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SEC Plans to Finalize ETF, Fund of Funds Rules in 2019: IM Chief

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Besides delivering a rule proposal to the commission on advice standards, the Securities and Exchange Commission’s investment management division plans to finalize rules on exchange-traded funds and fund of funds this year, according to IM director Dalia Blass.

On Monday at the Investment Company Institute’s Mutual Funds and Investment Management Conference in San Diego, Blass stated that the agency’s “modernization efforts” in 2019 will “be built on the foundations we laid in 2018.”

“Finalizing the ETF and fund of funds rules will be a high priority for the division,” Blass said.

The SEC proposed a new rule under the Investment Company Act of 1940 last June that would permit ETFs that satisfy certain conditions to operate without the expense and delay of obtaining an exemptive order.

The plan updates and attempts to streamline 26 years of ETF approvals by the agency through hundreds of exemptive orders.

Blass also said the IM division continues to study the comments on the variable annuity disclosure proposal, with some “preliminary areas of focus” being exploring options for a summary shareholder report and ways to improve fee and risk disclosures.

“We also continue to prioritize delivering to the commission recommendations on Form CRS and the fiduciary duty interpretation,” Blass continued. “And, of course, we are working closely with the Division of Trading and Markets to support their efforts on Regulation Best Interest.”

New Fund, Asset Management Initiatives

Blass said she’s also asked IM staff to start a new outreach initiative targeted at small and midsize fund sponsors, as she’s concerned “about what it will mean for investors — particularly Main Street investors — if the variety and choice offered by small and midsize asset managers becomes lost in a wave of consolidation and fee compression.”

It’s important to ask “are there barriers making it harder for small and midsize fund sponsors to compete?” she said. “Can the division do anything to help address that without sacrificing investor protection? Could new technologies, like blockchain, increase access to distribution, and if so, how can we (the staff) help?”

The IM Division is also in the early stages of planning a “broader focus” on long-term trends in asset management via the creation of an asset management advisory committee.

Said Blass: “It is undoubtedly important, whether you are a market participant or a regulator, to scan ahead for emerging and future risks. For me, this is a key part of proactive investor protection. However, it is equally important that we approach any such exercise with transparency, engagement and rigor, and weigh any policy response with caution. To me, that means step one is not rewriting policy. Instead, the process should start with gathering and examining evidence. Where we find opportunities to ease compliance and promote choice while protecting investors, I will be the first to support change. But if we are discussing policy responses that could result in significant changes in the products and services that investors rely on, or in the businesses of advisors and managers, we should have a clear understanding of costs and benefits and pay careful attention to unintended consequences.”

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