Regulatory Crossroads: A New Tone From the SEC

With shifting SEC priorities, accelerating product innovation and mounting compliance challenges, 2025 is shaping up to be a pivotal year for the exchange-traded fund industry.

That was the key takeaway from etf.com’s recent webinar, hosted by Senior Analyst Sumit Roy and featuring a panel of regulatory and legal experts: Carolyn McPhillips, president at MFDF, David Rosenfeld, chief operating officer at Quality EDGAR Solutions and Kevin Gustafson, partner at K&L Gates.

A New Tone From the SEC

The panel opened by examining how the new Securities and Exchange Commission leadership may reshape the regulatory landscape. Gustafson pointed to a “definite shift in tone,” with less emphasis on ESG and proxy issues and more focus on expanding capital market access, including for asset classes like crypto and private credit.

But McPhillips was quick to note that a deregulatory push doesn’t necessarily mean less work for fund boards.

“[Fund] boards should not expect a real lessening of what their responsibilities are going to look like in this new SEC,” she said. “They’re just going to look different.”

As the SEC opens the door to more complex products and structures, boards will be expected to fill any regulatory gaps, she explained.

ETF Share Classes

One of the hottest topics was the potential approval of ETF share classes beyond Vanguard. The panelists agreed that momentum is building. McPhillips cited Acting SEC Chair Mark Uyeda’s recent remarks prioritizing review of the long-pending applications. “I do think we’ll get an ETF share class this year from the SEC,” she said.

Gustafson emphasized that even if approvals are granted, operational hurdles remain. Service providers, liquidity platforms and authorized participants will need to adapt. “Would our service providers be able to handle this tomorrow? [There are] challenges to bring an ETF share class onto a platform,” he said.

But if ETF share classes are approved as expected, the implications could be massive. If they become the norm, Gustafson predicted that we could see ETF listings balloon well beyond the current 4,000.

That raises the question: What happens to mutual funds? McPhillips noted that mutual funds won’t necessarily die out—some ETFs have even filed to launch mutual fund share classes to capture the retirement plan channel.

EDGAR Next and the Rising Compliance Tide

On the operational side, Rosenfeld flagged “EDGAR Next” as a major compliance milestone. Set to be fully adopted by September 2025, the overhaul mandates multi-factor logins, designated account admins and better filer oversight.

“This transition can have major implications,” he explained. “It demands some upfront preparation to avoid filing disruptions—especially for firms juggling multiple trusts or complex structures.”

Rosenfeld also warned of the growing burden of XML-based filings. “The SEC is pushing for more structured data, and with that comes the need for better data aggregation, automation and compliance workflows.”

Crypto ETFs & Private Credit

The conversation turned to the frontiers of ETF innovation: digital assets and private credit.

On crypto, Gustafson noted a sharp regulatory pivot under the new administration. “[It] appears as though there is a material shift that has already happened,” he said, noting the plethora of applications to launch ETFs tied to various crypto assets. 

But McPhillips urged caution: “I think it is much better that [investors] get [crypto exposure] through a 40 Act-registered product because they have the protections of the 1940 Act ... liquidity, valuation, custody and, most importantly from my perspective, the fund board oversight.”

A similar tension exists with private credit. As traditional IPOs decline, interest in private markets is surging—but integrating these assets into ETFs is no easy feat. Gustafson pointed to structural challenges, including pricing, liquidity and tax compliance. “A lot of ways it’s hard ... just to price it appropriately intraday [for assets that aren’t getting necessarily priced at all].”

McPhillips agreed, arguing that if retail access is the goal, “It should be in a 40 Act product... because retail investors... don’t have the financial literacy or the time to invest to really understand what these products are doing.”

The Rise of Derivatives-Based ETFs

2024 was a record year for ETF launches, and a sizable chunk of them were derivatives-based. Gustafson highlighted the boom in structured outcome ETFs using listed options for income or downside protection. “You’ll probably continue to see a growth of variations of these types of products.”

The SEC, for now, appears comfortable with these strategies as long as they adhere to 40 Act and derivatives rule guardrails. But with increasing complexity comes increased scrutiny, especially as more investors seek risk-managed strategies amid market volatility.

Under-the-Radar Issues for 2025

In closing, the panelists shared regulatory issues they believe are flying under the radar.

McPhillips warned against conflating deregulation with “less oversight,” stressing that boards and fund advisors will need to step up as the complexity of products grows.

Gustafson wrapped things up with practical advice for new issuers: “It’s not too early to start talking and making relationships with the liquidity providers and market makers.”