SEC Open Meeting on Modernizing and Enhancing Reporting
Securities and Exchange Commission
Commission Open Meeting
Wednesday, May 20, 2015
Key Topics & Takeaways
Series of Rulemakings: SEC Chair White said the proposals are part of a broader “series of rulemakings to enhance the SEC’s monitoring and regulation of the asset management industry.”
- The investment company proposals would require a new monthly portfolio reporting form (Form N-Port) and a new annual reporting form (Form N-CEN) to enhance data reporting for mutual funds, ETFs and other registered investment companies.
- The proposals to amend the investment adviser registration and reporting form (Form ADV) would amend the Investment Advisers Act Rule 204-2 to require advisers to maintain records of performance calculations and communications related to performance.
- SEC & FSOC: White said the SEC would “compliment the ongoing efforts of the Financial Stability Oversight Council to further understand whether systemic risks may be presented by the activities and products of the asset management industry.”
- “Dark Shadow” Over Role of the SEC in the Capital Markets: Commissioner Gallagher said, “for far too long, a dark shadow has been cast over this agency by the many false narratives underlying the financial crisis and the SEC’s role in it. One of those false narratives is that the SEC’s asset management regulatory program is deficient and that the industry and its participants pose systemic risks.” Gallagher continued to say that these narratives that he is pleased to put forward a set of proposals that will enhance the SEC’s oversight of a critical part of capital markets.
Participants
- Mary Jo White, Chair, Securities and Exchange Commission
- Luis A. Aguilar, Commissioner, Securities and Exchange Commission
- David M. Gallagher, Commissioner, Securities and Exchange Commission
- Michael S. Piwowar, Commissioner, Securities and Exchange Commission
Statement by SEC Chair White
In herstatement, Securities and Exchange Commission Chair Mary Jo White briefly discussed that the agenda covered two important recommendations to modernize and enhance investment company and investment adviser reporting, which include mutual funds, exchange traded funds (ETFs), and investment advisers. She said these proposals are part of a broader “series of rulemakings to enhance the SEC’s monitoring and regulation of the asset management industry.” White explained that the recommendations would be discussed together, but voted on separately.
Reforms for an Evolving Industry
White said that more robust controls are needed and the SEC must require additional measure to address the impact when an investment advisor is no longer able to serve its clients. White explained that this data reporting is essential for decisions about asset management products and risks. She said the SEC would “compliment the ongoing efforts of the Financial Stability Oversight Council to further understand whether systemic risks may be presented by the activities and products of the asset management industry.”
Modernizing and Enhancing Reporting for Today’s Fund Industry
White said the Commission has been focused on improving data and analytics. She discussed the importance of this information and said better data will allow the SEC to “have more and better information to monitor risks in the asset management industry.” She highlighted the following five key enhancements:
- Additional fund information related to derivatives, securities lending activities, liquidity and pricing of portfolio instruments, and aspects of exchange-traded funds.
- Requirements for funds to disclose certain basic risk metrics to assist the Commission and investors in understanding fund exposures to potential changes in risk factors and asset prices. This would enhance the SEC’s ability to monitor risks and understand industry trends.
- New categories of information will be filed by registered investment advisers, particularly with respect to separately managed accounts and the assets and derivatives held in those accounts.
- Modernization to how data is transmitted to shareholders by providing investors with shareholder reports and portfolio information on fund websites.
- Funds’ financial statements would be subject to enhanced and standardized disclosure requirements for derivatives and securities lending.
Advancing a Broad Oversight Program for Asset Management
White said the SEC staff is also developing recommendations to “enhance the management and disclosure of liquidity risk by mutual funds and ETFs, and to update the liquidity standards for those investment vehicles.” She also said the staff is reviewing requirements for derivatives used by funds, studying new requirements for stress testing by large investment advisers and large funds, and studying provisions for transition plans. White asserted that this regulation would be “appropriately calibrated to the benefits and risks they present for investors and the marketplace.”
Statement by Commissioner Aguilar
In his statement, Commissioner Aguilar said that effective regulatory oversight and investor protection requires better information. He emphasized that he has been an “advocate for the collection of high-quality data at the SEC” and, as a result, the SEC and other regulatory agencies rely heavily on the data to monitor fund activities. Aguilar pointed to the money market fund disclosure rule and the consolidated audit trail (CAT) as rules he has supported at the SEC, which deal with data collection and reporting requirements. Similarly, Aguilar said the two proposed rules that the Commission considers today will improve available data, and its use in the following two key ways: 1) to update and enhance the disclosure and reporting framework for registered investment companies (“RICs”), such as mutual funds and exchange-traded funds; and 2) to improve the quality of information that investment advisers retain and report to the Commission.
Investment Company Reporting Modernization
In reference to the first proposal, Aguilar said the SEC will consider “significant and substantive changes to the rules and forms under the Investment Company Act of 1940.” He explained the following critical pieces:
- Certain RICs would be required to report information about their portfolio holdings to the Commission on a monthly basis on new Form N-PORT.
- Standardization of disclosures on derivatives in investment company financial statements.
- Requirements for RICs to report certain census-type information to the Commission annually on new Form N-CEN.
Proposed Amendments to Form ADV and Advisers Act Rules
Next, Aguilar explained that the Commission is considering proposed amendments to Part I of Form ADV and to various rules under the Investment Advisers Act of 1040 (“Advisers Act”). He highlighted the following points from the release:
- Requirements to enhance disclosures as to separately managed accounts to improve the SEC staff’s ability to spot emerging trends or regulatory risks.
- More detailed and nuanced disclosure in Form ADV regarding the adviser and its business. For example, the rule may require information on assets under management from non-U.S. clients, and additional information about an adviser’s affiliation with wrap fee programs.
- Codifying the Commission staff’s prior guidance allowing affiliated private fund advisers to file a single Form ADV to provide better and clearer data about groups of advisers that may operate as a single business.
- Additional materials relating to the performance or rate of return for accounts that they manage would be required.
Aguilar suggested that these changes would increase transparency among investment advisor practices, while also benefiting the regulatory regime.
Statement by Commissioner Gallagher
In his statement, Commissioner Gallagher discussed modernizing and enhancing investment company and investment adviser reporting. He said, “for far too long, a dark shadow has been cast over this agency by the many false narratives underlying the financial crisis and the SEC’s role in it. One of those false narratives is that the SEC’s asset management regulatory program is deficient and that the industry and its participants pose systemic risks.” Gallagher continued to say that these narratives “appear to hold water at the Basel cocktail parties” and that he is pleased to put forward a set of proposals that will enhance the SEC’s oversight of a critical part of capital markets.
In his view, the SEC is “charting a new course in [its] oversight of asset managers, breaking from the lawyer-driven mentality that has far too long dominated the SEC’s oversight of this industry.” He described the new approach as “ground up” through a set of rule proposals that would make the SEC “a much more sophisticated overseer of the asset management industry.” He added that the SEC will collect this new information on debt security holding as the SEC makes reforms in the fixed income markets. Gallagher also said he believes the disclosure delivery rules should be revisited to update them for the twenty-first century.
Gallagher concluded that he was pleased to have recommended a scaled compliance period to allow funds to have enough time to comply with the reporting requirements.
Statement by Commissioner Piwowar
In his statement, Commissioner Piwowar said that the “two reporting modernization proposals are a welcome respite from the Dodd-Frank Act rulemakings.” He emphasized that he is pleased the proposals take technology into account and the “information provided in Forms N-Port and N-CEN would be in XML and thus be able to be aggregated and analyzed in an efficient manner.” He also applauded the amendments to Form ADV to require investment advisers to provide more specific and detailed information about separately managed accounts. He concluded that he is pleased to support both of these reporting modernization proposals.
Rule Proposal to Improve the Quality and Accessibility of Information for Investors and Regulatory Monitoring
White said, “these recommendations will vastly improve the type and format of the information that funds provide to the Commission and to investors.” She continued, “investors will have better quality and greater access to information about their fund investments and investment advisers, and the SEC will have more and better information to monitor risks in the asset management industry.”
- The investment company proposals would require a new monthly portfolio reporting form (Form N-Port) and a new annual reporting form (Form N-CEN) to enhance data reporting for mutual funds, ETFs and other registered investment companies.
- The proposals to amend the investment adviser registration and reporting form (Form ADV) would amend the Investment Advisers Act Rule 204-2 to require advisers to maintain records of performance calculations and communications related to performance.
For more information on this event, please click here.
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Securities and Exchange Commission
Commission Open Meeting
Wednesday, May 20, 2015
Key Topics & Takeaways
Series of Rulemakings: SEC Chair White said the proposals are part of a broader “series of rulemakings to enhance the SEC’s monitoring and regulation of the asset management industry.”
- The investment company proposals would require a new monthly portfolio reporting form (Form N-Port) and a new annual reporting form (Form N-CEN) to enhance data reporting for mutual funds, ETFs and other registered investment companies.
- The proposals to amend the investment adviser registration and reporting form (Form ADV) would amend the Investment Advisers Act Rule 204-2 to require advisers to maintain records of performance calculations and communications related to performance.
- SEC & FSOC: White said the SEC would “compliment the ongoing efforts of the Financial Stability Oversight Council to further understand whether systemic risks may be presented by the activities and products of the asset management industry.”
- “Dark Shadow” Over Role of the SEC in the Capital Markets: Commissioner Gallagher said, “for far too long, a dark shadow has been cast over this agency by the many false narratives underlying the financial crisis and the SEC’s role in it. One of those false narratives is that the SEC’s asset management regulatory program is deficient and that the industry and its participants pose systemic risks.” Gallagher continued to say that these narratives that he is pleased to put forward a set of proposals that will enhance the SEC’s oversight of a critical part of capital markets.
Participants
- Mary Jo White, Chair, Securities and Exchange Commission
- Luis A. Aguilar, Commissioner, Securities and Exchange Commission
- David M. Gallagher, Commissioner, Securities and Exchange Commission
- Michael S. Piwowar, Commissioner, Securities and Exchange Commission
Statement by SEC Chair White
In herstatement, Securities and Exchange Commission Chair Mary Jo White briefly discussed that the agenda covered two important recommendations to modernize and enhance investment company and investment adviser reporting, which include mutual funds, exchange traded funds (ETFs), and investment advisers. She said these proposals are part of a broader “series of rulemakings to enhance the SEC’s monitoring and regulation of the asset management industry.” White explained that the recommendations would be discussed together, but voted on separately.
Reforms for an Evolving Industry
White said that more robust controls are needed and the SEC must require additional measure to address the impact when an investment advisor is no longer able to serve its clients. White explained that this data reporting is essential for decisions about asset management products and risks. She said the SEC would “compliment the ongoing efforts of the Financial Stability Oversight Council to further understand whether systemic risks may be presented by the activities and products of the asset management industry.”
Modernizing and Enhancing Reporting for Today’s Fund Industry
White said the Commission has been focused on improving data and analytics. She discussed the importance of this information and said better data will allow the SEC to “have more and better information to monitor risks in the asset management industry.” She highlighted the following five key enhancements:
- Additional fund information related to derivatives, securities lending activities, liquidity and pricing of portfolio instruments, and aspects of exchange-traded funds.
- Requirements for funds to disclose certain basic risk metrics to assist the Commission and investors in understanding fund exposures to potential changes in risk factors and asset prices. This would enhance the SEC’s ability to monitor risks and understand industry trends.
- New categories of information will be filed by registered investment advisers, particularly with respect to separately managed accounts and the assets and derivatives held in those accounts.
- Modernization to how data is transmitted to shareholders by providing investors with shareholder reports and portfolio information on fund websites.
- Funds’ financial statements would be subject to enhanced and standardized disclosure requirements for derivatives and securities lending.
Advancing a Broad Oversight Program for Asset Management
White said the SEC staff is also developing recommendations to “enhance the management and disclosure of liquidity risk by mutual funds and ETFs, and to update the liquidity standards for those investment vehicles.” She also said the staff is reviewing requirements for derivatives used by funds, studying new requirements for stress testing by large investment advisers and large funds, and studying provisions for transition plans. White asserted that this regulation would be “appropriately calibrated to the benefits and risks they present for investors and the marketplace.”
Statement by Commissioner Aguilar
In his statement, Commissioner Aguilar said that effective regulatory oversight and investor protection requires better information. He emphasized that he has been an “advocate for the collection of high-quality data at the SEC” and, as a result, the SEC and other regulatory agencies rely heavily on the data to monitor fund activities. Aguilar pointed to the money market fund disclosure rule and the consolidated audit trail (CAT) as rules he has supported at the SEC, which deal with data collection and reporting requirements. Similarly, Aguilar said the two proposed rules that the Commission considers today will improve available data, and its use in the following two key ways: 1) to update and enhance the disclosure and reporting framework for registered investment companies (“RICs”), such as mutual funds and exchange-traded funds; and 2) to improve the quality of information that investment advisers retain and report to the Commission.
Investment Company Reporting Modernization
In reference to the first proposal, Aguilar said the SEC will consider “significant and substantive changes to the rules and forms under the Investment Company Act of 1940.” He explained the following critical pieces:
- Certain RICs would be required to report information about their portfolio holdings to the Commission on a monthly basis on new Form N-PORT.
- Standardization of disclosures on derivatives in investment company financial statements.
- Requirements for RICs to report certain census-type information to the Commission annually on new Form N-CEN.
Proposed Amendments to Form ADV and Advisers Act Rules
Next, Aguilar explained that the Commission is considering proposed amendments to Part I of Form ADV and to various rules under the Investment Advisers Act of 1040 (“Advisers Act”). He highlighted the following points from the release:
- Requirements to enhance disclosures as to separately managed accounts to improve the SEC staff’s ability to spot emerging trends or regulatory risks.
- More detailed and nuanced disclosure in Form ADV regarding the adviser and its business. For example, the rule may require information on assets under management from non-U.S. clients, and additional information about an adviser’s affiliation with wrap fee programs.
- Codifying the Commission staff’s prior guidance allowing affiliated private fund advisers to file a single Form ADV to provide better and clearer data about groups of advisers that may operate as a single business.
- Additional materials relating to the performance or rate of return for accounts that they manage would be required.
Aguilar suggested that these changes would increase transparency among investment advisor practices, while also benefiting the regulatory regime.
Statement by Commissioner Gallagher
In his statement, Commissioner Gallagher discussed modernizing and enhancing investment company and investment adviser reporting. He said, “for far too long, a dark shadow has been cast over this agency by the many false narratives underlying the financial crisis and the SEC’s role in it. One of those false narratives is that the SEC’s asset management regulatory program is deficient and that the industry and its participants pose systemic risks.” Gallagher continued to say that these narratives “appear to hold water at the Basel cocktail parties” and that he is pleased to put forward a set of proposals that will enhance the SEC’s oversight of a critical part of capital markets.
In his view, the SEC is “charting a new course in [its] oversight of asset managers, breaking from the lawyer-driven mentality that has far too long dominated the SEC’s oversight of this industry.” He described the new approach as “ground up” through a set of rule proposals that would make the SEC “a much more sophisticated overseer of the asset management industry.” He added that the SEC will collect this new information on debt security holding as the SEC makes reforms in the fixed income markets. Gallagher also said he believes the disclosure delivery rules should be revisited to update them for the twenty-first century.
Gallagher concluded that he was pleased to have recommended a scaled compliance period to allow funds to have enough time to comply with the reporting requirements.
Statement by Commissioner Piwowar
In his statement, Commissioner Piwowar said that the “two reporting modernization proposals are a welcome respite from the Dodd-Frank Act rulemakings.” He emphasized that he is pleased the proposals take technology into account and the “information provided in Forms N-Port and N-CEN would be in XML and thus be able to be aggregated and analyzed in an efficient manner.” He also applauded the amendments to Form ADV to require investment advisers to provide more specific and detailed information about separately managed accounts. He concluded that he is pleased to support both of these reporting modernization proposals.
Rule Proposal to Improve the Quality and Accessibility of Information for Investors and Regulatory Monitoring
White said, “these recommendations will vastly improve the type and format of the information that funds provide to the Commission and to investors.” She continued, “investors will have better quality and greater access to information about their fund investments and investment advisers, and the SEC will have more and better information to monitor risks in the asset management industry.”
- The investment company proposals would require a new monthly portfolio reporting form (Form N-Port) and a new annual reporting form (Form N-CEN) to enhance data reporting for mutual funds, ETFs and other registered investment companies.
- The proposals to amend the investment adviser registration and reporting form (Form ADV) would amend the Investment Advisers Act Rule 204-2 to require advisers to maintain records of performance calculations and communications related to performance.
For more information on this event, please click here.