Proposed Compliance Rule Amendments

Know The RulesOn May 20th, 2015 the SEC proposed “…rules, forms, and amendments to modernize and enhance the reporting and disclosure of information by investment advisers and investment companies.” In plain English, that means more information reported to the SEC and the investing public, more frequently. Fortunately, the rules and amendments are only proposed, and open for comment for 60 days after publishing in the Federal Register. Over 40 comments were received by the August 11 deadline, pretty well split between those supporting the amendments, and those who were not.

One item on the IC side, that did strike me as odd, was the request for the monthly reporting of the “terms of derivatives contracts” held by the fund. I don’t recall that information as normally requested by investors, but this may just be a sign of the increasing sophistication of today’s mutual fund investor. There is also a new requirement for monthly portfolio reporting as well as additional annual reporting. I want to primarily talk about the changes affecting investment advisers, “…to provide additional information for the Commission and investors to better understand the risk profile of individual advisers and the industry as a whole.”

The changes to Form ADV Part 1 typically require more information and more specific information, such as types of assets held in separately managed accounts, borrowings and derivatives, and the identity of the custodians where those assets are held. My sense is that larger firms with more staff (and potentially more conflicts of interest) will be easily able to comply with the amended rules, but smaller advisers will not (as evidenced by the comments on the SEC’s website). There is also a new requirement to identify the social media platforms that the advisers use.

The change that is the most troubling to me is the amendment to the Books and Records Rule. We are all familiar with the requirement that advisers retain supporting documents for any materials provided, directly or indirectly, to more than 10 persons. The proposed amendment would require the retention of the supporting documentation for materials including performance provided to any person. I assume this to mean that for any mention of performance in an email, you would need to have the supporting documents. I agree with the commenters that this creates a burden for advisers, especially the smaller advisers, but maybe the result will be less discussion about performance in your correspondence.

Comments are closed.