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Compliance May 20, 2015
SEC Votes to Propose ‘Sunshine Act’ Disclosure Reforms
The Securities and Exchange Commission (SEC) took a big step Wednesday towards modernizing the reporting and disclosure practices of registered investment advisers and fund companies, voting to propose a number of key regulatory changes.
Reported by John Manganaro
The rule changes have been proposed according to the provisions of the Government in the Sunshine Act, which instructed the Securities and Exchange Commission (SEC) to gather industry and public feedback on potential changes impacting the ways investment companies and advisers collect and disclose information to clients.
SEC Chair Mary Jo White led the meeting and suggested the important question at hand was whether the SEC should take the first formal step to require investment companies and advisers to provide additional information concerning their operations and the maintenance of performance records, among other things. Specifically, White and other top SEC staffers voted to propose new Form N-PORT and Form N-CEN under the Investment Company Act of 1940; new rule 30e-3 under the Investment Company Act; amendments to Regulation S-X; and other rules and forms under the Investment Company Act, and rescinding existing Form N-Q and Form N-SAR.
The SEC staff also voted to propose amendments to Form ADV under the Investment Advisers Act of 1940, along with amendments to rule 204-2 (the Books and Records Rule) and certain other rules set out under the Advisers Act. These latter two proposals may have the most direct impact on the registered investment adviser (RIA) community, based on discussion prior to the vote, but all of the changes are anticipated to impact advisers at some level.
The amendments to Form ADV would fill certain data gaps with respect to separately managed accounts, White noted, while the recommend amendments to the Books and Records Rule would require registered advisers “to keep more information on the calculation and distribution of performance information, among other things.”
Next: How the reforms can impact the disclosures of data and pricing.Summarizing the changes presented in the proposed rulemaking language, White said she believes the reforms “will require that additional information be provided about funds in certain key areas, including data related to derivatives, securities lending activities, liquidity and pricing of portfolio instruments, and aspects of exchange-traded funds.” She suggested this information is vital to assessing the risks of evolving fund activities and their potential impact on investors.
Beyond this, White said the recommendations “will require other new categories of information to be filed by RIAs, particularly with respect to separately managed accounts and the assets and derivatives held in those accounts. Approximately 73% of RIAs manage a wide variety of client assets in separately managed accounts, and the Commission needs a wider and deeper lens to assess possible risks.”
The recommendations would also modernize how data is transmitted to shareholders by providing investors with shareholder reports and portfolio information on fund websites while still preserving the ability of investors who prefer to receive paper reports to do so, White said.
The timing of any comment period deadlines or anticipated effective dates for any final rulemaking remains unclear, but based on comments from SEC staffers the rulemaking language will emerge soon and bring greater clarity on those points. A summary of White’s comments is available here.