In recent remarks, SEC Chair Mary Jo White discussed the SEC’s regulation of the asset management industry in relation to evolving markets and the attendant challenges. She noted that the SEC’s monitoring and regulation of conflicts of interest, as well as portfolio-composition and operational risks, must advance to address modern practices and new product offerings. The aim is not to eliminate all risk, Ms. White explained, but to regulate with an eye toward the balance of undue risks and rewards.
Key Takeaway: New SEC disclosure and reporting obligations may be forthcoming in the next year for mutual funds.
Summary: Ms. White explained that a focus on controlling risk is crucial. Mutual funds may encounter portfolio-composition risks, including liquidity and leverage, and operational risks involving inadequate processes and systems. Ms. White believes the SEC needs to enact a broader set of proactive initiatives to help ensure that the regulatory program is fully addressing these risks. To do this, she explained, the SEC must improve the quality of information used to study and respond to asset management risks and provide funds with the tools they need to identify and address risks associated with their portfolios. Ms. White went on to state that the SEC staff is in the process of developing enhancements for data reporting by both mutual funds and advisers to better inform the SEC’s risk-assessment activities. In connection with this, she noted that the SEC must ensure that registered funds have controls in place to identify and manage the risks of their increasingly diverse portfolios. A more comprehensive approach is needed, Ms. White stated, and the staff is considering whether broad risk management programs should be required for mutual funds and exchange-traded funds to address these concerns.