Oct. 29, 2023
While the proposed SEC Release No. IA-6240; File No. S7-04-23 aims to enhance investor protection through stricter disclosure requirements for registered investment companies (RICs), the measure poses significant challenges for industry participants. Specifically, the requirement to include an audited financial statement in annual reports prior to shareholder meetings could create logistical difficulties for RIC boards, particularly those operating under tight deadlines. Moreover, the increased reporting burden associated with providing detailed information on fees charged during redemption periods may exacerbate operational complexities, potentially leading to higher costs for funds and investors alike. To mitigate these concerns, alternative proposals merit serious consideration. One possible solution involves permitting RICs to choose whether to file audited or unaudited statements at year-end, depending on factors specific to each fund. Another option might entail introducing greater flexibility around fee disclosures, allowing funds to report metrics based on averages over certain timeframes rather than individual transactions. Such approaches could balance the need to maintain transparency with practicality and ease of execution, thereby reducing potential sources of friction for market actors. Ultimately, thoughtful dialogue among regulators, industry representatives, and other key stakeholders can help identify mutually beneficial paths forward that minimize risks and maximize outcomes for all parties involved.