Rising Risks in Listing Advisory Services: Navigating Regulatory Tightening and Fraud Prevention in 2025

The landscape for listing advisory services has grown increasingly complex in 2025, as regulators intensify scrutiny to address fraud, conflicts of interest, and operational risks. The U.S. Securities and Exchange Commission (SEC) has adopted a dual strategy: modernizing regulatory frameworks to reduce compliance burdens while simultaneously ramping up enforcement actions against misconduct. This shift reflects a broader effort to balance innovation with investor protection, particularly in high-risk areas like private fund advisory services, SPACs, and cross-border transactions.

Regulatory Tightening: A New Era of Oversight

The SEC's Spring 2025 Regulatory Agenda underscores a commitment to refining rules for listing advisory services. Key initiatives include proposed amendments to the Custody Rule to clarify the treatment of crypto assets and updates to the definition of "small entity" under the Regulatory Flexibility Act, which could reshape compliance obligations for smaller advisers according to regulatory analysis. Additionally, the SEC has issued guidance allowing registered closed-end funds to invest in private funds without caps on investor eligibility or exposure limits, emphasizing that existing federal securities laws provide adequate protections while encouraging capital formation. .

Parallel efforts by FINRA, such as amendments to Rule 6730 to streamline TRACE reporting for firms operating as both broker-dealers and investment advisers, highlight a push for operational efficiency without compromising transparency. Meanwhile, the White House's Executive Order on proxy advisory firms has directed the SEC to reevaluate rules enabling ESG/DEI factors in proxy voting and consider registering proxy advisors as investment advisers, signaling heightened oversight of entities influencing shareholder decisions.

Enforcement Surge: Fraud and Fiduciary Failures in Focus

The SEC's enforcement actions in 2025 reveal a sharp focus on fraud and fiduciary breaches. In the second quarter alone, the agency filed 31 stand-alone enforcement actions, with 27 alleging fraudulent conduct and nine targeting investment advisers. Notable cases include a private fund portfolio manager charged with orchestrating a Ponzi scheme by investing assets in entities controlled by the same individual, despite red flags and undisclosed conflicts. Similarly, a biopharmaceutical company and its former chief medical officer faced enforcement for misleading statements about drug safety analyses, illustrating the SEC's broad reach into corporate disclosures according to Morgan Lewis analysis.

The Jarkesy decision, requiring jury trials for fraud-related civil penalties, has further reshaped enforcement strategies. The SEC has increasingly pursued parallel criminal proceedings, as seen in six cases involving investment advisers and broker-dealers in 2025. This trend underscores the agency's determination to hold gatekeepers accountable, particularly in cross-border contexts. The newly formed Cross-Border Task Force, for instance, targets foreign-based companies and their U.S. enablers, addressing risks in jurisdictions with weaker investor protections.

Risks in IPO/SPAC Advisory Services

Initial public offerings (IPOs) and special purpose acquisition companies (SPACs) remain focal points for regulatory scrutiny. The SEC's January 2024 rules mandating stricter disclosures for SPAC de-merger transactions have aligned these vehicles with traditional IPO standards, aiming to curb speculative practices. Nasdaq's December 2025 rule changes further harmonized treatment of OTC-traded SPACs with exchange-listed counterparts, exempting certain SPACs from reverse merger rules to ensure consistent investor protections.

Enforcement actions against SPAC advisors have also intensified. For example, Perceptive Advisors LLC faced charges for failing to disclose conflicts of interest involving SPAC sponsors, violating the Advisers Act's fiduciary obligations. These cases highlight the SEC's emphasis on transparency in sponsor compensation and merger target selection, areas historically prone to abuse.

Balancing Innovation and Compliance

While regulatory tightening aims to mitigate risks, industry stakeholders caution against overburdening smaller firms. The SEC's Spring 2025 agenda includes efforts to scale disclosure requirements based on company size and maturity, extending reporting relief for newly public firms to two years. These measures seek to revive the IPO market, which has seen a decline in public listings over the past three decades due to perceived regulatory complexity.

However, the push for deregulation must not come at the expense of investor safeguards. The SEC's approval of in-kind creation mechanisms for crypto ETPs and its staff statement on liquid staking tokens illustrate a cautious embrace of innovation, provided risks are adequately managed.

Conclusion

The 2025 regulatory environment for listing advisory services is defined by a delicate balance: fostering innovation while curbing misconduct. As the SEC and FINRA refine rules and enforcement priorities, firms must prioritize robust compliance programs, particularly in areas like crypto custody, cross-border transactions, and SPAC disclosures. For investors, the emphasis on transparency and accountability offers reassurance, but vigilance remains critical in an evolving market.