SEC Chairman's Senate Committee Testimony on SEC Initiatives
On October 5, 2021, SEC Chairman Gary Gensler provided testimony to the US House of Representatives Committee on Financial Services Several of the initiatives are of interest to the investment management industry and are summarized below.
ESG Disclosure. Gensler mentioned that the SEC has seen "a growing number of funds marketing themselves as 'green', 'sustainable', 'low carbon', etc." He has asked SEC staff to consider ways to determine what "information supports those claims" and how the SEC can ensure that "the public has the information they need to understand their investment options between these types of funds."
Cyber โโsecurity. SEC staff are in the process of developing a proposal for the SEC's consideration on governance of cybersecurity risk, which could include "cyber hygiene and incident reporting."
Disclosure of private funds. Gensler observed that private fund managers face conflicts of interest with respect to the information they provide to investors about the fees they charge. He noted that the SEC can improve disclosures in this area, "allowing pensions and others who invest in these private funds to obtain the information they need to make investment decisions."
Money Market Funds and Bond Mutual Funds. Gensler noted that, following the challenges of spring 2020, the SEC "may develop greater resilience in both money market funds and equity bond funds." It has asked SEC staff for recommendations to address resilience in times of stress, based on "comments [the SEC] received in the report of the President's Working Group, as well as other information ".
Disclosure of security-based swaps. Gensler noted that total return swaps were at the center of the recent bankruptcy of Archegos Capital Management, a family office. It noted that (1) under Section 10B of the Exchange Act, Congress gave the SEC the authority to require disclosure of positions in securities-based swaps and related securities; and (2) has asked SEC staff to consider possible rulemaking under this authority for the SEC to view positions in security-based swaps and related securities. He stated, "[a]As the collapse of Archegos showed, this may be an important reform to consider โ.
Crypto asset market. Gensler has asked SEC staff to look for ways to improve investor protection "in cryptocurrencies, issuance, trading or loans," which he likened to "the Wild West or the old world of 'buyer beware' that existed before securities laws. were enacted. " He has instructed SEC staff, in collaboration with other regulators, to work in two ways to address (1) how the SEC, with other financial regulators under current authorities, can better protect investors in these markets; and (2) how Congress can help fill regulatory gaps.
SEC Proposes to Improve Proxy Voting Disclosure for Mutual Funds and Require Disclosure of "Say-on-Pay" Votes for Institutional Investment Managers
On September 29, 2021, the SEC proposed amendments to Form N-PX to improve the information that mutual funds, exchange-traded funds, and certain other funds report on their proxy votes. The proposed rulemaking would require funds to link the description of each voting issue to the issuer's proxy form and categorize each issue by type to help investors identify votes of interest and compare voting records. The proposal will also prescribe how funds organize their reports and require them to use structured data language to make submissions easier to analyze. The funds would also be required to disclose how your securities lending activity affected your vote.
The SEC requests information and comments on the digital participation practices of brokers and investment advisers
On August 27, 2021, the SEC Announced that you are requesting information and public comment on matters related to the use of digital participation practices by brokers and investment advisers. These tools include differential marketing, behavioral cues, gameplay features, and other feature design elements designed to interact with retail investors on digital platforms (for example, websites, portals, and applications), as well as analytical and technology tools and methods. . (collectively referred to as Digital Participation Practices (DEP)).
Extension of the exemption from the annual on-site inspection of branches and guaranteed IBs
Due to COVID-19, the National Futures Association (NFA) allowed members to conduct all calendar year 2020 annual inspections of branches and guaranteed introductory brokers (IBs) remotely. The NFA believes that members may have a difficult time completing annual on-site inspections by calendar year 2021, as their staff may be in various stages of transition back to the office or still working remotely. therefore, the NFA is expanding relief provided in Notice I-20-35 through the end of 2021. While members must complete the required annual inspection of each branch and the guaranteed IB by December 31, 2021, each business can perform these inspections remotely. A member who takes a remote exam in 2021 based on this relief can still take a remote exam in 2022 if their risk assessment indicates that it is appropriate to do so. This risk assessment should take into account that the company conducted the exam remotely in the previous two years.
SEC Chairman Offers Commentary on Crypto Assets on Aspen Security Forum
On August 3, 2021, SEC Chairman Gary Gensler gave comments at the Aspen Security Forum on the Current State of US Crypto Asset Regulation.While Gensler acknowledged the contributions that crypto assets and blockchain technology have made to financial and monetary innovation, he also highlighted the immediate need for investor protection in light of publicity, fraud, scams and abuses in the crypto asset space that have caused damage to investors.
Gensler discussed the protections provided by existing US securities laws, particularly for initial coin offerings, many of which have been subject to SEC enforcement action as unregistered securities offerings. He warned that there are significant gaps in investor protection in foreign cryptocurrency trading platforms and decentralized financial platforms that are intended to ban US investors, but through which unregulated trading by US investors is possible. . Gensler also expressed concern about "stablecoins," a type of crypto asset whose value is tied to a reference asset, typically a currency such as the US dollar, and noted the potential use of such assets to evade public policy objectives such as the fight against money laundering. , tax compliance and penalties, and suggested that some stablecoins may need to be registered as investment and securities companies.
Gensler stated that in light of the important investor protections provided by the Mutual Trust Act, he looked forward to staff review of filings to offer cryptocurrency-related exchange-traded funds, specifically those that invest in futures of CME bitcoins. Gensler ended his remarks by emphasizing that more action from Congress is needed to close regulatory gaps in crypto transactions, products, and platforms. He noted that regulation of crypto assets is important not only to protect investors, but also to foster innovation and protect national security.
Bipartisan bill would allow retail investment in fixed capital funds that invest in private funds and close the gap for activist investors
On June 30, 2021, Representative Anthony Gonzalez (R - OH) and Representative Gregory Meeks (D - NY) introduced a new bill that would allow certain retail investors to invest in private securities through closed funds. SEC staff guidance currently prohibits a closed fund from investing more than 15% of its assets in private funds unless the closed fund sells its interests only to accredited investors with a minimum initial investment of at least $ 25,000. the Law of increasing opportunities for investors it would override the guidance of the SEC staff by introducing its own prohibition to limit a closed fund from investing some or all of its assets in private funds. Additionally, the bill aims to protect closed funds from the stocks of private activist investors by requiring that private funds meet the same investment limitations and aggregation requirements imposed on funds registered under Section 12 (d). (1) (C) of the Investment. Companies Act of 1940, which would limit a group of affiliated private funds to owning no more than 10% of the outstanding voting securities of a closed fund.
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