Citing concerns about the use of outsourcing by investment advisers, the SEC recently issued a proposal (Proposal) to impose a comprehensive due diligence, monitoring and recordkeeping framework on advisers that outsource so-called “covered functions.” Proposed Rule 206(4)‑11 under the Investment Advisers Act of 1940 would require advisers to conduct appropriate due diligence before outsourcing a covered function, as well as periodic monitoring and reassessments of third-party service providers. The Proposal also includes amendments to SEC books and records rules and would require advisers to report information about outsourcing and service providers on Form ADV. This first article in a two-part series details the Proposal, including the rationale for it and the views of several Commissioners on the proposed changes. The second article will identify key issues with the Proposal and a key takeaway for hedge fund managers. See our coverage of other recent SEC rulemaking proposals: first Form PF proposal; second Form PF proposal; proxy voting rules; climate risk disclosure; beneficial ownership reporting; private fund rules; short sales; cyber risk management; and security based swaps.