SEC Withdraws Several Proposed Rules; Investor Advisory Committee Recommends Action on Arbitration Clauses

1. Withdrawn Proposed Rules – June 12, 2025

On June 12, 2025, the SEC officially withdrew multiple proposed rules introduced under the prior Commission. These were not finalized and are no longer on the agency’s immediate rulemaking agenda. While the SEC may later propose new rules on similar or different topics, there is no indication that the withdrawn proposals will be reinstated in their original form.

Relevant to Investment Adviser Firms (RIA):

Outsourcing by Investment Advisers (S7‑25‑22): Requirements for due diligence, oversight, and recordkeeping related to third‑party service providers.

Safeguarding Advisory Client Assets (S7‑04‑23): Expanded custody rule covering digital assets and other client property.

Cybersecurity Risk Management for Advisers and Funds (S7‑04‑22): Proposed prescriptive cyber‑risk policies, annual reviews, board oversight, and incident reporting.

Primarily Relevant to Broker-Dealers (BD):

Regulation Best Execution (S7‑32‑10): A broker‑dealer‑specific execution standard separate from current FINRA obligations.

Amendments to Exchange Act Rule 3b‑16 (S7‑18‑23): Expanded the definition of exchange,” affecting trading platforms and crypto.

Consolidated Audit Trail (CAT) Amendments: Technical and governance updates to the CAT plan and broker‑dealer reporting.

2. Investor Advisory Committee Recommends Changes to Arbitration Clauses – June 5, 2025

Prior to the rule withdrawals, the SEC’s Investor Advisory Committee (IAC) considered reforms to arbitration clauses used by registered investment advisers. On June 5, 2025, the IAC unanimously approved recommendations aimed at aligning adviser arbitration practices closer to those of FINRA‑regulated broker‑dealers

Committee Composition:

The SEC’s Investor Advisory Committee (IAC) is a nonpartisan advisory group comprising investor advocates, academics, former state regulators, and representatives from the industry.

Key Concerns Identified by the Committee

The IAC expressed concern that many arbitration clauses in advisory agreements:

Limit investors' rights to bring claims by imposing caps on damages or narrowing the types of claims that may be brought.

Restrict venue or impose geographic burdens, potentially making it more difficult for investors to participate in arbitration.

Lack of transparency, with clients often unaware that they are waiving certain rights or agreeing to specific arbitration procedures.

Provide fewer protections than those available in FINRA’s dispute resolution system, even though investors may view RIAs and broker-dealers similarly.

Recommendations:

Prohibit restrictive arbitration terms such as limits on claims, forum selection bias, or venue inconveniences.

Require prominent disclosure of arbitration clauses and any arbitration awards, akin to FINRA’s standards.

Collect and report data on arbitration clause use and outcomes in adviser exams and public reports.

Educate investors on their arbitration rights, options, and key questions to ask their advisers.

These are advisory recommendations and not binding rules. Notably, the SEC has not issued any formal response or initiated rulemaking following the IAC’s recommendations.

3. What This Means for RIA Firms

Rule withdrawals: The SEC is refocusing its rulemaking agenda. Existing obligations remain unaffected, and new proposals may cover similar ground—but not necessarily the same content.

Arbitration clauses: Though no regulatory action has been taken, the committee’s attention signals possible increased examiner scrutiny. Firms using predispute arbitration clauses should consider legal review to ensure that the clauses don’t impose overly restrictive terms or limit client remedies. Evaluate whether your firm’s clauses contain restrictions that could be viewed as limiting client rights or presenting forum barriers. Ensure transparency and disclosure, including reviewing whether arbitration language is prominently placed and clearly worded.

Next steps:

Review arbitration provisions—assess for fairness of venue, limitations, and transparency.

Stay alert for SEC examinations that may include inquiries on arbitration clause usage disclosed in Form ADV.

Monitor SEC communications for any formal response or rulemaking following the IAC recommendations.

It is also worth noting that two finalized rules affecting advisory firms—the amendments to Regulation S-P and the new AML rule—have established compliance dates. Regulation S-P must be implemented by December 3, 2025, for larger firms (those with assets under management exceeding $1.5 billion) and by June 3, 2026, for smaller firms (those with assets under management of $1.5 billion or less). The AML rule requires compliance by January 1, 2026. Firms working with Coulter Strategic Services should expect to receive draft policies, training materials, and guidance in advance of these deadlines to support timely and effective compliance.

If you would like specific compliance education, training, and services to help with your compliance program or project, please contact Coulter Strategic Services. 

Check out Coulter Strategic Services' growing collection of training resources. Visit today and stay tuned for new training resources.

All information provided is for educational purposes and should not be construed as specific advice. The information does not reflect the view of any regulatory body, State or Federal Agency or Association. All efforts have been made to report true and accurate information. However, the information could become materially inaccurate without warning. Not all information from third-party sources can be thoroughly vetted. Coulter Strategic Services and its staff do NOT provide legal opinions or legal recommendations. Nothing in this material shall be considered as legal advice or opinion.