The government shutdown has ended, and the Securities and Exchange Commission is preparing to reopen after operating with a skeleton crew for over a month.
But registrants should still expect delays as the lights turn back on and SEC staff triage the array of filings that amassed during the time they were furloughed, according to compliance experts.
Dan Bernstein, the chief regulatory officer for MarketCounsel, told WealthManagement.com that he did not expect SEC staff to come in and “work from the top of the pile.”
“They’ll have to make some decisions on what needs to be prioritized, but they’ll just have to take their time and get through everything,” Bernstein said.
President Donald Trump signed a bill ending the 42-day government shutdown on Wednesday night, marking the conclusion of the longest shutdown in American history. The shutdown began in early October after congressional Democrats pushed for an extension of Affordable Care Act subsidies, but ended when several Senate Democrats joined Republicans to pass a temporary funding bill.
At the shutdown’s start, most of the SEC staff were furloughed; 9% kept working to receive tips and complaints, as well as handle emergency enforcement or continue essential litigation.
According to Brian Rubin, a partner with the law firm Eversheds Sutherland, firms in the midst of examinations or investigations may be left in limbo for weeks or months while the SEC prioritizes cases with potential investor harm.
Despite the shutdown, filing deadlines remained in place, though Rubin expects SEC staff will “try to be reasonable” to firms that didn’t file as they should have, and give them a short amount of time amid the reopening.
Rubin also noted that the clock continued ticking during the shutdown on statutes of limitations for civil enforcement actions, which can last for approximately five years. If the enforcement slowdown endangered the SEC’s chance at civil penalties, the staff may request a “tolling agreement,” which would grant the commission more time to finish the investigation.
However, tolling agreements require the investigated firm to acquiesce, although Rubin said it’s common for investigated firms to agree to extended time, as they don’t see the value in fighting the commission over it.
Although SEC staff may push back some exams, Bernstein acknowledged that the agency could delay minor enforcement cases even further; however, he didn’t expect the shutdown to cause SEC staff to entirely drop cases against registrants that were otherwise enforceable.
At the start of the shutdown, the most pressing ramification for the industry was the halt of new RIA registrations, leaving breakaway firms that were founding their practices with $100 million or more in assets uncertain about when they’d receive regulatory approval (the shutdown also threatened a potentially record year for RIA approvals at the SEC).
According to SEC regulations, the agency has 45 days to approve new registrants’ filings (before the shutdown, Bernstein estimated that the agency averaged about 30 to 35 days for responses). However, it remains an open question as to whether the 45-day window begins with the government reopening or when the filing was made, even if it occurred during the shutdown.
“If you read the rule, I think it implies or states that it’s upon when the filing was made,” Bernstein said. “There’s nothing in there that says they have to be there to start the review.”
That leaves new advisor registrants in a tricky spot, according to Stacie Craddock, the CEO and founder of Colorado-based Integrated Compliance Advisors. For registrants who were hoping to have their registration completed during November, Craddock can’t tell clients how backlogged the agency will be with filings to review and when that 45-day clock will start, regardless of what the rule says.
“We’re kind of stuck in limbo without a whole lot of guidance,” she said.
In one case, a client of Craddock’s had already signed a separation agreement with their former employer, with their final day scheduled for Dec. 31. While that advisor filed for registration in early October, if there are delays at the agency, they may not receive approval by the time their separation agreement expires.
In cases like that, she advises clients to work with their former firms if they have separation agreements, allowing them additional time to transfer clients and even creating an ad-hoc, interim consulting agreement with their prior firm.
“But when it’s not amicable and the frustrations are high, it’s just asking a favor from a partner that’s not really thrilled with the separation anyway,” she said.
When it came to questions about filings, exams and enforcement, Craddock said she was not even receiving callbacks on the SEC’s emergency line. She encouraged advisors and their compliance partners to be meticulous in documentation, showing good-faith efforts to meet filing deadlines and to contact the commission during the shutdown to avoid potential scrutiny.
Bernstein suspected that, despite the rule requiring 45-day approval post-filing, the agency would likely start the clock on the first day the whole staff returned to the office and reviewed applications.
“If you filed on the first day of the shutdown, at the end of those 45 days, you’re most likely not going to be approved, and what are you going to do about it?” he said. “So you go ahead to your new custodian and tell them, ‘Well, it’s been 45 days, I consider myself approved.’ And they’ll say, ‘Congratulations, show us.’”
The shutdown also threatened timely approvals for new fund launches and pending mutual fund/ETF dual share applications, which could cause slowdowns in the pipeline for those pursuing novel strategies, as well as those at less-established asset managers.
According to Kim Flynn, the president at consulting firm XA Investments, the timetable for launching new interval funds will be elongated at least for six months following the shutdown. She recommends new interval fund entrants be concise and complete with initial draft registration statements. She said many interval fund sponsors file initial statements that are incomplete or sloppy, which could delay the process further.
Flynn said the SEC will prioritize funds currently in the review process, as well as those that are close to being effective, which will happen before the agency turns its attention to any initial fund filings made during the shutdown.
“The implication of this for new interval fund sponsors entering the interval fund market with a first fund is they’d better get their planning phase internally moving so they have a shot at launching any new interval fund before the end of 2026,” Flynn wrote in an email to WealthManagement.com.
However, despite the workforce reductions that occurred earlier this year due to the work by the Elon Musk-spearheaded Department of Government Efficiency and offered buyouts, compliance experts didn’t notice a considerable difference from the SEC during this shutdown compared to the past.
According to Rubin, enforcement staff continued to bring actions against alleged bad behavior that endangers investors, and Bernstein said he felt the agency has been “getting more done with less” over the course of the year.