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A Destination for Asset Allocators

  

ASSET ALLOCATOR SPOTLIGHT

 

INVESTMENT ADVISERS PREPARE FOR A CHANGING REGULATORY LANDSCAPE

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.

 

The SEC Division of Investment Management Selected List of Proposed Rules

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.

  

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