SEC Investment Management Director Blass Discusses Regulating for the Future
October 5, 2020
Using money market funds and exchange-traded funds (ETFs) as case studies, the SEC’s Division of Investment Management Director Dalia Blass discussed in a recent speech the Division’s philosophy of forward-looking regulation and its focus “on regulations that will balance flexibility to accommodate future changes with promoting resiliency to future crises.”
On money market funds, Blass discussed the COVID-19 market disruption and emergency actions taken by regulators in March related to these funds. She noted the importance of considering how the framework of the money market fund rule (Rule 2a-7 under the Investment Company Act) may have either alleviated or contributed to what occurred. At the same time, however, she said that the Division also needs to focus on a framework that provides structural resilience and appropriate incentives during market stress, while preserving the role of money market funds.
Blass reached a similar conclusion in her discussion of ETFs. She discussed how in March, ETFs – particularly those investing in fixed income securities – had dislocations between their market prices and net asset values. However, she emphasized that, while “the ETF structure was put to a significant test,” ETFs were able to meet redemptions. She explained that the Division wants to support healthy innovation in this industry and that policy outcomes should not focus solely on past events.
Blass then discussed how she believes forward-looking regulation can be achieved by focusing on data-driven regulatory tools, risk management, and international engagement. She discussed the Liquidity Rule and proposed derivatives rulemaking as two initiatives that include data-driven regulatory frameworks that “seek to balance flexible requirements that can be tailored to a particular fund’s risks with minimum standards and tools to promote resilience, strong oversight, and informed market monitoring.” Regarding risk management, Blass said when investors take on risk, they must be provided with appropriate disclosure. She also discussed the importance of international engagement. Two issues that she noted impact U.S. asset managers are the EU’s unbundling of payment for research and EU requirements regarding ESG disclosures. Her remarks regarding payment for research echoed remarks she’d made in an earlier statement, as reported in IAA Today.
Blass’s comments also covered the review of SEC staff statements and she encouraged the industry to review these statements and consider whether the SEC has separately spoken on the topic and whether the market has evolved in that area. She said that “[r]econsideration of prior staff statements certainly will be a continued priority of the Division.”
With respect to the upcoming work of the Division, Blass noted the plan to make staff recommendations to the Commission on the fund of funds, derivatives, fund valuation, and investment adviser advertising and solicitation rule proposals. The Division is also considering updating the SEC’s e-delivery guidance, and permitting virtual fund board meetings beyond the relief provided related to COVID-19, two topics on which the IAA has advocated on behalf of our members. Regarding e-delivery, the IAA and other industry groups recently issued a discussion paper urging the SEC to update its regulation in this area.
See Keynote Address: Regulating with our Eyes on the Future (Sept. 24, 2020).
TAGS: Dalia Blass, Coronavirus, COVID-19, Electronic Delivery, ETFs, Mutual Funds, Valuation, MiFID II