SEC proposes tightening of mutual fund regulations

SEC proposes tightening of mutual fund regulations
February 6, 2015

Mutual funds are quickly rising on the SEC's priority list.

In December, at the New York Times DealBook Opportunities for Tomorrow Conference, SEC Chair Mary Jo White announced that the SEC will be taking a closer look at the regulation of mutual funds and the asset management industry to ensure that appropriate risk controls are in place.

Tightening regulation around the mutual fund industry is designed to further the long-term mission of the SEC—to protect investors and consumers. This increased scrutiny is quite similar to the attention the banking industry received post-collapse.

As part of this announcement, the SEC has stated that it's developing three core initiatives:

  1. Enhancing data reporting will expand and modernize existing data requirements for mutual funds and advisors. This will enable the SEC To better monitor industry developments and potential compliance issues.

  2. Enhancing controls on risks related to portfolio composition will ensure that funds are able to effectively identify and manage risks on current portfolio composition. In order to do this, the SEC is focusing on liquidity management and the use of derivatives in mutual funds and exchange-traded funds.

  3. Improved transition planning and stress testing will require firms to have a more detailed plan in place for transitioning of their clients' assets under certain circumstances. "If we have learned nothing else from the financial crisis, it is that we must test and plan for the worst," said White.

What does this mean for you?

This "historic three-part mission" will have a broad impact, but there is still work to be done before the SEC can reach a final rule. White is calling on investors and market participants to aid in the process and provide their views on the subject.

"[The objective of the SEC] is not to eliminate all risk. Far from it," said White. "Investment risk is inherent in our capital markets—it is the engine that gives life to new companies and provides opportunities for investors."

To read the full speech, click here.

Mike Sellberg

About the author

Mike Sellberg is Executive Vice President and Chief Product Officer at Workiva. He is the former EVP and CTO at iMed Studios and the former Divisional General Manager at Engineering Animation, Inc.