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Regulation and Compliance > Federal Regulation > SEC

SEC Pegs April for Fiduciary Rule Release

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The Securities and Exchange Commission plans to issue a fiduciary rule proposal in April 2017, putting further doubt into whether the agency will actually come out with such a rulemaking. The agency is, however, also looking at fixes to mutual fund prospectuses and scrutinizing exchange-traded funds, SEC Chairwoman Mary Jo White said Friday.

The securities regulator noted the April 2017 date in a Wednesday regulatory agenda filing with the Office of Management and Budget. But the regulatory dates filed are just projected dates. Some industry officials opine that a fiduciary rule will never be issued by the SEC, despite White’s insistence that such a rule is a priority for her. Others, however, maintain that the agency is further along in a fiduciary rulemaking than observers think.

The agency’s regulatory agenda also states that a proposal to require advisors receive a third-party audit won’t be coming until next April either. But Skip Schweiss, managing director of advocacy at TD Ameritrade Institutional, says that such a proposal should be out in the next 60 days, with perhaps a “targeted to be finalized” date of April 2017.

Meanwhile, the Senate Banking Committee approved by voice vote Thursday the two new SEC commissioner nominees, Lisa Fairfax and Hester Peirce.

Fund Disclosures

During remarks at the Investment Company Institute annual conference in Washington Friday, White said that while the agency has already taken “significant steps to modernize our registered fund disclosure regime, including adopting the summary prospectus to better focus mutual fund investors on the fees and risks of a fund,” more is needed.

As the agency looks forward “past 2016,” White said that she has directed the agency’s Investment Management Division to undertake a “disclosure effectiveness initiative” to consider ways to improve the form, content and delivery of funds’ disclosures. 

“Staff is in the early stages of prioritizing areas of focus, but I expect they will include ways to leverage advances in technology to improve the presentation and delivery of disclosures and ways to enhance disclosure about fund strategies, investments, risks and fees,” White said.

In particular, “a fund’s disclosure of fees and expenses plays a pivotal role in informing investors about their fund investments,” she continued. The staff will, for example, consider whether improvements could be made to the fee table to facilitate investor comprehension of the information it presents and whether the most helpful information is required.

“There continues to be concern about whether all of the information in a prospectus or statement of additional information continues to be necessary or helpful to investors,” White said. “The summary prospectus has helped, but the staff is considering whether further improvements could be made.”

White noted that “robust disclosures” are only part of the picture, and that the SEC’s authority focus goes “considerably beyond disclosure and so should your focus and fiduciary decision-making.”

ETF Turbulence

ETFs, White said, require “enhanced attention,” particularly given their “turbulent” history. The number of ETFs has grown from 359 in 2006 to 1,594 in 2015, with a corresponding growth in net assets from $408 billion to more than $2 trillion.

The May 2010 flash crash highlighted the need to review disparities in prices for index ETFs and a decline in prices of U.S. equity securities, White said.

Similar issues appeared on Aug. 24, 2015, when the markets again experienced unusual price volatility, including a lack of liquidity in certain securities.

Beyond analyzing these two events and “broader implications” they have for how the agency regulates ETFs, SEC staffers are also analyzing “the role that authorized participants and market makers play in the operation and trading of ETFs and how much they impact the liquidity in the markets.”

SEC staff is “looking closely at the interconnectedness of the prices of ETF shares and their portfolio holdings and the impact on investors when the ETF’s arbitrage mechanism does not function efficiently,” as well as considering the sales practices of broker-dealers in the market “and how investors understand and use ETFs, particularly as the product landscape continues to diversify,” White added.  

“Further regulatory steps beyond additional disclosures,” White said, “may be needed to address some of these issues.”

— Check out SEC Has Its Eye on Small-Biz Capital-Raising Measures, Chief White Says on ThinkAdvisor.


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