SEC Refuses to Answer Whether It Will Enforce Climate Disclosure Law If Upheld by Courts
On July 23, 2025, there was a notable development in the legal proceeding (currently pending in the Eighth Circuit) challenging the validity of the SEC’s mandatory climate disclosure law. By way of background, in April 2025–in response to the Trump Administration’s SEC abandoning the defense of the climate disclosure rule–the Eighth Circuit directed the SEC to state “whether the Commission intends to review or reconsider the rules at issue in this case” and if the SEC elects to take no action, “whether the Commission will adhere to the rules if the petitions for review are denied.” In effect, the Eighth Circuit was signaling that if the SEC no longer supported the climate disclosure regulation, it should engage in the normal administrative process to overturn it.
Yesterday, the SEC emphatically declined to take up the court’s invitation, instead asking the court to issue a ruling, stating that “a decision from this Court would inform the scope and need for such action, including providing insights as to the Commission’s jurisdiction and authority.” The SEC proclaimed that such a decision “would [] promote an efficient resolution to the dispute.” In other words, the Trump Administration SEC is signaling that it seeks a judicial determination that will, presumably, limit the scope of the SEC’s authority, thus rendering it far more difficult for the SEC to engage in such climate-focused rulemaking in the future (under a different administration).
The lone remaining Democratic SEC Commissioner–Caroline Crenshaw–took extensive issue with the SEC’s response. First, she stated that the SEC failed to answer one of the court’s key questions–whether the SEC would “adhere to the [R]ules if the petition for review are denied”–although noting that “[t]he unspoken truth under this Commission is that the answer is ‘no.’” Further, Crenshaw proclaimed that the “[SEC] is seeking to avoid its legal obligations under the guise of conserving ‘Commission time and resources’ . . . at the expense of judicial resources.” Crenshaw argues that “[i]f this Commission wants to rescind, repeal or modify the Rules, which were promulgated by-the-book, then it must do the statutorily-required work [and] cannot take the easy way out . . . [by] ask[ing] the Court to do the work for us.”
It is clear that the Trump Administration SEC is seeking a clear ruling from the courts that will limit the ability of the SEC to engage in future rule-making, particularly concerning climate-related topics. It is likewise clear that the SEC’s response to the Eighth Circuit failed to fully address all of the questions posed by the Court. What remains to be seen is whether the Eighth Circuit decides to engage with the legal questions involved, despite the non-responsiveness of the SEC, or to apply further pressure to the SEC in order to compel answers to the questions previously posed by the court.
The SEC has decided against either reviewing or reconsidering its Biden-era corporate emissions disclosure requirements, as the Eighth Circuit hears lawsuits challenging the regulations, the agency told the court on Wednesday. The US Court of Appeals for the Eighth Circuit should proceed with the litigation and rule on it, the Securities and Exchange Commission said in a filing. The SEC, now controlled by Republicans who oppose the climate rules, declined to tell the Eighth Circuit what it would do if the court upholds the 2024 regulations. Pre-judging any future SEC action “would not be appropriate,” the agency said.
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FINRA Aligns CAT Timestamp Requirements with SEC Relief and Extension to 2030
The Financial Industry Regulatory Authority (FINRA) is updating Rule 6860(a)(2) so that industry members who use time stamps more granular than nanoseconds must continue to truncate (rather than round) those time stamps at the nanosecond level for Consolidated Audit Trail (CAT) reporting. The expiration date for this requirement is now extended from April 8, 2025, to April 8, 2030, aligning with the expiration date for the SEC’s comparable exemptive relief to CAT participants.
Amended FINRA Rule 6860(a)(2) is deemed effective immediately. In support of FINRA’s request for immediate effectiveness of this extension, the SEC waived the standard 30-day operative delay. The amendment aligns FINRA’s timestamp granularity requirements with those recently addressed by the SEC through exemptive relief.
The full proposed rule change can be found here.
SEC Roundtable on Executive Compensation Disclosure
The Securities and Exchange Commission held a roundtable at the SEC’s headquarters in Washington, DC on June 26, 2025 to discuss possible changes to the Commission’s requirements for executive compensation disclosure. After opening remarks were delivered by Chairman Paul Atkins, Commissioner Hester Peirce, Commissioner Caroline Crenshaw, and Commissioner Mark Uyeda, three panels were held to examine and discuss, among other topics, (1) the process by which public companies set compensation for their executive officers, (2) the current status of executive compensation disclosure, and (3) how executive compensation disclosure requirements should evolve going forward. Among the panelists were public company executives, investor representatives, law firm partners, and industry experts. Ahead of the roundtable, the SEC provided an opportunity to the public to submit comments on executive compensation disclosure. Comments were submitted by compensation consultants, institutional investors, and industry associations, among others, to voice their positions and make suggestions regarding potential amendments to SEC rules and regulations. All comments that were submitted remain publicly available for review.
In his opening remarks, Chairman Atkins stated, “[the] roundtable is one of the first steps in considering whether the current executive compensation disclosure requirements achieve [the SEC’s] objectives, and if not, how the rules should be amended.” Specifically, he referenced the perceived need for balance between “investor protection, fair, orderly, and efficient markets, and capital formation.” Different viewpoints were shared and elaborated upon at the roundtable, but the general sentiment of both the commissioners and many of the other roundtable participants was that there currently is a disconnect between the intentions of the Commission’s robust disclosure requirements and the resulting disclosure that is being produced by public companies and filed with the SEC. Despite efforts to require companies to be transparent regarding the corporate decision-making process, many believe that this disclosure is difficult to digest and therefore not sufficiently understandable to those same investors it is designed to inform and protect. Commissioner Peirce highlighted the fact that the complexity and length of executive compensation disclosure has become not only cumbersome, but also expensive to produce. She further cautioned that the present disclosure landscape may have resulted in companies adjusting their compensation programs and therefore may be having an unintentional influence on corporate arrangements.
It is clear that although there is the potential for a number of changes in executive compensation disclosure to be effected, we are still in the very early stages before any type of overhaul may be contemplated. Some of the more significant possible changes would require SEC rule changes that will take time to approve and implement. Additionally, certain required disclosures (e.g., pay vs. performance and pay ratio disclosure) are the result of statutory mandates from the Dodd-Frank Wall Street Reform and Consumer Protection Act. Commissioner Atkins encouraged anyone who has not yet submitted a comment letter to do so, noting that the SEC staff will review and consider differing viewpoints and positions when evaluating possible proposals.
Key Impacts the One Big Beautiful Bill Act Will Have on Business and Real Estate Transactions
On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (the “Act”) into law, which provides significant changes to the Internal Revenue Code. While the consequences of the Act are wide ranging, this Client Alert focuses on some of the key impacts the Act will have on business and real estate transactions. An analysis of the tax implications of a transaction (including applicable changes to the tax law) should be reviewed at the time of the transaction.
Qualified Small Business Stock Under Section 1202
The Act makes a number of taxpayer friendly changes to Section 1202 and qualified small business stock (“QSBS”) issued after July 4, 2025, including:
Increases the per-person, per-issuer exclusion amount from $10 million to $15 million (and the new $15 million cap is indexed for inflation).
Increases the gross asset value for corporations from $50 million to $75 million (and the new $75 million cap is indexed for inflation).
Lowers the five-year holding period requirement to three years and introduces a tiered system for gain exclusion (i.e., 50% gain exclusion for QSBS held for 3 years, 75% gain exclusion for QSBS held for 4 years, and 100% gain exclusion for QSBS held for 5 years).
Qualified Opportunity Zones
The Act extends the Qualified Opportunity Zone (“QOZ”) program and makes other changes to the QOZ program, including:
Allows new QOZ designations to be made every 10 years.
Expands tax incentives for specified “qualified rural opportunity funds.”
Imposes additional information reporting requirements on qualified opportunity funds and qualified opportunity zone businesses.
Bonus Depreciation
The Act permanently extends the 100% deduction (a/k/a “bonus depreciation”) for qualified property acquired and placed into service after January 19, 2025.
Section 199A Qualified Business Income Deduction
The Act permanently extends the Section 199A deduction for qualified business income of certain pass-through entities. While prior versions of the Act increased the deduction rate, the final version of the Act keeps the deduction rate at 20%.
Research and Development Expenditures
The Act permanently allows immediate deduction of qualified domestic research and development expenditures incurred in tax years beginning after 2024. The Act also provides transition rules to permit accelerated deduction of unamortized qualified domestic research and development expenditures incurred after December 31, 2021.
Proposals For Relaxation of EU Securitization Framework
Vlad Maly and Michal Chajdukowski present the key takeaways from a package of amendments to the existing EU securitization framework, published by the European Commission on June 17, 2025.
The proposals aim at incentivizing EU banks to engage in more securitization activity. The goal is to strengthen the banks’ lending capacity, which is needed to finance strategic EU priorities, including in the defense sector. Among other things, the Commission proposes to simplify due diligence and transparency requirements, introduce greater risk sensitivity, and address the perceived overcapitalization requirements that apply to investments in certain securitization exposures.
While the impact of these measures on reviving the EU securitization markets remains uncertain (even in the eyes of EU financial authorities), the European Commission is not stopping there, announcing additional measures designed to incentivize insurers and certain retail funds to invest in securitization transactions, that are expected to be published in the coming weeks.
In Depth
Background
The current EU securitization framework (set out in Regulation (EU) 2017/2402 (the “Securitization Regulation”), Regulation (EU) 575/2013 (the “CRR”) and corresponding delegated acts) finds its origins in the Global Financial Crisis of 2008, which revealed how securitization (traditionally considered to have a positive impact on financial markets due to its ability to increase liquidity and lending capacity of the banks) may significantly challenge the stability of the financial system when not properly regulated.
To address this risk, the EU introduced stringent rules applicable to transactions falling within the following definition of ‘securitization’ under the Securitization Regulation
“‘securiti[z]ation’ means a transaction or scheme, whereby the credit risk associated with an exposure or a pool of exposures is tranched, having all of the following characteristics:
(a) payments in the transaction or scheme are dependent upon the performance of the exposure or of the pool of exposures;
(b) the subordination of tranches determines the distribution of losses during the ongoing life of the transaction or scheme;
(c) the transaction or scheme does not create exposures which possess all of the characteristics listed in Article 147(8) of [the CRR].”
The parties involved in these transactions must comply with the risk retention, transparency, and due diligence requirements set out in the Securitization Regulation. In addition, the CRR requires the participating banks to hold an increased amount of capital for their securitization exposures.
However, this regime has been criticized on numerous occasions for being overly conservative and hindering the development of the EU securitization markets. Of particular concern are high operational costs for issuers and investors required to comply with the requirements under the Securitization Regulation, and undue prudential barriers for banks and insurers investing in securitizations.
The amendments proposed by the Commission respond to the most recent calls for amendments, such as those included in the report of Mario Draghi (former President of the European Central Bank), who considered the change of the securitization framework an important step towards strengthening the lending capacity of EU banks needed in the context of new EU defense priorities.
Relaxation proposals
The proposals are not an overhaul of the regime, but rather a series of targeted amendments aimed at relaxing the existing rules under the Securitization Regulation (without repealing its core elements) and lowering capital requirements for banks involved in securitizations under the CRR.
The main aspects of the proposals are:
Due Diligence
Currently, prior to investing in a securitization, investors are required to conduct a set of prescribed verifications regarding compliance by the originator, sponsor, or original lender, as relevant, with the Securitization Regulation.
The amendments propose to remove this requirement whenever (i) the sell-side party is established and supervised in the EU, or (ii) multilateral development banks fully guarantee the securitization position. In addition, the requirements will be reduced where the securitization includes a first-loss tranche (representing at least 15% of the nominal value of the securitized exposures) that is guaranteed or held by certain public entities.
Risk Retention
As of now, the originator, sponsor or original lender, as relevant, is required to retain on an ongoing basis a material net economic interest in the securitization of not less than 5%. The amendments propose to waive this requirement for securitizations guaranteed or held by certain public entities.
Reporting
Under the current regime, the originator, sponsor or a securitization special purpose vehicle must provide specific information to investors, regulators and, upon request, potential investors. The templates for such reporting are published, but do not differentiate between public and private securitizations. The amendments propose to simplify the existing templates by removing at least 35% of fields and creating a new, lighter template for private securitizations.
The proposals define a ‘public securitization’ as follows:
“a securiti[z]ation that meets any of the following criteria:
(a) a prospectus has to be drawn up for that securiti[z]ation pursuant to Article 3 of Regulation (EU) 2017/1129 [the EU Prospectus Regulation];
(b) the securiti[z]ation is marketed with notes constituting securiti[z]ation positions admitted to trading on a Union trading venue as defined in Article 4(1), point (24) of Directive 2014/65/EU [MiFID II]
(c) the securiti[z]ation is marketed to investors and the terms and conditions are not negotiable among the parties.” (emphasis added)
A ‘private securitization’ is defined as a securitization that does not meet any of the above criteria.
STS Securitizations
The Securitization Regulation introduced a specific framework for ‘simple, transparent, and standardized’ (“STS”) securitizations, allowing the involved banks to comply with lower capital requirements compared to non-STS securitizations. As of now, for a securitization to qualify as an STS one, 100% of its underlying pool of exposures must consist of loans granted to small and medium-sized enterprises (“SME”). The amendments propose to lower this requirement to 75%, thereby opening the framework to mixed securitizations (with exposure of up to 25% to non-SME loans).
In addition, the proposals extend the scope of eligibility criteria for credit protections for the STS securitizations to also cover unfunded guarantees issued by certain insurance or reinsurance companies.
Capital Requirements
Currently, banks must apply specific fixed ‘risk weight floors’ when calculating the capital they are required to hold against their securitization exposures: 10% against the exposure to a senior position of STS securitization, and 15% against the exposure to a senior position of non-STS securitization. The amendments propose to introduce a new concept of a ‘risk-sensitive risk weight floor’ calculated with regard to the riskiness of the underlying pool of exposures. This would allow the concerned banks to apply lower floors than currently required.
Further, the proposals introduce changes to the ‘(p) factor,’ one of the parameters used in the formulae for calculating securitization risk weights. The (p) factor determines an additional amount of capital that banks are required to hold against their securitization positions, compared to the capital they would need to hold if the underlying exposures were not securitized. The current method of calculating this parameter is considered by some market participants to result in arguably excessive and unjustified levels of overcapitalization for certain securitizations. The amendments address this issue by recalibrating the (p) factor, allowing banks to benefit from reduced capital requirements for investments in senior positions, originator/sponsor positions, and STS securitizations. The formulae are also adjusted to neutralize differences between the (p) factor levels calculated under the SEC-IRBA and SEC-SA formula-based approaches. The risk weight tables under the external rating-based approach (SEC-ERBA) would be amended accordingly to reflect these reductions.
Finally, a new concept of ‘resilient securitization positions’ will be introduced, allowing banks involved in low-risk securitizations (regarding agency and model risks, as well as robust loss-absorbing capacity) to benefit from additional reductions in capital requirements.
Insurers and UCITS Funds
The Commission is currently working on two other proposals. The first of them, expected to be published in the coming weeks, is a set of rules aimed at removing unnecessary prudential costs for insurers investing in securitizations.
The second one, still being considered by the European Commission, would allow retail funds established under Directive 2009/65/EC [the UCITS Directive] to invest more than 10% in a single securitization issuance. However, no details have yet been provided on what the new limits would be.
Comment
Relaxation of the existing rules is definitely welcomed by the EU securitization community. Whether these measures will actually provide a second life to EU securitization markets is a more complex question. Back in 2022, the European Supervisory Authorities (comprising the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority) stressed that “the impact that may come from the targeted relaxation of the bank capital requirements is […] likely to be relatively small when looking at the securiti[z]ation market as a whole.” Most recently, during the debate at the European Parliament’s Committee on Economic and Monetary Affairs on July 15, 2025, Claudia Buch, the Chair of the European Central Bank’s Supervisory Board, stated that she does “not see how securitization will help […] increase access to equity finance [and] to finance long-term investments.”
In the same vein, the Impact Assessment Report published with the proposals argues that a number of external factors providing EU banks with cheaper funding alternatives might have disincentivized them from engaging in securitizations. Relevant factors mentioned in this context include accommodative monetary policy with easily available central bank funding (up until 2022), stable deposits, and liquid EU covered bond markets. That said, it remains to be seen how the proposals will impact the markets in the current less-favourable macroeconomic context.
What is definitely missing in the published documents is the discussion on non-Securitization Regulation securitizations. The analysis behind the amendments solely focuses on in-scope securitizations (i.e., those involving tranching), 80% of which, according to the European Commission, occur in only 5 EU Member States (France, Germany, Italy, the Netherlands, and Spain), while ignoring a significant and thriving market of non-tranche securitization. In this regard, the Commission seems to overlook a number of bespoke regimes, such as Luxembourg. No proposals have been put forward on how to reconcile, harmonize or, at least, address these co-existing regimes.
What would also be welcomed are clarifications on the ‘sole purpose’ regime (relevant for determining which entity qualifies as an originator for the purposes of the risk retention requirements), particularly in connection with a more flexible equivalent implemented in the UK last year. Without doubt, these proposals clearly mark another step leading to further divergence between the EU and UK regimes (read our alert on the new UK securitization rules here).
Timing
The proposals now need to pass through the EU legislative process. This will entail review by the European Parliament and the Council of the EU. Multiple modifications and versions of the proposed amendments may be therefore expected. Once the final texts are voted on by both the Council and the Parliament and published in the Official Journal of the EU, an 18-month transition period would usually apply before they fully enter into force.
FCA Launches Consultation Paper on the UK SI Framework for Bonds and Derivatives and Discussion Paper on Equity Markets
The UK Financial Conduct Authority (FCA) has recently published a consultation paper on the systematic internaliser (SI) framework for bonds and derivatives (CP25/20). CP25/20 also contains a discussion paper on the current structure and transparency of UK equity markets and solicits views on how the market is currently operating ahead of a further consultation planned for 2026.
CP25/20 builds on a policy statement published by the FCA in November 2024, which introduced new bond and derivative transparency rules for trading venues (PS24/14). Among other changes, PS24/14 removes the obligation on SIs to provide pre-trade transparency in bonds and derivatives from 1 December 2025, and gives effect to commitments made under the UK Wholesale Markets Review.
In light of these changes, CP25/20 seeks feedback from market participants on the future of the SI framework, as well as other areas relevant to UK trading venues. Key proposals under CP25/20 include:
abolishing the SI framework for bonds, derivatives, structured finance products and emission allowances on the basis that the removal of pre-trade transparency obligations for SIs in these asset classes makes SI designation largely redundant for these non-equity instruments;
lifting the current prohibition on an investment firm that operates a multilateral trading facility (MTF) from engaging in matched principal trading on that MTF. The FCA emphasises that this proposal does not in and of itself mean that an MTF operator can conduct matched principal trading without holding the relevant permissions;
removing the restriction that prevents an investment firm classified as an SI from operating an organised trading facility (OTF) within the same legal entity;
permitting trading venues relying on the reference-price waiver to use a broader range of reliable, transparent prices (such as prices from the venue’s own market or a composite of venues) rather than being limited to the primary or most liquid market, with the aim of enhancing market resilience during outages and improving execution quality; and
seeking views on whether the reference price waiver should be reformulated so that it can apply to individual orders rather than to entire systems, thereby allowing prices for those orders to be derived from pre-trade transparent orders within the same order book, and enabling a wider set of liquidity to interact in a single liquidity pool instead of being fragmented in separate order books.
The FCA confirms that it is not proposing changes to the equity SI regime in CP25/20.
CP25/20 also includes a discussion paper on the structure and transparency of UK equity market trading (the Discussion Paper). In the Discussion Paper, the FCA notes a shift in trading activity away from central limit order books (CLOBs) towards bilateral execution mechanisms and raises questions about the continued effectiveness of the current transparency framework. The FCA is not consulting on specific rule changes at this stage, but is seeking views on whether these developments raise concerns and warrant future reforms.
Next Steps
The consultation period for CP25/20 closes on 10 September 2025. The FCA intends to finalise the changes on the SI framework for bonds and derivatives and the other reforms on matched principal, the reference price waiver and the operation of an OTF and SI in the same legal entity in a Policy Statement in Q4 2025. The FCA will use the responses to the discussion questions on reforms to equity transparency to inform the proposals that it intends to consult on in 2026.
CP25/20 is available here.
June 2025 ESG Policy Update—Australia
Australian Update
ASIC Includes Climate-Related Disclosures in its Financial Reporting and Audit Focus Areas for FY2025-26
The Australian Securities and Investments Commission (ASIC) has published its financial reporting and audit focus areas for the 2025-26 financial year. These include an emphasis on the surveillance of sustainability reporting standards.
This is designed to assess implementation of the Australian Accounting Standards Board (AASB) S2 Climate-related disclosures (AASB S2), which became mandatory for Group 1 entities with financial years commencing on or after 1 January 2025. Further information on the criteria for a Group 1 entity can be found here.
This reporting standard is applicable for entities who:
Are required to prepare an annual financial report under Chapter 2M of the Corporations Act 2001 (Cth);
Meet certain sustainability reporting thresholds; and
Have not obtained sustainability reporting relief from ASIC.
However, ASIC has indicated that their approach to supervising and enforcing this reporting standard will be proportionate and pragmatic to align with the phased-in approach.
With the new financial year in Australia having commenced on 1 July 2025, entities should consider Regulatory Guide 280 (RG 280) which provides practical guidance about complying with sustainability reporting obligations.
ASIC Commissioner Delivers Keynote Address Clarifying the New Mandatory Climate-Related Reporting Framework
On 29 May 2025, the Commissioner of ASIC, Kate O’Rourke, delivered a keynote address at the Responsible Investment Association Australasia (RIAA) Conference in Sydney.
The address noted that ASIC:
Is working to help entities comply with the new mandatory climate-related reporting framework; and
Intends to develop a set of educational materials to help report preparers understand the concepts underlying the reporting obligations.
Additionally, ASIC is beginning to receive applications for relief from sustainability reporting and audit obligations. The majority of these relief applications relate to novel issues which are highly specific to the applying entity.
Also, ASIC is encouraging entities considering relief to apply as early as possible.
This is because many of the issues being raised have not previously been considered and will take time to evaluate.
Finally, an important distinction was made between its treatment of sustainability reporting and that of greenwashing. ASIC explained that provisions in relation to misleading and deceptive conduct are “long-standing provisions” under the Corporations Act, with very well-established legal principles whilst the sustainability reporting regime is “new” and ASIC’s focus in relation to sustainability regime is on “helping reporting entities to comply”.
Australia Launches Sustainable Finance Taxonomy to Support Carbon Neutral Strategy
On 17 June 2025, the Australian Sustainable Finance Institute (ASFI) announced the launch of its first sustainable finance taxonomy. This voluntary framework aims to guide investments towards net zero goals, aligning with the Paris Agreement.
The taxonomy categorises economic activities into green and transition-focused sectors, aiming to enhance transparency and facilitate capital flows. It covers key areas such as agriculture, mining, manufacturing, and transport, and is the first globally to include high-emission sectors like minerals and metals.
This initiative is part of Australia’s Sustainable Finance Roadmap, designed to mobilise private capital for a net zero economy. The taxonomy will be piloted by major financial institutions within Australia to explore diverse use cases and refine the tool for broader market adoption.
The sustainable finance standards body Climate Bonds Initiative will expand its Certification Scheme to align with the taxonomy, promoting harmonisation.
Australia’s launch of this taxonomy positions it alongside global leaders like the EU and UK, marking a potentially transformative moment for its sustainable finance market.
Australia to Consider Carbon Border Tariffs in International Trade
On 1 June 2025, Energy Minister Chris Bowen indicated that Australia is considering a Carbon Border Adjustment Mechanism (CBAM) on imports like cement and steel, aligning with recommendations from the Climate Energy Finance (CEF) report (Report). This Report emphasises the urgent need for carbon border tariffs to address the carbon emissions embedded in industrial commodities, which account for 15% of global emissions.
The Report outlines four pillars essential for effective international carbon pricing: high domestic carbon pricing, CBAMs to level the trade playing field, complementary industrial policies, and collaboration with key trading partners. Australia, with its abundant renewable resources and status as a major exporter of iron ore and gas, is well-positioned to advocate for an Asian CBAM.
The Report suggests that an Asian CBAM could drive the development of a green commodities industry in Australia, potentially delivering a multi-hundred-billion-dollar economic boost. It also highlights the strategic importance of Australia transitioning from fossil fuels to clean commodities like green iron, which could enhance its economic resilience and energy security.
The CEF’s analysis has been supported by various stakeholders, including the Smart Energy Council, which views the move towards an Asian CBAM as a strategic alignment of decarbonisation efforts with trade competitiveness.
View From Abroad
EPP’s Draft Amendments to “Omnibus” Initiative Proposes Changes to Sustainability Reporting Regulations
On 12 June 2025, the European People’s Party (EPP) published its proposals to amend the European Commission’s “Omnibus” initiative.
The “Omnibus” initiative aims to simplify various sustainability reporting requirements and due diligence regulations, particularly within the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD).
Key changes proposed by the EPP to amend the “Omnibus” include:
The EPP draft proposes to further limit the scope of the CSRD and CSDDD to companies with more than 3,000 employees and €450 million in revenue, compared to the Commission’s proposal of a 1,000 employee threshold;
The draft retains voluntary standards for a limit for smaller companies but raises the threshold to 3,000 employees. It allows companies to comply with sustainability reporting obligations by explaining how and if the disclosure information is unavailable; and
The draft removes the requirement for climate transition plans, making it optional for companies to report on them if they exist and eliminates the provision for member states to impose stricter sustainability due diligence requirements.
The proposed amendments highlight the lack of consensus in the European Parliament, with opinions ranging from protecting the CSRD and CSDDD to opposing the proposed amendments and to eliminating the CSRD and CSDDD altogether.
EPA Proposes to Roll Back Greenhouse Gas Emissions and Mercury Emissions Rules for Power Plants
On 11 June 2025, the U.S. Environmental Protection Agency (EPA) announced a proposal to repeal key regulations on greenhouse gas (GHG) and mercury emissions from fossil fuel power plants. This move aims to reverse the stricter standards set by previous administrations, with the EPA stating the repeal would potentially save the power sector US$1.2 billion annually, or US$19 billion over two decades.
The EPA argues that emissions from U.S. fossil fuel-fired power plants do not significantly contribute to global GHG levels, suggesting that policies such as the Clean Air Act 1961 should determine what is considered a “significant” contribution based on the impacts and effects of statutory policy considerations, rather than a quantitative measure of emission volumes. This proposal includes rolling back the 2024 amendments to the Mercury and Air Toxics Standards (MATS), which had imposed tighter limits on mercury and particulate matter emissions.
The EPA’s decision to ease regulations is part of a broader effort to support the fossil fuel sector, challenging the previous administration’s push towards clean energy. The agency will hold a public hearing and open a comment period for these proposals, inviting feedback from stakeholders.
Tom Young, Nathan Bodlovich, Daniel Nastasi, Natalia Tan, Aibelle Espino, and Isaac Gilmore contributed to this article
The Texas Stock Exchange: A New Era for Public Markets in the Lone Star State
Move over Wall Street, here comes Y’all Street. The Texas Stock Exchange (TXSE) is set to launch in Dallas, Texas with plans to begin trading in the second half of 2026, according to people familiar with the matter. The TXSE would be the first major U.S. stock exchange to launch in decades and has secured over $120 million in funding from investors. The exchange aims to provide an alternative to existing exchanges.
The TXSE emerges as some U.S. companies have expressed concerns with the regulatory environment and fee structures of existing exchanges. According to The Wall Street Journal, corporate leaders have voiced concerns about increasing compliance costs and listing requirements on other exchanges. Texas officials view the state’s business environment and expanding financial sector as factors that would support a new national stock exchange.
The potential benefits of the TXSE are as follows:
Regulatory Flexibility and Efficiency. Texas has a regulatory climate characterized by lower taxes and business-oriented policies. Companies wishing to be listed on the TXSE may benefit from Texas’s business environment, potentially reducing compliance costs and administrative burdens. Additionally, compared to other exchanges, the TXSE may provide more straightforward and less burdensome listing requirements beyond those the Securities and Exchange Commission mandates, including reduced reporting obligations, fewer mandatory disclosures, and greater flexibility in corporate governance structures. This approach is designed to attract companies seeking a more predictable and business-oriented environment.
Lower Listing and Transaction Fees. By leveraging advanced technology and a lean operational model, the TXSE aims to offer lower listing and trading fees compared to competing exchanges, making public markets more accessible to a broader range of companies.
Enhanced Market Competition. The TXSE aims to introduce competition to the current U.S. capital markets, offering an option to the New York Stock Exchange (NYSE) and NASDAQ. This competition may drive down listing fees, improve service quality, and foster innovation in trading technology and market structure.
Regional Economic Growth. The TXSE may help further underscore Texas’s status as a financial hub, potentially attracting investment, talent, and ancillary businesses to the region. By establishing a new exchange in Texas, the TXSE provides geographic diversification for issuers and investors. This move aligns with broader trends of corporate relocations and economic growth in the Sun Belt, offering issuers access to new pools of capital and talent. Notably, the NYSE recently moved its Chicago-based exchange to Dallas and rebranded it as NYSE Texas, underscoring the growing prominence of Texas in the national financial landscape.
Focus on Shareholder Value and Enhanced Access for Emerging Companies. The TXSE has signaled an intent to prioritize shareholder interests and corporate governance, appealing to companies and investors seeking a more traditional approach to public markets. Additionally, the TXSE has signaled its intent to be particularly welcoming to mid-sized and emerging growth companies, which may face challenges meeting the stringent requirements or higher costs of existing exchanges. This focus may spur innovation and job creation by providing more companies with access to public capital.
While the TXSE is still finalizing its rules and procedures, companies seeking to list on the TXSE may consider the following steps:
Preliminary Consultation. Companies wishing to be listed on the TXSE must engage with TXSE representatives to assess eligibility and discuss listing requirements, including financial thresholds and corporate governance standards, such as the below:
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Corporate Governance: maintaining an independent board of directors, establishing audit and compensation committees, and adhering to best practices in governance.
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Financial Standards: meeting minimum thresholds for revenue, net income, market capitalization, and shareholders’ equity. For example, companies may need to demonstrate a minimum market value of publicly held shares and a history of profitability or revenue growth.
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Shareholder Base: meeting minimum thresholds of round-lot shareholders (typically 400 or more) and minimum thresholds of publicly held shares.
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Other Requirements: meeting certain standards regarding share price, operating history, and corporate structure. The TXSE may also introduce innovative listing standards to attract a broader range of issuers, including special purpose acquisition companies (SPACs), real estate investment trusts (REITs), and international firms seeking a U.S. listing.
Application Submission. Submitting a formal application, including audited financial statements, corporate documents, and disclosures similar to those required by the SEC.
Regulatory Review. The TXSE will likely conduct a thorough review of the application, ensuring compliance with its listing standards and SEC regulations. This process may involve requests for additional information or clarifications.
Approval and Listing Agreement. Upon successful review, the company will likely need to enter into a listing agreement with the TXSE, outlining ongoing disclosure obligations and compliance requirements.
Initial Public Offering (IPO) or Direct Listing. After approval, companies may have the option to either conduct an IPO or pursue a direct listing, depending on their capital-raising needs and strategic objectives.
Ongoing Compliance and Reporting. After getting listed, the listed companies will likely be required to adhere to continuing disclosure obligations, periodic reporting, and corporate governance standards the TXSE and the SEC set, including the filing of periodic reports (such as Forms 10-K, 10-Q, 8-K) and adherence to Regulation S-K and S-X.
As of July 2025, the TXSE has not yet published its final, detailed listing requirements for secondary listings. However, based on industry standards and preliminary statements from TXSE representatives, companies seeking a secondary listing on the TXSE will likely need to meet certain financial, governance, and disclosure criteria. These typically include maintaining a minimum market capitalization, a specified number of publicly held shares, and a minimum share price. Companies may also be expected to comply with ongoing reporting and corporate governance standards similar to those other major U.S. exchanges require. Additionally, the TXSE may require that such companies are in good standing on their primary exchange and that such companies provide all necessary disclosures in accordance with U.S. securities laws. The TXSE may release its official secondary listing requirements closer to its launch date, so companies interested in a secondary listing should monitor the exchange’s announcements for the most up-to-date information.
Companies wishing to be listed on the TXSE and potential issuers may be able to begin listing their shares on the TXSE once the exchange completes its regulatory approval process, which is expected to conclude in the second half of 2025. Upon receiving the necessary approvals from the SEC and other relevant authorities, the TXSE will open its platform for both initial public offerings (IPOs) and secondary listings. This will allow companies seeking to go public for the first time, as well as those already listed on other exchanges, to list their shares on the TXSE. The TXSE will announce specific dates and listing requirements as the launch date approaches.
Over 70% of U.S. Investment Professionals See Economic Outlook as an Opportunity, Barnes & Thornburg Report Shows
Barnes & Thornburg announced today the release of its third annual 2025 Investment Funds Outlook Report , which draws on survey responses from U.S.-based limited partners (LPs), general partners (GPs), and service providers to deliver an in-depth analysis of today’s private investment funds landscape.
Amid widespread market turbulence and heightened liquidity pressures, the report explores how U.S. investment professionals are navigating top economic and regulatory challenges—from the increased use of key fund terms and an evolving LP-GP dynamic to new compliance priorities and investment opportunities. The report also spotlights three key sectors that respondents believe can thrive in the year to come: hedge funds, private credit, and cryptocurrency.
Some of this year’s key findings include:
Volatility presents new challenges and opportunities. Despite a turbulent start to 2025, the majority of respondents view the general economic outlook (72%), availability of capital (66%), and regulatory environment (64%) as investment opportunities. But challenges are mounting, too: LPs are noticeably more concerned about financing terms, transparency, and ESG—and GPs more concerned about fundraising, returns, and regulatory risk—than in 2024.
“While many GPs came into this year very optimistic about expected fundraising, for many managers that optimism has been tempered so far, in part due to market volatility and economic uncertainty,” says Scott L. Beal, partner and co-chair of Barnes & Thornburg’s Private Funds and Asset Management Practice.
Investors and managers are using every fund structuring tool in the toolbox to manage current economic conditions. More than half of respondents anticipate heightened use of the various fund terms we asked about, such as investment period extensions (72% expect an increase in 2025), LP-led use of securitization techniques (72%), changes in distribution of fund proceeds (69%), and term extensions (69%).
“The marked increase in the level of investment restrictions and access to secondaries speak to efforts by investors to establish additional guardrails in today’s market,” says Maria Monte, partner in Barnes & Thornburg’s Private Funds and Asset Management Practice.
Cybersecurity and AI are top compliance focus areas. Though respondents are relatively split on whether the Trump administration is making compliance with fund regulation and policy more or less challenging, LPs and GPs agree that cybersecurity/data management and AI are top compliance priorities in 2025. From there, however, LP and GP views diverge, with LPs more focused on liquidity management, ESG, transparency, and national security and GPs more concerned about fund valuation and tax issues.
“This year’s findings may be a message for GPs that, in addition to returns, LPs are increasing their focus on strong governance, transparency, and succession planning,” says Jahan Sharifi, co-chair of Barnes & Thornburg’s Private Funds and Asset Management Practice. “In an unpredictable economic landscape, investors may look to control what they can control to protect their capital.”
Barnes & Thornburg surveyed 121 U.S.-based LPs, GPs, and service providers sourced through a third-party survey panel provider. The online survey was conducted in March and April 2025. To learn more, download the Barnes & Thornburg 2025 Investment Funds Outlook Report.
President Trump Signs One Big Beautiful Bill Act into Law
I. Introduction
On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (the “Act”) into law.[1] The Act is similar to the Senate Finance Committee’s draft legislative text (the “SFC Bill”) (released on June 16, 2025), with several modifications and omissions. The Act’s key differences from the SFC Bill and the prior House version of the legislation (passed on May 22, 2025) (the “House Bill”) are noted below.[2]
The Act:
Increases the qualified small business stock (“QSBS”) exclusion cap for stock acquired after July 4, 2025 to the greater of (i) $15 million (rather than $10 million) or (ii) 10x the investor’s stock basis; introduces a phase-in structure for gain exclusion based on holding period; and expands the scope of stock qualifying as QSBS by increasing the gross asset threshold to $75 million (rather than $50 million);
Includes a first-time 100% expensing provision for “qualified production property” (“QPP”), which includes certain commercial real property that generally depreciates over a 39-year useful life;
Clarifies that the disguised sale of partnership interests rule under section 707(a)(2) is self-executing and does not require regulations; [3]
Modifies the private university endowment excise tax from a fixed 1.4% rate to a tiered system with the highest rate of 8% and applies the tax only to universities with at least 3,000 (rather than 500) tuition-paying students;
Does not include section 899, the “revenge tax” introduced by the House on residents of countries that impose “unfair foreign taxes” on U.S. persons;[4]
Does not include the new tax on litigation financing that was originally introduced by Senator Thom Tillis (R-NC);
Does not include any restriction of pass-through entity tax (“PTET”) deductions;
Does not include the increased 23% section 199A deduction proposed by the House (the section 199A deduction remains at 20%);
Does not extend the section 199A deduction that currently exists for investments in real estate investment trusts (“REITs”) to business development companies (“BDCs”);
Does not increase the private foundation net investment income tax;
Does not limit amortization of a professional sports franchise and related intangible assets, as proposed by the House;
Does not treat a tax-exempt organization’s income from the sale or license of its name or logo as “unrelated taxable income”, as proposed by the House; and
Does not include any carried interest provision.
II. Summary of Key Provisions
A. International Provisions
BEAT Made Permanent at 10.5%. Under prior law, the base-erosion and anti-abuse tax (the “BEAT”) rate under section 59A was 10% and was set to rise to 12.5% in 2026. The Act increases the BEAT rate from 10% to 10.5% for tax years beginning in 2026.
GILTI & FDII.
GILTI.
The Act renames global intangible low-taxed income (“GILTI”) as “net CFC tested income” (“NCTI”) and eliminates the net deemed tangible income return (“NDTIR”) from the calculation of NCTI (which means that the NCTI tax is imposed on the first dollar of NCTI).[5]
The deduction under section 250 is decreased from 50% to 40%, which increases the effective tax rate on NCTI from 10.5% to 12.6% (or 14%, taking into account the NCTI foreign tax credit discussed further below).
The Act provides a taxpayer-favorable change to the expense allocation rules for purposes of the foreign tax credit limitation – only expenses directly allocable to CFC income, as well as the section 250 deduction, must be allocated to the GILTI basket; U.S. expenses (such as interest and R&D) are now allocated to U.S. source income.
The Act reduces the 20% foreign tax credit “haircut” for NCTI taxes from 20% to 10% beginning December 31, 2025; thus, 90% of foreign taxes paid on NCTI can be claimed as a credit against U.S. taxes (as compared to 80% before the Act). As a result of this increased limitation, NCTI must be subject to a 14% effective tax rate for residual U.S. tax on NCTI to be fully eliminated.
FDII.
The Act also renames foreign-derived intangible income (“FDII”) as “foreign derived deduction eligible income” (“FDDEI”).
The FDDEI deduction is reduced from 37.5% to 33.34%, which increases the effective tax rate on FDDEII from 13.125% to 14%. These changes apply to tax years beginning after December 31, 2025.
Income and gain from certain sales or dispositions of intangibles (including section 367(d)(4) assets) as well as certain depreciable or amortizable assets, made after June 16, 2025, are excluded from the FDDEI base. However, unlike in the SFC Bill, income from licensing intellectual property abroad qualifies for the FDII deduction.
The Act changes the expense allocation provisions so that deduction eligible income is reduced by expenses and deductions (excluding interest expense and research and experimental expenditures) that are properly allocable to the gross income.
The Act also eliminates the NDTIR from the FDDEI calculation, which means that a larger portion of FDEI becomes eligible for the deduction; this change applies for tax years beginning December 31, 2025.
CFCs.
Downward Stock Attribution Rule. Effective for tax years beginning after December 31, 2025, the Act favorably reinstates section 958(b)(4), which (prior to the Tax Cuts and Jobs Act (the “TCJA”)) did not attribute prohibits the use of downward stock attribution from a foreign person downward to a U.S. person to determine whether a shareholder is a “U.S. shareholder” and a foreign corporation is a CFC. However, downward attribution is preserved in certain cases under =new section 951B (discussed further below).
New Inclusions for Foreign-Controlled U.S. Shareholders. The Act establishes new section 951B, which subjects “foreign-controlled U.S. shareholders” of “foreign-controlled CFCs” to modified CFC inclusion rules. A “foreign-controlled U.S. shareholder” is a U.S. person that owns over 50% of a “foreign-controlled CFC”. For purposes of this 50% threshold, section 958(b)(4) is disregarded, and downward stock attribution applies. A “foreign-controlled” CFC is a CFC that would become a CFC due to the application of section 951B. Under section 951B, foreign-controlled U.S. shareholders are required to report Subpart F and NTCI inclusions from foreign-controlled CFCs.
CFC Look-Through Rule. The CFC look-through rule under section 954(c)(6) is made permanent. As a result, related party payments (such as dividends, interest and royalties) between CFCs are not treated as Subpart F income if the payments relate to income that is not Subpart F income or income effectively connected to a U.S. trade or business in the hands of the related CFC making the payment.
Repeal of the One-Month Deferral Election for CFC Tax Year. The Act eliminates the election under former section 898(c)(2) that allowed certain CFCs to elect to use a tax year that begins one month earlier than its majority U.S. owner’s tax year. This repeal is effective for CFC tax years beginning after November 30, 2025.
Repeal of the “Last Day” Rule. The Act eliminates the rule that allowed U.S. shareholders to avoid including Subpart F and GILTI income unless the U.S. shareholder owns stock in the CFC on the last day of the CFC’s tax year. U.S. shareholders are required to include their share of Subpart F and GILTI income for any year during which a foreign corporation was a CFC, and the U.S. person owned stock (directly or indirectly under section 958(a)). This is effective for tax years of foreign corporations beginning after December 31, 2025.
B. Business Provisions
163(j) deductions. Business interest deductions continue to be limited to 30% of “adjusted taxable income” (“ATI”) (plus business and floor plan financing interest), but the definition of ATI is again more favorably calculated based on EBITDA (as it was from 2022 to 2024), rather than EBIT. This definition will apply for all taxable years beginning after December 31, 2024. In addition, Subpart F income, GILTI inclusions, gross-up amounts for indirect foreign tax credits under section 78 and certain other income is excluded from the calculation of ATI, effective for tax years beginning after December 31, 2025. Finally, for taxable years beginning after December 31, 2025, the Act requires capitalized interest to be treated as business interest that is subject to the section 163(j) limitation, unless it is required to be capitalized under sections 263(g) or 263A(f).
Section 199A. The Act makes permanent the 20% deduction for qualified business income (“QBI”) under section 199A, which would have sunset at the end of tax year 2025. The income threshold for phasing in the deduction has been increased from $50,000 to $75,000 (for single filers) and from $100,000 to $150,000 (for married taxpayers filing jointly). As stated above, the Act does not expand the section 199A deduction to interest-related dividends paid by BDCs, which had been proposed by the House.
Extension of Excess Business Loss Limitation. The limitation on excess business losses for noncorporate taxpayers is made permanent.
Section 707(a)(2) – Disguised Sale of Partnership Interests. There had been uncertainty whether section 707(a)(2), which governs disguised sales of partnership interests, was self-executing in the absence of regulations. The Act clarifies that no final regulations are needed to make section 707(a)(2) applicable to disguised sales of partnership interests.
Qualified Small Business Stock. The section 1202 per issuer cap for excluding gain from qualified small business stock (“QSBS”) has been increased to the greater of (i) $15 million (adjusted for inflation) or (ii) 10x the investor’s stock basis (rather than the greater of (i) $10 million or (ii) 10x the investor’s stock basis) for stock acquired after July 4, 2025. In addition, for taxable years beginning after July 4, 2025, a phase-in structure for gain exclusion is based on holding period so that (i) QSBS held for at least 3 years is eligible for a 50% gain exclusion; (ii) QSBS held for at least 4 years is eligible for a 75% gain exclusion; and (iii) QSBS held for at least 5 years is eligible for 100% gain exclusion. Excludable gain that is not excluded by reason of the phase-in is subject to a 28% capital gains rate (rather than the standard 20% capital gains rate), with any remaining gain eligible for the 20% capital gains rate. Finally, the Act favorably increases the gross asset limit from $50 million to $75 million, indexed for inflation.
Bonus Depreciation.
The Act makes permanent the 100% first-year bonus depreciation deduction under section 168(k) for “qualified property” acquired and placed in service after January 19, 2025. “Qualified property” generally includes tangible personal property with a useful life of 20 years or less (such as equipment and machinery).
In addition, the Act introduces a first-time 100% expensing provision for “qualified production property” (“QPP”). “QPP” includes certain commercial real property (which generally depreciates over a 39-year useful life) that begins its original use with the taxpayer, but “QPP” does not include leased property. To qualify for 100% expensing, the QPP must also (i) be used as an “integral part” of a “qualified production activity”, such as the manufacturing, production and refining of certain personal property in the United States; (ii) have begun being constructed between January 20, 2025 and December 31, 2028; and (iii) be placed in service by December 31, 2030.
Domestic Research or Experimental Expenditures. Expensing (i.e., current deductions) for domestic research and experimental (R&E) costs in connection with the taxpayer’s traded or business is made permanent in taxable years beginning after December 31, 2024.
Opportunity Zones. The Act makes several changes to the Qualified Opportunity Zone (“QOZ”) program, which was enacted by the TCJA. The Act extends and makes the QOZ program permanent (it would have expired at the end of 2026). The Act retains the TCJA’s full basis step up benefit for investments held for at least 10 years. Beginning July 1, 2026, state governors will be able to designate new census tracts for the OZ program; the designations will be effective on January 1, 2027. New QOZs may be designated every 10 years thereafter. Deferred gain will generally be includible in income five years after a taxpayer’s investment into a qualified opportunity fund (absent an earlier inclusion event) rather than on a specified date under the TCJA.
The Act imposes stricter requirements than the TCJA for a census tract to be eligible for designation as a QOZ. A census tract is eligible for QOZ designation only if it is in a “low-income community.” A census tract will qualify as a low-income community if (i) the median family income in the tract does not exceed 70% (as compared to 80% under the TCJA) of the median family income in the state or metropolitan area, as applicable or (ii) the tract has a 20% or greater poverty rate, so long as the medium family income in the tract does not exceed 125% of the median family income in the state or metropolitan area. The Act also repeals the “contiguous tract” exception that permitted state governors to designate higher-income tracts as QOZs if they were contiguous to a qualifying tract and had a median family income less than 125% of the adjacent tract.
The Act introduces significant changes relating to rural areas. The Act also establishes the qualified rural opportunity funds (“QROFs”), which must invest at least 90% in rural tracts. These QROFs offer investors substantial benefits. First, investors in QROFs are eligible for a 30% (rather than 10% for non-rural tracts) basis step up after 5 years. Second, the “substantial improvement” requirement for property in rural tracts is reduced so that only 50% (rather than 100%) of the property’s original basis (other than with respect to land) must be invested to improve the property within the required time period.
Charitable Donation Limitation. Under the Act, non-itemizer individuals benefit from an above-the-line deduction of $1,000 (for single filers) and $2,000 (for married taxpayers filing jointly), and individuals making charitable contributions to qualified charities made in cash can be deducted up to 60% of adjusted gross income (“AGI”). However, itemizers are subject to a floor on charitable contribution deductions of 0.5% on the taxpayer’s contribution base for the taxable year. Further, a C corporation’s charitable contribution deductions are subject to a new 1% floor based on its taxable income; the existing 10% cap remains in place. Finally, high-income donors may only deduct up to 35% (rather than 37%, the highest marginal rate applicable to individuals) of donations. These changes are effective for tax years beginning after December 31, 2025.
Taxable REIT Subsidiary Asset Test. Taxable REIT subsidiaries may represent 25% (the pre-TCJA limit) of the value of the REIT’s total assets (rather than 20% under current law). This change is effective for tax years beginning after December 31, 2025.
Clean Energy Credits Scaled Back. The Act scales back the scope of clean energy tax incentives put in place under the Inflation Reduction Act. It gradually phases out certain manufacturing-related credits, shortens the timeframe for certain credits to be claimed and introduces new restrictions, such as with respect to components sourced from certain foreign countries.
C. Tax-Exempt Provisions
Increased Excise Tax on Private University Endowments.The excise tax on large private university endowments has been changed from a flat 1.4% excise tax on net investment income to a tiered system – the larger an endowment is per student, the higher the tax rate, with the highest rate of 8% applying to schools with endowments of $2 million or more per student. In addition, the excise tax now only applies to schools with 3,000 (rather than 500) or more tuition-paying students (more than 50% of which are located in the United States). The Act also expands the definition of “net investment income” for these purposes to include certain student loan interest and certain royalties. As mentioned above, the Act did not include the prior proposals to increase the net investment income tax on private foundations.
Tax on Excessive Employee Compensation. While the Act retains the 21% excise tax imposed on tax-exempt organizations in respect of employee compensation over $1 million, it expands the definition of “covered employees” to include any employee or former employee of the applicable organization during any taxable year beginning after December 31, 2016 (as compared to the top 5 highest paid employees under law prior to the Act). The change applies to taxable years beginning after December 31, 2025.
D. Individual Provisions
Retains the Current Individual Tax Rates. The maximum rate of 37% for individuals is made permanent.
Standard Deductions.The Act makes permanent the doubled standard deduction from the TCJA, which was set to expire in 2026, and it provides an additional deduction of $750 (for single filers) and $1,500 (for married taxpayers filing jointly).
Personal Exemption Disallowed. The personal exemption is permanently disallowed, except certain senior taxpayers are temporarily permitted to take a personal exemption deduction of $6,000 from 2025 to 2028.
Miscellaneous Itemized Deductions Disallowed. Miscellaneous itemized deductions are permanently disallowed (other than certain educator expenses).
SALT Deduction Cap Increased. The state and local tax (“SALT”) deduction cap is temporarily increased from $10,000 to $40,000 for 2025, to $40,400 for 2026, increasing to 101% of previous year’s cap for 2027, 2028, and 2029, and reverts back to $10,000 for 2030 and later years. This temporary cap is phased out by 30% of the excess AGI above a threshold ($500,000 for 2025, but increasing each year), but not below the original $10,000 cap. For example, a single filer with $600,000 AGI would see their SALT cap reduced by $30,000 (30% of $100,000), resulting in a $10,000 cap. In tax year 2030, the SALT cap reverts to $10,000.
Itemized Deduction Limits. Itemized deductions (which were disallowed under the TCJA) are allowed and made permanent. The Act repeals the Pease limitation, but reduces itemized deductions otherwise allowable for the taxable year by 2/37 of the lesser of: (i) the amount of itemized deductions otherwise allowed, and (ii) the amount by which the taxpayer’s taxable income (similarly adjusted) exceeds the 37% bracket threshold. This second prong effectively imposes an additional 2% tax (for a total 39% marginal rate) on the portion of income equal to the taxpayer’s itemized deductions.
Deductions for Tips.Deductions of up to $25,000 per year are permitted for certain “cash tips” (including tips that are paid by card or under tip-sharing arrangements) for tax years 2025-2028. To qualify, the tips must be voluntarily paid by the customer and come from an occupation that “traditionally and customarily received tips”. The deduction phases out for taxpayers whose modified AGI exceeds $150,000 (for single filers) and $300,000 (for married taxpayers filing jointly). In addition, certain independent contractors who receive tips in a trade or business are also eligible for deductions if the gross income earned from that trade or business exceeds all deductions (not including the deductions for tips) taken in that trade or business in a taxable year.
Overtime Compensation Deductions. Deductions of up to $12,500 (for single filers) and $25,000 (for married taxpayers filing jointly) per year are permitted for qualified overtime compensation for itemizers and non-itemizers for tax years 2025 through 2028. However, the deduction would be reduced for taxpayers whose modified AGI exceeds $150,000 (for single filers) and $300,000 (for married taxpayers filing jointly).
Deductions for Car Loan Interest. Deductions (up to $10,000) of interest payments from 2025 through 2028 on car loans used to purchase new cars assembled in the United States. These deductions are allowed for itemizers and non-itemizers. The deduction phases out for taxpayers whose modified AGI exceeds $100,000 for single filers and $200,000 for married taxpayers filing jointly.
Expansion of Employer-Provided Childcare Credits. Employer-provided childcare credits for business providing qualified childcare to employees are further expanded from 25% to 40% (and up to 50% for eligible small businesses). The maximum annual credit is also increased from $150,000 to $500,000 for employers (up to $600,000 for eligible small businesses).
Family and Medical Leave Credits. Employer-provided family and medical leave credits are made permanent. The Act also expands the program to apply to part-time employees (i.e., those who work at least 20 hours/week) and to employees as early as 6 months into their employment. Employers may count wages or insurance premiums paid for leave mandated by state and local law, but only amounts exceeding the state and local minimums qualify for the credits.
Adoption Tax Credits. Up to $5,000 of adoption tax credits are refundable.
Scholarship-Granting Tax Credits. Beginning in 2027, tax credits of up to $1,700 are allowed for contributions by individuals to scholarship-granting organizations.
Expansion of Qualified Tuition Programs. The Act expands qualified tuition programs that are exempt from U.S. federal income tax (i.e., “529 accounts”) to include expenses for students at an elementary or secondary public, private, or religious school, or a vocational school that leads to a license. The tax-free withdrawal limit is increased from $10,000 to $20,000 per year.
Extension of Increased Alternative Minimum Tax Exemption from TCJA. The increased exemptions (same as under the TCJA) and increased exemption phase outs (increased from the TCJA’s 25% rate to 50%) from the individual alternative minimum tax are made permanent.
Qualified Residence Interest Deduction Limitation. The $750,000 limitation on deductions for qualified residence interest is made permanent.
Student Loan Discharged on Death or Disability Made Tax-Free Permanently. The Act makes permanentthe income exclusion for student loans discharged on account of death or disability. However, a social security number is required to claim this exclusion.
Personal Casualty Loss Relief Further Extended. Beginning in 2026, personal casualty loss deductions are permanently restricted to federally declared disasters, but the Act also explicitly makes state-declared disasters eligible for relief.
Qualified Bicycle Commuting Reimbursements. Reimbursements of bicycle commuting expenses are subject to U.S. federal income tax. Prior to the TCJA, the reimbursements were not taxable.
Reimbursements for Personal Work-Related Moving Expenses. Before the TCJA, deductions were provided for certain personal moving expenses for employment purposes and gross income did not include qualified moving expense reimbursements from employers. The deductions are permanently repealed, and the reimbursements are permanently taxable.
Child Tax Credits Made Permanent. The Act makes the child tax credit permanent and temporarily increases the maximum credit from $2,000 to $2,200. However, the Act caps the refundable portion of the credit at $1,400 (indexed for inflation).
Creation of “Trump” Accounts. Trump accounts are tax-exempt trust accounts that can be created for U.S. citizens under age 18. The funds from the Trump accounts can be used for qualified expenses of the beneficiary such as higher education and first-time home purchases. The Bill provides a one-time $1,000 federal credit per eligible child born between 2025 and 2028, which will be deposited directly into the child’s Trump account.
[1] The actual name of the Act is “An Act to Provide for Reconciliation Pursuant to Title II of H. Con. Res. 14”.
[2] For more detail about the provisions included in the House Bill, please read our prior blog post here.
[3] All references to section are to the Internal Revenue Code.
[4] Section 899 was omitted from the Act following an agreement by the G7 countries on June 27, 2025 not to subject U.S.-parented groups to the OECD Pillar 2 undertaxed profits rule or income inclusion rule.
[5] Under law prior to the Act, the annual GILTI income generally includes the net CFC “tested income” of the U.S. shareholder of the CFC, reduced by the U.S. shareholder’s NDTIR.
Rita N. Halabi contributed to this article
United States: AML Reprieve for Investment Advisers
On July 21, 2025, the Financial Crimes Enforcement Network (FinCEN) announced that it is delaying the effective date of the investment adviser anti-money laundering rule (IA AML Rule) for two years from 1 January 2026 to 1 January 2028.
During the delay in the effective date FinCEN plans to reopen the IA AML Rule and revisit the scope and substance of that rule through future rulemaking. At the same time, FinCEN will work with the SEC to revisit the joint proposed rule establishing customer identification program requirements for investment advisers (IA CIP Rule).
This announcement addresses two key industry concerns. First, FinCEN acknowledges that the scope of the IA AML Rule, which covers SEC registered investment advisers and exempt reporting advisers, should be more narrowly tailored in recognition of the “diverse business models and risk profiles of the investment adviser sector”; and second, it addresses widespread criticism that investment advisers did not have the opportunity to consider the IA AML Rule and the IA CIP Rule at the same time because the comment period for the IA AML Rule closed before the IA CIP Rule was proposed. This announcement presumably will give investment advisers the opportunity to review and comment on both proposals simultaneously—thus providing visibility into the full scope and substance of potential AML regulation for investment advisers.
SEC Signals Broader Access to Private Credit: Opportunities and Risks for a Wider Population of Investors
On May 19, 2025, newly appointed SEC Chair Paul Atkins signaled a regulatory shift that could expand retail investors’ access to private credit, a space previously reserved for institutional investors and high-net-worth individuals. Atkins announced plans to reconsider existing guidance that restricts how much registered closed-end funds (funds with a fixed number of investors that trade publicly) can invest in private funds, which include funds that issue private credit. If adopted, this change could allow publicly traded closed-end funds to invest significantly in private credit funds, enabling retail investors to gain exposure to these potentially high-performing asset classes while continuing to enjoy liquidity through trading their fund shares on exchanges. On the downside comes the inherent risks of investing in the unregistered private market — risks that are arguably better born by high-net-worth investors and pooled investment funds.
What is Private Credit?
Private credit refers to the practice of lending money outside of the formal banking system. As a means of financing business activity, it dates back to ancient times. In modern financial markets, businesses typically raise capital through several channels: issuing equity (stock), offering corporate bonds (debt), or borrowing from banks. However, companies can also borrow through “private credit” — a form of financing that operates outside the traditional banking framework.
Private credit is not subject to the same regulatory oversight as bank loans, allowing greater flexibility and customization in loan terms to suit both borrower and lender. This flexibility has made it an increasingly attractive option for corporations seeking tailored financing solutions, as well as for lenders seeking higher returns. Some market leaders, including the CEO of a major financial institution, have raised concerns that the relatively light regulation of private credit could contribute to future financial instability.
Why Does Private Credit Matter?
Much like private equity — which has grown dramatically from approximately $579 billion in 2000 to over $8 trillion today — private credit has expanded significantly, reaching nearly $2 trillion in assets. While the private equity market has long been dominated by large institutional players — particularly private equity firms — many of whom profit by taking equity stakes in growing companies, private credit has followed a parallel path. Indeed, despite concerns expressed by some of their executives, some major financial institutions started taking part in the private credit markets right after the 2008 financial crisis and now plan to invest tens of billions in private credit. Large investment funds now play a dominant role in this market, offering bespoke credit arrangements to companies and earning returns in the process.
As individual investors have observed the outsized returns generated by institutional players in private equity, they have increasingly turned to investment managers capable of pooling smaller capital contributions to access these same opportunities. This trend is now extending into private credit. These funds have enabled broader investor access by lowering entry points. Some platforms allow participation by individuals with a net worth of $250,000 or an annual income of $70,000, expanding access beyond traditional institutional investors and opening up a new world of investment to smaller players.
Which Laws Regulate Private Credit? How Has the Government Enforced Regulation?
Banks are primarily regulated by the Office of the Comptroller of the Currency (OCC), with the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) playing a secondary role. However, private credit generally falls outside of the purview of these agencies. Although private credit performs some of the same economic function as bank lenders, additional regulatory stringencies placed on banks can make traditional bank lending more difficult for corporate clients. The Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in the wake of the 2008 financial crisis, imposed sweeping changes on the banking industry particularly in the areas of capital and liquidity requirements. While these reforms improved overall banking stability, they also made traditional bank lending more burdensome for corporate clients.
In contrast, private credit is generally not subject to those same capital and liquidity requirements. Where private credit is extended by investment funds, those investment funds are governed by the Investment Advisers Act of 1940. Informal guidance from the SEC has also shaped the industry. Since 2002, the SEC staff has held that closed-end funds’ investment in private funds is limited to 15% of their assets — unless their investors are so-called “accredited investors.” This limit is not a formal rule, but a longstanding regulatory posture adopted to protect retail investors from exposure to illiquid or complex investment strategies.
Accredited investors are actually defined by a different act — the Securities Act of 1933 — whose Regulation D holds accredited investors to certain income or wealth thresholds. The current Regulation D definition sets those thresholds at a net worth of $1 million, or an annual income of $200,000 ($300,000 for joint income) for each of the last two years. Although the Regulation D thresholds were first established in 1982 and have not been adjusted for inflation, they continue to limit the access of small investors to investment funds that are primarily devoted to private credit or private equity.
What is the Future of Private Credit, and How Will It Be Regulated Going Forward?
The march of inflation and an overall increase in personal wealth has meant that the pool of accredited investors has grown. The $1 million net worth/$200,000 annual income threshold is reached by a far greater percentage of investors today than it was some 40 years ago; the SEC’s most recent review of the Regulation D threshold reveals that the share of households who clear the threshold has gone from 1.8% to 18% from 1983 to 2022. That review explains that the intent behind the threshold was to serve as a proxy for financial sophistication — with the understanding that investors with a greater net worth would be better able to assess and to bear the unique risks of private funds. At the same time, the review notes that even above the threshold, investors often do not understand the unique risks their investments may face, and a 2020 review of the accredited investor definition allowed knowledgeable individuals to qualify without meeting the strict wealth or income thresholds.
Amidst this, there are questions both within and beyond the SEC about whether the threshold itself is still meaningful. The Securities Industry and Financial Markets Association’s Asset Management Group urged the SEC in April 2025, to eliminate the 15% cap, arguing that the SEC staff’s practice would better be replaced by individual metrics assessing the investor’s ability to understand and bear risk. And shortly after his confirmation as SEC chair in that same month, Paul Atkins hinted that he may direct his staff to reconsider the staff’s guidance.
On the one hand, removing the 15% cap would open the door to smaller investors participating in a growing and vibrant market that has served as an increasingly important conduit for capital formation. On the other, it could expose less sophisticated market participants to higher risk in credit markets without the security of OCC banking oversight. Proponents of private credit argue that private credit spreads default risk across lending instruments and actually contributes to greater market stability, while those who oppose it see it as a wild west free from the guidance of the Fed and the safety net of the FDIC.
Whatever actions regulators might take in the immediate future to open up the market further, it seems that private credit is garnering a broader interest among market participants and will serve a growing place in providing financial liquidity and capital formation to the economy — and income to those with the stomach to take the risks.
Conclusion
Those energized and encouraged by Chair Atkins’s announcement — and seeking to participate in this evolving private credit landscape, whether as lenders, borrowers or investors — should seek legal guidance on how best to navigate this complex and rapidly developing market.
This article was co-authored by Phil Lieberman, law intern.