ASSET ALLOCATOR SPOTLIGHT

 

Investment advisers operating US-registered funds are contending with a wide range of challenges, including market upheaval, rising costs, the pressures of emerging technology and ongoing efforts around talent retention. Adding to these, regulatory compliance continues to be a focus, with new rules and pending proposals arising from the Securities and Exchange Commission’s (SEC) roadmap. In a dynamic environment, advisers should look to a service provider that can equip them with support and expertise to traverse the evolving regulatory landscape.

 

Featuring Barbara Nelligan and Greg Mino | August 2023

Investment advisers operating US-registered funds are contending with a wide range of challenges, including market upheaval, rising costs, the pressures of emerging technology and ongoing efforts around talent retention. Adding to these, regulatory compliance continues to be a focus, with new rules and pending proposals arising from the Securities and Exchange Commission’s (SEC) roadmap. In a dynamic environment, advisers should look to a service provider that can equip them with support and expertise to traverse the evolving regulatory landscape. 

The list of new considerations is robust. On the heels of implementing the Fair Valuation and Derivatives Oversight rules approximately a year ago, operations, compliance and regulatory administration teams have turned their focus to the 2022-adopted Tailored Shareholder Reporting and Proxy Voting implementations. February 2023 delivered the Shortened Settlement Cycle (T+1) approval that teams are also working on now. July 2023 saw the SEC adopt new requirements for all money market fund managers, each with varying implementation dates, from immediate effectiveness to a one-year period to implement a new mandatory redemption fee for Institutional Prime and Institutional Tax-Exempt funds.

Beyond the approved rules, a long list of rule proposals that impact U.S. registered funds and their advisers awaits SEC action. The proposals, many targeted for votes this fall, are complex and have overlapping requirements. For example, most proposals contain reporting requirements via N-CEN, N-PORT, Form ADV and fund registration statements. Many of them require more frequent reporting timeframes as well as structured data language requirements. The proposed compliance transition periods are generally short and, in several cases, multi-tiered and with parallel compliance runways.

 

Last Action Date	Rulemaking
8/23/23	Safeguarding Advisory Client Assets (Custody Rule)
3/15/23	Regulation S-P: Privacy of Consumer Financial Information and Safeguarding Customer Information
3/15/23	Cybersecurity Risk Management for Investment Advisers, Registered Investment Companies, and Business Development Companies
11/02/23	Open-End Fund Liquidity Risk Management Programs and Swing Pricing; Form N-PORT Reporting
10/26/22	Outsourcing by Investment Advisers
5/25/22	Enhanced Disclosures by Certain Investment Advisers and Investment Companies About Environmental, Social, and Governance Investment Practices
5/25/22	Investment Company Names

Source: SEC.gov | Rulemaking Activity

To manage the volume and complexity of the adopted rules and evaluation of rule proposals, implementation teams should be prepared with project plans that map out individual requirements and timelines for each rule. They would also benefit by developing master plans that capture an overview of all projects given the likelihood that multiple teams may be performing the work and there may be overlapping implementation dates, technology development needs and budgets. As a further recommendation for rule implementation, investment advisers should work with fund boards and their counsel with a goal to eliminate legacy board reports when feasible. It is often viewed as "easy” to simply add a new report while it is harder to review, repurpose or sunset existing reports. However, the latter exercise can be worth the time and effort.

To help make their processes more efficient, investment advisers can leverage their service providers to assist them with their regulatory reporting needs.  Administrators have the experience and view across the industry that allows them to find certain efficiencies, such as creating reports or templates that can assist investment advisers meet new policy and reporting requirements. For example, when the Fair Value Rule (2a-5) was implemented in 2022, third-party fund accounting teams developed enhanced reports that assisted investment advisers in their role as Board-appointed Valuation Designees.

Overall, evaluating and implementing adopted rules and monitoring proposed rules is a large undertaking given the SEC’s aggressive rule-making stance. These pressures are being exacerbated by industrywide challenges like rising costs, market upheaval, emerging technology and ongoing talent challenges. Assigning clear responsibilities and project resources as well as seeking assistance from service providers can help investment advisers meet implementation timelines and compliance dates.

---

© 2023 Northern Trust Corporation. Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A. Incorporated with limited liability as an Illinois corporation under number 0014019. Products and services provided by subsidiaries of Northern Trust Corporation may vary in different markets and are offered in accordance with local regulation. This material is directed to professional clients only and is not intended for retail clients. For Asia-Pacific markets, it is directed to expert, institutional, professional and wholesale clients or investors only and should not be relied upon by retail clients or investors. For legal and regulatory information about our offices and legal entities, visit northerntrust.com/disclosures. The views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author's employer, organization, committee or other group or individual. The following information is provided to comply with local disclosure requirements: The Northern Trust Company, London Branch, Northern Trust Global Investments Limited, Northern Trust Securities LLP and Northern Trust Investor Services Limited, 50 Bank Street, London E14 5NT. Northern Trust Global Services SE, 10 rue du Château d’Eau, L-3364 Leudelange, Grand-Duché de Luxembourg, incorporated with limited liability in Luxembourg at the RCS under number B232281; authorised by the ECB and subject to the prudential supervision of the ECB and the CSSF; Northern Trust Global Services SE UK Branch, UK establishment number BR023423 and UK office at 50 Bank Street, London E14 5NT; Northern Trust Global Services SE Sweden Bankfilial, Ingmar Bergmans gata 4, 1st Floor, 114 34 Stockholm, Sweden, registered with the Swedish Companies Registration Office (Sw. Bolagsverket) with registration number 516405-3786 and the Swedish Financial Supervisory Authority (Sw. Finansinspektionen) with institution number 11654; Northern Trust Global Services SE Netherlands Branch, Viñoly 7th floor, Claude Debussylaan 18 A, 1082 MD Amsterdam; Northern Trust Global Services SE Abu Dhabi Branch, registration Number 000000519 licenced by ADGM under FSRA #160018; Northern Trust Global Services SE Norway Branch, org. no. 925 952 567 (Foretaksregisteret), address Third Floor, Haakon VIIs gate 6 0161 Oslo, is a Norwegian branch of Northern Trust Global Services SE supervised by Finanstilsynet. Northern Trust Global Services SE Leudelange, Luxembourg, Zweigniederlassung Basel is a branch of Northern Trust Global Services SE. The Branch has its registered office at Grosspeter Tower, Grosspeteranlage 29, 4052 Basel, Switzerland, and is authorised and regulated by the Swiss Financial Market Supervisory Authority FINMA. The Northern Trust Company Saudi Arabia, PO Box 7508, Level 20, Kingdom Tower, Al Urubah Road, Olaya District, Riyadh, Kingdom of Saudi Arabia 11214-9597, a Saudi Joint Stock Company – capital 52 million SAR. Regulated and Authorised by the Capital Market Authority License #12163-26 CR 1010366439. Northern Trust (Guernsey) Limited (2651)/Northern Trust Fiduciary Services (Guernsey) Limited (29806)/Northern Trust International Fund Administration Services (Guernsey) Limited (15532) are licensed by the Guernsey Financial Services Commission. Registered Office: Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1 3DA. Northern Trust International Fund Administration Services (Ireland) Limited (160579)/Northern Trust Fiduciary Services (Ireland) Limited (161386),  Registered Office: Georges Court, 54-62 Townsend Street, Dublin 2, D02 R156, Ireland.