Regulatory Changes Impacting RICs and Service Providers

A year ago, the SEC adopted Investment Company Reporting Modernization Rules and Forms, as well as rules pertaining to liquidity risk management programs and swing pricing. New forms N-Port and N-Cen along with amendments to Regulation S-X significantly change the current reporting regime for most registered investment companies (RICs) because they require more comprehensive disclosure and more frequent reporting of portfolio holdings. The SEC has stated that obtaining such information will assist the Commission with overseeing and monitoring RICs and formulating policy.

During Ascendant’s recent conference, “Compliance Disruptors: Seismic Shifts of the Regulatory Landscape,” Mark Perlow of Dechert, Ronan Brennan of MoneyMate Group, Kevin Gleason of Voya Investment Management and Peter Guarino of Ascendant Compliance Management discussed regulatory changes impacting RICs and service providers.

Mr. Perlow noted that the genesis of the Modernization rulemaking, which occurred shortly before the Presidential election, was to address the purported systemic risk associated with the financial services industry. However, in the ensuing year the focus on systemically important entities has shifted away from the original intent.

Currently, the industry is focusing on compliance with the Liquidity Risk Management Program, which is designed to assess a RIC’s ability to meet redemption requests without significant dilution of remaining investors’ interests in the fund. Fund complexes with greater than $1 billon in AUM are required to comply by December 1, 2018 and the compliance date for complexes with less than $1 billion is June 1, 2019. The panel noted that the Liquidity rule poses a challenge to the industry because it combines a complicated data management exercise with real-time judgement and decision making. The industry trade organizations have sought regulatory guidance from the SEC regarding provisions of the rule that are not clear or are raising questions. Trade organizations have also recommended that the SEC delay the compliance date to give fund complexes additional time to develop appropriate reporting systems and to address the data breaches the SEC recently reported.

One of the biggest questions that the industry faces regarding compliance with the liquidity rule is “who is going to pay”? Compliance with the rule requires not only additional reporting but also administrative resources. The Liquidity rule is not just a compliance rule; it touches all aspects of a fund’s governance and administration. Compliance with the rule will take a village. Thus, fund boards are asking management to recommend a solution and then the board will consider the proposal. Issues around fees include:

  • Will a sponsor have to pay the associated fees if the fund or fund complex reaches its fee caps?
  • Fund management position is that the expense should be borne by the fund.

Another issue the industry is tackling is the use of vended solutions to meet the Liquidity rule requirements. Questions regarding how a vendor will know what the classifications of data should be or the strength of an algorithm are being considered. The industry is also asking how frequently a fund will need to review its classifications and whether there are different requirements for different types of investment instruments. The panelists all suggested that there is currently a lack of confidence in the data that will form the basis of a fund’s reporting.

In closing, the panel cautioned that, despite the state of flux surrounding the Liquidity rule, funds and fund complexes need to move forward with preparing to comply with the rule.


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CSS frequently publishes blog posts which are written by our team from their observations in the field, at conferences and through experiences with compliance professionals. These posts are designed to further knowledge and share industry best practices. Topics run the gamut, including Form ADV, cybersecurity, MiFID II, position limit monitoring, technology challenges and more. Complete and submit the brief form below to receive notifications when we publish new content.

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