SEC Chair White Speech Outlines Future Areas of Regulatory Focus for Mutual Fund Industry

In a keynote address given to the Investment Company Institute during their 2016 General Meeting, the Securities & Exchange Commission (“SEC”) Chair Mary Jo White provided not only an overview of current areas of interest and proposals affecting mutual funds, but also those they are considering for future regulatory enhancements.

In regards to current initiatives, Chair White summarized their status by stating:

“Key among our efforts are the Commission’s 2015 proposals focused on liquidity and derivatives. These initiatives are critical: they will position the SEC to better monitor and protect America’s investors and the integrity of the industry. And it is our responsibility to promptly finalize these rules, which I expect to move forward on this year.”

For the remainder of 2016 and beyond, Ms. White discussed the following areas of focus and considerations, describing them as areas “where important work remains to be done”.

  • Effectiveness of disclosures – Considering ways to improve form, content and delivery of disclosures, in addition to ways to enhance disclosure regarding investment strategies, types of investments, material risks, and fees.
  • Exchange traded funds (“ETFs”) – Analyzing past market events to consider broader implications pertaining to the regulation of ETFs. Also looking at market makers and authorized participants’ role in regards to the potential impact on market liquidity, along with the interconnectedness of ETF prices and underlining holdings when the arbitrage mechanism doesn’t work correctly.
  • Use of technology and service providers – Looking at the risks surrounding reliance on technology and service providers and asking funds to ensure they are prepared to “promptly and effectively” respond to applicable risks in order to meet their regulatory requirements.
  • Cybersecurity - Continuing the message that cybersecurity “is one of the greatest risks facing the financial services industry” and urging firms to look at risks and consider tools and procedures that will detect and prevent attacks.
  • Portfolio pricing - Reviewing practices of pricing of portfolio holdings and calculating NAV, along with the services used to assist with such practices.

Chair White also identified fund governance, valuation, performance advertising, and payments made for distribution of fund shares as additional areas of challenge to the mutual fund industry that need regulatory consideration.

In closing, the Chairman urges firms to consider the challenges she listed and how they could affect investors, and to take steps to ensure products and strategies are geared to be in investors’ best interests.

For assistance in analyzing the risks specific to your firm and determining whether adequate disclosures and controls are in place, or for more information on this and other related topics, please contact us at info@corecls.com or (619) 278-0020.