CENTER for
2023 capital marketsREGULATORY
STRATEGY
regulatory outlook AMERICAS2023 capital markets regulatory outlook
Contents
Introduction1
Regulatory churn 3
T+1
Amendments to the definition of broker-dealer
Best execution
Market structure proposals
Reinvigorated enforcement 7
Electronic Communications
Reg S-P and Reg S-ID actions
Digital assets
The regulatory horizon10
Electronic recordkeeping
Branch office inspections
Complex products
Looking forward11
Endnotes 12
Contacts 13
2 2023 capital markets regulatory outlook
Introduction
The current volume of proposed regulatory change
compares to that of the post–Dodd-Frank period. In
2023, we expect the impacts to ripple across firms
and markets in transformational and hard-to-predict
ways. We identify three themes that firms may want to
consider as they assess the sweeping impacts of this
agenda on their business:
o Regulatory churn: In 2022, capital markets regulators
developed approaches to emerging technology,
outdated rules, and progressive topics. Most of
the activity was led by the Securities and Exchange
Commission (SEC or Commission), which approved 39
proposals to amend existing or create new regulations.
Many of these proposals create new reporting
requirements for firms; others will expand the scope of
entities required to register with the SEC. Additionally,
this ambitious agenda has created a tremendous
amount of uncertainty and risk for certain firms.
Overlapping implementation timelines and anticipated
legal challenges make it difficult to effectively allocate
competing resources.
o Reinvigorated enforcement: In 2022, the number of
enforcement actions brought against capital markets
firms increased by 9%.1 Regulators also leaned heavily
on existing rules to enforce in areas where new While regulatory change
regulations are pending. should be atop
o On the regulatory horizon: Despite the volume of new
initiatives undertaken by regulators in 2022, we expectthe C-suite and board
several more topics to be on the regulatory horizon in
2023, including overhauls of firms’ digital engagement agenda in 2023, what
and cybersecurity practices.
could be viewed as a
tumultuous period from
a regulatory perspective
could also be an
opportunity to evaluate
strategy more broadly.
12023 capital markets regulatory outlook
2
2 2023 capital markets regulatory outlook
Regulatory churn
The large number of rule proposals in 2022 casts T+1
a shadow of uncertainty over the regulatory agenda in
In the current agenda, T+1 is atypical in the scale
2023 (see Figures 1 and 2). How much of the proposed
of operational implementation effort required
agenda ultimately will translate into rules that the
and simultaneous unanimous support from the
industry must implement? Two big factors that will likely
Commission.5 We expect a final rule to advance in 2023
determine this are (1) SEC leadership and oversight and
and the industry has already begun preparations.
(2) legal challenges to the agenda. Since the SEC has led
Like previous efforts to reduce the settlement cycle,
the financial regulatory agencies in new rulemaking
transitioning to T+1 will require significant operational
activity, the approach of its leadership (and specifically
change, and because of the heavy volume of
the chair) is paramount. Chair Gensler has identified
regulatory activity, the teams that will be responsible
a sweeping agenda of regulatory change and likely
for implementing T+1 are likely to be spread thin by
intends to follow through on that agenda. However,
implementing other regulatory mandates as well.
external pressures on the Commission and the realities
of effectuating, rather than proposing, change could
Nevertheless, firms will need to press forward with
force prioritization.2
operational changes, including the creation of a
project management office (PMO), development of
Oversight of the agency will be impactful and likely
implementation plans, continuous oversight of the
politically motivated. With a Republican majority in
implementation effort, portfolio manager, trader and
the House, we expect more scrutiny of the chair’s
client education, internal and industrywide testing, and
agenda, particularly from the House Financial Services
establishment of a migration command center.
Committee (HFSC). Legal challenges to forthcoming
rules, which are inevitable, especially for the most
Firms may also want to set up overarching PMO teams
controversial proposals,3 are potentially strengthened
for the full spectrum of regulatory implementations that
by recent Supreme Court rulings.4 Nevertheless,
will be required in 2023 and conduct assessments to
firms should plan as though the proposed agenda
identify synergies, conflicts, and resource constraints
will be enacted because, even if only a fraction is
to manage risks presented by an array of overlapping
finalized, the changes will be impactful, and significant
implementation efforts. Other steps firms should
implementation efforts will be required. Additionally, the
consider taking include:
uncertainty brought on by legal challenges to final rules
could linger for years—placing firms in an untenable
o Establishing a governance structure
position if they do not prepare for an outcome that
for implementation
favors the regulators. Some proposals, such as
reducing the settlement cycle from T+2 to T+1, are not o Obtaining commitment from management for
controversial at the Commission and likely will press resources dedicated to implementation
forward unimpeded. The proposals we discuss in detail
o Conducting analyses to determine the impacts, gaps,
here are among the most transformative introduced by
and changes required for implementation
the SEC in 2022.
o Developing a road map for implementation, inclusive
of gaps identified through firms’ analyses
3