Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Regulation and Compliance > Federal Regulation > SEC

Big RIAs May Face Stress Tests

Your article was successfully shared with the contacts you provided.

The Securities and Exchange Commission is working on a new proposed rule to require large investment advisors and investment companies to perform stress testing, according to Andrew “Buddy” Donohue, the agency’s chief of staff.

During a recent speech at the InvestoRegulation Conference in London, Donohue noted the agency’s release for comment on June 28 its plan to require investment advisors to implement business continuity and transition plans.

Karen Barr, president and CEO of the Investment Adviser Association, said the upcoming stress test rule, while not imminent, is a Dodd-Frank mandated rule that the agency has been working on for some time. “We’ve long suspected that it would be the last of the five core or prime rulemaking initiatives on asset management” that SEC Chairwoman Mary Jo White announced in December 2014, adding that she’s not ”aware of any of the details of the proposal.”

David Tittsworth, the former head of IAA who’s now of counsel with Ropes & Gray in Washington, added that Section 165(i) of the Dodd-Frank Act requires certain nonbank financial companies to conduct semiannual stress tests as prescribed by the SEC in coordination with the Fed. An estimated 300 firms would be subject to such stress tests, he says.

While White has consistently included stress testing regulations in her list of investment management rulemaking priorities, Tittsworth noted, SEC staff “have expressed concerns about whether such tests are appropriate for nonbank entities.”

For instance, at a conference sponsored by the Financial Stability Oversight Council and the Office of Financial Research in February, the SEC’s chief economist, Mark Flannery, was quoted as saying: “There’s a problem that’s really got us stuck, which is what does it mean to stress test a mutual fund … The parallel to bank stress tests is really extremely misleading.” 


The SEC’s Office of Compliance Inspections and Examinations is also building on what Donohue said has been a “successful” Cybersecurity Examination Initiative launched in 2015 that continues to focus on cybersecurity compliance and controls.

In 2016, OCIE’s cybersecurity exams will also involve “more testing to assess firms’ preparedness and implementation of firms’ procedures and controls,” he said.

Most entities also had to start complying last November with Regulation SCI, which requires “key market participants to have comprehensive policies and procedures regarding their technological systems to make them more resilient,” Donohue said.

Other SEC Updates

Donohue’s June 28 speech took place five days after the U.K. decided to exit the European Union. In his speech, Donohue said that the EU is now evaluating various proposals that mirror the SEC’s 2010 and 2015 money market fund reforms to boost the funds’ resiliency.

The SEC has also now completed all of its mandates under the Jumpstart Our Business Startups Act, Donohue noted, capping them off in May by allowing companies to offer and sell securities through equity crowdfunding.   Investors of any wealth level could start investing in startup ventures on May 16 when the SEC’s equity crowdfunding rules under the JOBS Act officially took hold.

SEC Chairwoman Mary Jo White said last June that Donohue, the former director of the agency’s Division of Investment Management, would rejoin the agency as its chief of staff to help shape a fiduciary rule.

But she conceded during testimony before the Senate Banking Committee on June 14 that a fiduciary rule would not “get done” before the end of the Obama administration. “I’m committed to moving it [a fiduciary rule] as fast and as well as I can, but I can’t give you that commitment,” she said. “It’s a longer route than that.”


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.