A softer enforcement posture from the SEC doesn’t mean your compliance program can afford to stay the same.
GCs, CCOs, and COOs at private funds have spent the last several years managing a tightening vise: more investor obligations, more complex side letters, more aggressive SEC scrutiny, and a compliance function that was never fully resourced for all of it.
The February 2026 enforcement manual update from the SEC’s Division of Enforcement may feel like the vise is loosening. In some ways, it is. But a more favorable regulatory environment doesn’t solve the underlying compliance problem. It reduces the penalty for not solving it.
For legal, compliance, finance, and investor relations teams at private funds, the updated manual and the broader Atkins-era reform agenda have real and immediate implications. The firms that will be best positioned to benefit are those that have already invested in sustainable, purpose-built compliance infrastructure. Those that haven’t? They’re building on borrowed time, regardless of who’s running the SEC.
What the SEC changed in the enforcement manual
On February 24, 2026, the SEC’s Division of Enforcement published its first update to the Enforcement Manual in over eight years. The revision, shepherded by Enforcement Director Margaret A. Ryan, a former federal judge, introduces procedural changes that shift the enforcement landscape for registered investment advisers and private fund managers.
A narrower focus on harm
Director Ryan, who resigned from her role on March 16, 2026, made clear in her first public remarks that she was focused on the quality of enforcement actions, not the volume. Fraud, Ponzi schemes, investor harm, and market integrity violations — insider trading, wash trading, manipulation — remain firmly in scope.
The SEC has deprioritized the prior administration’s pursuit of technical violations, such as accounting controls, books-and-records deficiencies, and compliance program inadequacies, where there is no clear investor harm or illicit benefit to the firm.
Shorter investigations
Tolling agreements beyond 90 days now require Director-level approval, consistent with the goal of making investigations more efficient and time-bound.
A reformed Wells process
The Wells process — the mechanism by which the SEC notifies a potential enforcement target of possible charges — has been strengthened in favor of respondents.
- Staff must obtain the Enforcement Director’s direct approval before issuing a Wells notice.
- The default response period has been extended to four weeks.
- Recipients are guaranteed access to salient investigative evidence and a meeting with senior enforcement staff.
Explicit zero-penalty cooperation
The revised manual formally acknowledges the possibility of no-penalty outcomes for advisers that cooperate effectively and remediate proactively — citing examples such as clawing back executive compensation, making corrective disclosures, and retaining independent compliance consultants.
Criminal referral guardrails
Staff must now notify the Division Director and await a response before making non-urgent criminal referrals. Factors such as investor harm, defendant gain, and recidivism must be expressly weighed.
The broader reform context under Atkins
The enforcement manual update is part of a larger pattern. In February 2026 remarks at Texas A&M, Chairman Paul Atkins outlined a disclosure reform agenda framed around three principles:
- Rationalizing
- Simplifying
- Modernizing
The directional signal is clear. The SEC is focused on fraud, investor harm, and market integrity — not technical violations.
What these SEC updates mean for private fund managers
The impact of these changes isn’t uniform across the industry. It depends significantly on where a firm is in its compliance journey.
For firms of all sizes, the zero-penalty cooperation provision incentivizes the move from reactive to proactive: identify issues internally, remediate, document the remediation, and be prepared to demonstrate it. This type of readiness requires systems and technology support, not just policies.
Emerging and mid-sized managers operating with lean compliance teams and manual processes are most exposed to the gap between intent and execution. The current environment reduces the immediate regulatory consequences of that gap, but it doesn’t close it. A missed LP deliverable or an overlooked MFN election is no less problematic because the SEC is less focused on it. LPs still notice.
Large, well-established managers with more sophisticated compliance programs are better positioned to capitalize on the Wells process reforms. The new access to investigative files and guaranteed senior-level meetings benefit firms that already have their obligations organized, auditable, and defensible. For them, the question isn’t whether to invest in compliance infrastructure — they already have — it’s whether that infrastructure is purpose-built for private markets or still relying on patchwork tools.
Now is the right time to build a stronger compliance program
Some fund managers will be tempted to say: “If the SEC is backing off technical violations, do we need to invest in compliance infrastructure right now?”
The short answer: yes.
Manual processes and disjointed tools are not keeping pace with the complexity of compliance, whether a firm is concerned with LP obligations, credit agreement covenants, or industry regulations. Firms relying on manual processes risk data gaps, missed obligations, delayed decisions, and compounding legal costs as outside counsel repeatedly answers questions a firm’s own system should know.
Leverage your new bandwidth
There’s a practical case for moving quickly on compliance infrastructure in this moment specifically. When enforcement pressure is high, compliance investments are reactive and rushed. When regulatory pressure is lower, firms have the runway to evaluate solutions, implement them thoughtfully, and build the institutional habits that make them effective. Firms that use this window well will be prepared for whatever the next regulatory cycle brings.
Future-proof your compliance
Regulatory climates change, and SEC enforcement philosophy shifts with leadership. Firms optimized for today’s environment — rather than firms with genuinely sound compliance programs — are accepting a risk that can materialize quickly.
The narrative shouldn’t be that compliance is less important now. It should be that this is exactly the right time to build a compliance infrastructure that will hold up regardless of the regulatory environment.
Strengthen LP trust
LP expectations aren’t softening in parallel with the SEC. Institutional investors increasingly demand precise, timely compliance with their side letter obligations. A missed reporting deadline or overlooked MFN election is a relationship issue. In a competitive fundraising environment, reputational damage with a key LP can be far more costly than a regulatory fine.
Why generic AI tools aren’t the answer
It’s worth addressing a question that comes up frequently in conversations about compliance modernization: “Can’t we use a generic LLM solution for this?”
The short answer: not reliably.
General-purpose AI tools are not built for the nuanced, high-stakes work of the private markets. They lack accuracy on complex fund document provisions, don’t provide a single source of truth across LPAs, side letters, and MFN forms, and cannot support the structured workflows that compliance and legal teams need to manage obligations over time. Using a horizontal tool for this work introduces the very risk you’re trying to eliminate: inaccurate information, missed obligations, and no audit trail.
Firms benefit most from a solution like Insight for Funds, which combines AI capabilities with human oversight — where AI-generated abstractions are reviewed by professionals with deep private markets expertise, and where every answer is traceable to the exact contract language that supports it. This human-in-the-loop approach is what makes Ontra’s technology trustworthy enough to rely on when an examiner or an LP asks a hard question.
See what a purpose-built compliance solution looks like with Ontra
Legal, compliance, and operations teams at private funds are managing more complexity than ever — more side letters with bespoke obligations, more sophisticated LP demands, and a fundraising environment where LP relationships are earned and lost on execution.
The question isn’t whether to invest in purpose-built compliance infrastructure. It’s whether to build it now, when you have breathing room, or later, when you don’t.
Firms confidently navigating side letter obligations and SEC exams didn’t get there by accident. Linden Capital Partners, a dedicated healthcare private equity firm with over 13 billion AUM, relies on Insight to be its single source of truth. When the firm was subject to an SEC exam, it took 40 minutes or less to complete the exam requests related to side letters.
See how Insight for Funds helps legal, compliance, and operations teams centralize fund documents, automate obligation tracking, and demonstrate compliance to investors and regulators — all in one place.
