On October 26, 2022, the SEC proposed new rules under the Investment Advisers Act of 1940 to prohibit investment advisers from outsourcing certain services and functions unless they take steps to reduce the risk of disruptions and failures that could harm investors. The proposal would require advisers to conduct due diligence before engaging a service provider to perform “covered functions” and to periodically monitor that performance. The due diligence requirement will likely have a disparate impact based on the size, sophistication and existing practices of fund managers. Not all fund managers will be unphased, however, by the due diligence requirements in the proposal. Emerging managers or others with lean compliance staffs may not have existing practices – or the necessary expertise and personnel – to engage in that type of deep-dive due diligence, noted Financial Industry and Private Investment Funds partner Gregory Larkin to Private Equity Law Report.