 812-15706 (Apr. 29, 2025), available here.
5 As defined in Section 57(o) of the 1940 Act.
Final Opportunity to Shape SFDR’s Future in European Commission’s Call for Evidence
On 2 May 2025, the European Commission launched its ‘Call for Evidence’ on the review of the Sustainable Finance Disclosure Regulation (SFDR).
The European Commission aims to review the SFDR to simplify the framework, enhance usability, and prevent greenwashing. Stakeholders are invited to submit general feedback rather than answer specific questions, in contrast to the European Commission’s 2023 SFDR consultations. This is an important opportunity for asset managers and other stakeholders to provide their views on the future of the European Union’s sustainable finance disclosure regime. The European Commission has confirmed there will be no further public consultation following this Call for Evidence, although it may carry out targeted outreach to specific stakeholders or their representatives.
There is a general momentum in the European Union to streamline sustainability reporting, as seen under the ‘Omnibus’ initiative on corporate sustainability reporting and due diligence requirements. The Call for Evidence notes that the SFDR review will aim for greater alignment and to strengthen the coherence of SFDR with the sustainability reporting requirements for companies under the Omnibus amendments to the Corporate Sustainability Reporting Directive (CSRD). This could be particularly relevant in relation to developments on the principal adverse impact indicators (PAIs) present in both CSRD and SFDR.
The Call for Evidence states that, generally, SFDR has been effective in increasing transparency and giving investors access to detailed ESG information. Nevertheless, the European Commission notes concerns about the lack of legal clarity on key concepts, the limited relevance of certain disclosure requirements, overlaps and inconsistencies with other parts of the sustainable finance framework, and data availability concerns. As a result, there is a risk of greenwashing and an “unwarranted exclusion of some sectors because of how some rules are applied in practice,” according to the European Commission.
Of particular note for private markets clients is that the Call for Evidence suggests that an objective and policy option should be to consider different investor groups and types of financial products, as well as the international reach and exposures of investments. Feedback submitted could explore retaining the flawed but flexible Article 8, SFDR fund categorisation with the promotion of environmental and/or social characteristics or the merits of a more prescriptive new labelling regime, as envisaged by the Sustainable Finance Platform, which we reported on here.
The deadline for feedback is 30 May 2025, with the European Commission confirming that its revision of SFDR is in its work programme for Q4 2025 (coinciding with the CSRD Omnibus updates). After a lengthy wait, it seems it is now full pace ahead for a revised SFDR.
NYC Local Law 97 Emissions Limits Take Effect. Now What?
New York City enacted Local Law 97 (LL97) in 2019 as part of the Climate Mobilization Act, establishing one of the most ambitious building emissions regulations in the country. However, it intentionally included a ramp-up period with minimal consequences for non-compliance. That period ended in 2024, and this important ordinance is no longer flying under the radar. While annual reporting requirements formally begin in May 2025, the NYC Department of Buildings (DOB) has introduced a limited grace period and extension options to give building owners more flexibility to comply without penalty—reflecting the City’s recognition of the complexity and scale of LL97’s implementation. The law applies to large buildings, which account for nearly 70% of the city’s greenhouse gas emissions, and requires owners to meet strict carbon reduction targets that become more stringent over time. LL97 introduces phased compliance deadlines, financial penalties for noncompliance, and significant legal and financial considerations for property owners, investors, and tenants.
This blog is the first in a series examining LL97’s legal implications, including compliance strategies, enforcement risks, and the broader impact on the real estate market.
What Is Local Law 97?
LL97 establishes strict carbon emissions limits for large buildings throughout New York City. The first compliance period began in 2024, with reporting and fines on this period assessed starting May 1, 2025. The law aims to reduce emissions by 40% by 2030 and achieve net-zero emissions by 2050. See N.Y.C. Admin. Code § 28-320. Buildings that exceed these limits will face substantial penalties—up to $268 per metric ton of CO₂ emissions over the applicable threshold. This aggressive regulatory approach reflects New York’s commitment to decarbonization and aligns with state mandates under the Climate Leadership and Community Protection Act (CLCPA), N.Y. Envtl. Conserv. Law § 75-0107.
Why Does LL97 Matter to Owners and Occupants of NYC Real Estate?
The law seeks to fundamentally change how commercial and residential buildings manage their energy use, pushing owners and managers away from fossil fuel dependency for electricity and heat. Compliance is no longer optional—property owners must actively reduce their carbon footprint or face financial penalties. Investors and lenders are taking note, with LL97 compliance increasingly factoring into property valuation, due diligence, and loan approvals. Tenants, particularly in commercial leases, will also feel the effects as landlords adjust lease terms to share the cost of compliance.
For developers and property owners, the challenge is twofold: first, understanding the technical requirements of the law, and second, navigating the financial and legal complexities of implementing energy efficiency measures, changing energy sourcing, or purchasing renewable energy credits (RECs). The implications extend beyond retrofits—leasing structures, financing agreements, and sale negotiations will all need to account for LL97 compliance.
Key Compliance Deadlines and Phases
LL97 establishes a phased approach to emissions reduction, with compliance thresholds tightening every five years:
2024–2029: Initial emissions limits take effect, with an estimated 11% of buildings exceeding their caps.
2030–2034: Stricter limits apply, affecting up to 80% of covered buildings if no efficiency upgrades are made.
2035–2049: Further reductions will be required, forcing deep energy retrofits.
2050: Net-zero emissions goal for covered properties.
Property owners must submit their first annual LL97 compliance reports by May 1, 2025, but the DOB has issued a 60-day grace period (through June 30, 2025) during which reports can be submitted without financial penalties. In addition, an extension through Aug. 29, 2025, may be requested if certain conditions are met, including having retained a registered design professional by Feb. 1, 2025. See NYC Dep’t of Bldgs., Local Law 97 Reporting Portal Announcement (March 3, 2025).
Who Needs to Comply?
LL97 applies to:
Buildings over 25,000 square feet
Multiple buildings on the same tax lot totaling over 50,000 square feet
Condominium buildings under a single board exceeding 50,000 square feet (N.Y.C. Admin. Code § 28-320.1)
Exemptions exist, but most commercial and residential buildings must comply.
LL97 introduces complex regulatory and financial challenges for New York City’s real estate market. Owners, developers, investors, and—in some cases—tenants must take proactive steps to ensure compliance, avoid penalties, and plan for long-term sustainability. With enforcement beginning soon, understanding LL97’s legal obligations and available compliance strategies is essential.
For example, the law imposes its obligations on building owners. Those owners, however, often do not have direct control over a building’s energy usage—especially outside of common areas. That is not a defense for failure to comply under the statute. Thus, owners may seek to impose requirements through their leases on tenants to shift compliance obligations—or even penalties—onto those tenants. This compliance shifting can be complicated, particularly in multi-tenant buildings. Although emissions limits vary by use group, the law poses particular challenges for energy-intensive operations such as hospitals and data centers.
These challenges, along with other complexities and recent developments in how the City is enforcing the law, will be explored in follow-up posts.
Texas Legislature Proposes Disclosure Rules for Commercial Sales-Based Financing
The Texas House and Senate introduced House Bill 700 and Senate Bill 2677 to regulate commercial sales-based financing transactions. The proposed legislation would impose standardized disclosure requirements, require broker registration, and subject these transactions to the state’s usury laws.
The bills define commercial sales-based financing as business-purpose transactions repaid either as a percentage of sales or revenue, or through a fixed payment structure that includes a reconciliation process to align payments with the recipient’s revenue. The legislation would apply to products such as merchant cash advances and would require providers extending more than $500,000 in financing to disclose the following:
Total financing and disbursement amounts. Providers would be required to clearly disclose both the gross financing amount and the net proceeds available to the recipient.
Finance charges and repayment obligations. The disclosure must include an itemized statement of the total repayment amount and all associated finance charges.
Payment structure. Providers must identify whether payments are fixed or variable and include any projected average monthly payment estimates.
Fees and penalties. The disclosure must identify all potential fees, including draw fees, late payment charges, and prepayment penalties.
Collateral requirements. Providers must summarize any security interests or liens required as a condition of financing.
Notably, the bills provide that all fees and charges imposed under a sales-based financing transaction constitute “interest” for purposes of Texas usury law, regardless of the amount financed or how the transaction is structured. Commercial sales-based financing brokers would also be required to register annually with the Texas Department of Banking. While the legislation authorizes agency enforcement and civil penalties of up to $100,000, it expressly precludes any private right of action.
Putting It Into Practice: Texas’ proposal represents a significant departure from the long-standing treatment of merchant cash advances as non-loan, non-usurious arrangements. If passed, the proposed laws would become the latest in a series of new laws regulating commercial financing transactions which have recently been enacted in other states, including California, Connecticut, Florida, Georgia, Kansas, New York, Virginia, and Utah (see previous blog posts here, here, and here). Providers and brokers offering merchant cash advances or similar products should assess how treating fees as interest could impact transaction structures and pricing models.
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