SEC AMAC Meeting

Securities and Exchange Commission

Asset Management Advisory Committee (AMAC) Meeting

Wednesday, November 3, 2021

Opening Statements
Chair Gary Gensler
In his opening statement, Gensler mentioned four projects ongoing at the Securities and Exchange Commission (SEC) with respect to the asset management space. The first looks at enhancing the proxy voting disclosures that registered funds provide to shareholders. The second area is digital engagement practices (DEP). Gensler said today, like never before, asset managers can tailor marketing and products to individual investors, using predictive data analytics and other DEPs. In the case of robo-advisers, Gensler questioned if DEPs are maximizing our returns as investors or for the revenues of the platforms. The third project looks at private funds. Gensler has asked staff for recommendations around enhanced reporting and disclosure through Form PF or other reforms. He said the fourth area of focus is fund naming, and he has asked staff to consider recommendations about whether funds should disclose the criteria and underlying data they use to make “green” or “sustainable” claims. He concluded that the last work stream focuses on increasing resiliency in money market funds and open-end funds.

Recommendations of the Evolution of Advice Subcommittee
The Subcommittee submitted recommendations for consideration by the Commission. They said their focus is on ensuring investor protection with today’s pace of innovation, where certain technological advances could raise potential risks. The AMAC voted to adopt the Subcommittee’s recommendations.

The first principle is to encourage innovation that benefits investors. They said it is crucial to consider whether existing regulations are an impediment to innovation, including rules governing the use of electronic storage media to maintain and preserve required broker dealer records, and expansion of the use of electronic delivery (e-delivery) for regulatory communications.

The second principle is transparency and considering whether current disclosures regarding data practices are effective and sufficient or whether modifications or additional disclosure may be warranted to better inform investors of the use the data being utilized to obtain the results provided.

The third priority is closely related to the former; providing data controls. They said investors should be able to decide whether to provide specific data to a particular party, monitor who has access and revoke access as needed. The process for opting out should be easily understandable and executable.

The fourth principle was for industry participants to ensure they are monitoring and managing technology-based prompts directed at retail investors that may result in investor behavior that promotes conflicts of interest.

The fifth recommendation is that regulation should be technology neutral where appropriate and not based solely on the presence or type of technology used in providing investment advice, which could create an un-level playing field.

Recommendations of the Small Advisers and Small Funds Subcommittee
The Subcommittee said their focus has been how the evolution of industry market structures and regulatory priorities have impacted the economic and operational challenges of small advisers and funds and to identify areas where agency studies, refined policy positions, guidance, and regulatory action may foster growth of small and diverse businesses in the asset management industry. The AMAC voted to adopt the Subcommittee’s recommendations.

The first focus area was modernization of the definitions of “small business,” “small organization,” and “small entity” utilized by the SEC in conducting economic analysis in connection with rulemaking.

The second suggestion was modernizing economic analysis and reporting. They recommend that the Division of Economic & Risk Analysis conduct periodic assessments and make periodic reporting on the cumulative impacts of regulation on small advisers and funds every 5 years.

The third recommendation was a bond market study. They said the Commission should convene a Roundtable to study the drivers of the growing “inaccessibility” to “new issues” in the bond market, such as the expansion of the private debt markets (144A offerings), which are less accessible to individual investors and the typical registered advisory firm or small fund.

The fourth recommendation was on e-delivery and e-signatures, specifically that the Commission move swiftly to make it legally acceptable for investment advisers and funds to utilize an e-delivery regime as the default method of delivery of required information, with the right of any investor to opt out and continue to receive paper (i.e. no affirmative consent required for e-delivery).

The fifth principle recommends the Commission’s Office of Legislative Affairs to take an advocacy role in encouraging Congress to establish a data security and privacy law regime applicable to the financial services sector, centralized at the federal level.

The sixth suggestion was for the staff or Commission to consider issuing guidance on “best practices” in cybersecurity, business continuity, and disaster recovery for both large enterprises and small businesses.

The seventh recommendation was for the Commission to consider whether reliance on issuer diligence and recommendations made by proxy voting advisory firms enhances or detracts the ability of small advisers and funds to fulfill their fiduciary duty in the context of proxy voting.

The eighth recommendation relating to the Liquidity Rule and Derivatives Risk Management Program was for the Commission to issue further guidance that merges an “activity-based” approach with a “risk based” and “resource-based” approach.

The final recommendation was that the Commission study whether to remove specific reference to Committee on Uniform Securities Identification Procedures (CUSIP) relative to securities identifiers in its rules and regulations and study whether it has legal jurisdiction to regulate CUSIP and securities index licensing fee practices as they pertain specifically to fee imposition on investment advisers and funds.

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