December 2025 marks the end of an era. The Securities and Exchange Commission has formally terminated the remaining undertakings of the (GRAS), closing a chapter that began in 2003 amid widespread concerns over conflicts of interest in equity research. For more than two decades, GRAS imposed rigid structural safeguards under judicial supervision—mandating hard information barriers, independent research funding, and standardized disclosures. Those measures reshaped the industry and became synonymous with research independence.
Today, the compliance architecture looks very different. The SEC’s decision reflects its confidence in the principles-based framework codified in FINRA Rule 2241, which was adopted in 2015. This rule governs research conflicts through firm-specific policies and procedures, prohibiting banking influence over coverage decisions, restricting analyst compensation tied to deal flow, imposing quiet periods, and requiring comprehensive disclosures—all under ongoing regulatory oversight rather than court mandates.
From Structural Mandates to Principles-Based Governance
The transition from GRAS to Rule 2241 is more than a regulatory housekeeping exercise—it represents a fundamental shift in philosophy:
- GRAS: Uniform, court-imposed structures designed to eliminate conflicts through prescribed separation of functions.
- Rule 2241: A more principles-based regime that empowers firms to design and implement bespoke policies calibrated to their business model, product mix, and risk profile, while meeting core investor-protection objectives.
This evolution offers firms the ability to move beyond what has been seen as a one-size-fits-all mandate and to adopt governance frameworks reflecting their operational realities. Flexibility, however, comes with responsibility: regulators will expect firms to demonstrate that their tailored controls are effective in practice—not merely documented on paper.
Comparative Snapshot: GRAS vs. Rule 2241
Dimension | GRAS (2003) | Rule 2241 (2015) |
|---|---|---|
Regulatory Model | Court-supervised structural mandates | Principles-based, regulator-enforced |
Information Barriers | Standardized, one-size-fits-all | Tailored policies and procedures |
Research Funding | Independent pool mandated | No prescribed funding structure |
Analyst Compensation | Prohibited linkage to banking revenue | Prohibits deal-flow-based metrics |
Quiet Periods | Fixed durations | Defined by rule, with limited flexibility |
Oversight | Judicial supervision | FINRA/SEC examination and enforcement |
Implications for Firms
The sunset of GRAS does not diminish the importance of research independence—it amplifies the need for effective governance and demonstrable compliance. Key priorities include:
- Governance and Accountability: Elevate oversight to senior management and board level; establish clear escalation protocols.
- Policy Architecture: Align written supervisory procedures with Rule 2241 requirements and firm-specific risk profiles.
- Compensation Controls: Document frameworks and maintain audit-ready evidence of compliance.
- Surveillance and Testing: Move beyond checklists to risk-based monitoring and exception analytics.
- Disclosure Integrity: Ensure conflict disclosures are accurate, timely, and tested for clarity.
- Training and Culture: Reinforce independence principles through scenario-based training and certifications.
Risk Considerations
Principles-based regulation offers flexibility but demands rigor. Firms should anticipate regulatory focus on substance over form—how controls operate in practice, how exceptions are managed, and how governance demonstrates accountability. Competitive pressures and evolving deal dynamics underscore the need for proactive monitoring and cultural reinforcement.
Conclusion
The SEC’s decision closes a historic chapter and signals a modernized approach to research oversight. For firms, the challenge is clear: adapt structural compliance into a dynamic, principles-driven model without compromising investor trust. Those that invest in governance, surveillance, and transparency will be best positioned to navigate this transition—and to demonstrate resilience under regulatory scrutiny.
We Can Help
Our Freshfields team advises leading investment banks, broker-dealers, and research providers on Rule 2241 implementation, governance frameworks, and regulatory examinations. We offer:
- Board Briefings tailored to governance priorities;
- Control Assessments mapping legacy GRAS safeguards to current requirements to create bespoke policies and procedures;
- Surveillance Playbooks with risk-based testing protocols.
