Remarks to the IA Compliance Best Practices Summit 2013

Introduction

Good afternoon and thank you for inviting me to speak to you today.  Before I begin, let me remind you that the views I express are my own and do not necessarily reflect the views of the Commission, any of the Commissioners, or any of my colleagues on the staff of the Commission.

Today I would like to share with you our recently announced regulatory initiatives and provide you with an update on some of our other activities.

Division Regulatory Initiatives

Like most of the SEC, we have been focusing on the rulemaking required under the Dodd-Frank Act and the JOBS Act.  The bulk of rulemaking related to investment advisers that was required by the Dodd-Frank Act is complete, such as the registration of advisers to private funds.  We are working with colleagues across the Commission on other required rulemakings, such as general solicitation.

In addition, the staff continues to work on the Volcker Rule, diligently analyzing commenters’ concerns and collaborating with other federal regulators to draft a recommendation for the Commission.

In addition to our work in these areas, I asked the Division staff to conduct a comprehensive review of our active, inactive and potential rulemaking initiatives to develop potential “discretionary” or non-mandatory rulemaking initiatives.

We analyzed potential rulemaking initiatives by looking at the following four factors:  the identification of risks to be mitigated or problems to be solved, the urgency associated with a particular initiative, the potential impacts on various stakeholders, and the resources associated with each policy initiative.

The analysis has helped to inform the Chairman, collaborating with the Commissioners, in her determination of which priorities the Commission will pursue. 

There are three short term priorities: potential money market mutual fund reform, identity theft red flag rules, and valuation guidance; and five longer term regulatory initiatives: the review of rules that apply to private fund advisers, a derivatives concept release, an ETF rule, a variable annuity summary prospectus, and enhancements to fund disclosures about operations and portfolio holdings.

Each of the three short-term regulatory priorities I mentioned is actively being worked on by staff in the Division of Investment Management.  In addition, we are scoping the five longer-term rulemaking projects and allocating resources toward them. These projects are in a less advanced stage, but we want to share them so that investors, funds and advisers, taxpayers and others are aware of where we are focused and devoting resources.

Additional Activities

I would like to share with you some of our other Division activities.  In the Division, and throughout the Commission, we are striving to be a continuous improvement organization, looking for ways we can work smarter and better.  A few months ago, I reported that our Division had begun an intensive inquiry to better understand our strengths and areas of improvement.  This inquiry, which we refer to as “Moving Ahead” — comprises five broad categories, namely, people, processes, technology, structure, and strategy.  I am excited to provide you with a brief report on our Moving Ahead initiative to date.  Over the past few months, we’ve gathered input from across the Division and the Commission, we’ve identified and prioritized issues confronting our Division, and we’ve created action teams comprised of managers and staff to address these issues.

One specific initiative that I would like to highlight is our effort to improve Division communications both internally and externally. One example is that we have created a new position in our Division for an attorney to serve as a communications lead. The communications lead will be reaching out to you, members of the asset management industry, to find out what you would like to hear about.  The communications lead will work with the Division to disseminate that information to you. 

Another example is our project to modernize our website.  To that end, for example, we are diligently striving to organize all forms of IM staff guidance topically to make it easier to find a particular piece of guidance.  This project will facilitate improved guidance from our Division to you. 

Staff guidance is an important tool that the Commission’s rules have given us to better serve investors and the markets.  Each year, our Chief Counsel’s Office and rulemaking offices that have recently labored on rules adopted by the Commission provide thousands of substantive responses to requests for guidance on those rules and various kinds of assistance on other phone calls and e-mails requesting guidance from the industry and the public.  There is always someone there to take your call or e-mail, and it would not be an overstatement to say that no question goes unanswered.

As with the other Division initiatives, we are looking for ways to use the tool of staff guidance smartly, efficiently and effectively.   For example, along with traditional no-action and interpretive letters, you might have noticed three features on our IM website.  First is a page on the Division’s website currently called “Investment Management Staff Issues of Interest,” which was launched about two years ago.¹  We introduced it as a way to highlight generally for funds, advisers and the public issues of relevance to them that we might have identified and did significant research on in responding to a particular inquiry or reviewing registration statements.  We have made that all available to you on our website.  For example, you can find guidance regarding changes to advisory contracts under both the Company Act and Advisers Act.  You may also have noticed the “Announcements” section of our site, where, among others, we seek to remind form filers of any important changes to filing deadlines affected by calendar events.  And finally, in our “Staff Guidance and Studies” section, among other guidance, we have included, and continually update, Frequently Asked Questions, or FAQs, with the interesting and novel questions we receive about Form ADV, the Pay-to-Play rule and Form PF, just to name a few. 

Of course, we also have continued to issue traditional no-action and interpretive letters, many of which provide flexible and timely guidance with regard to Dodd-Frank amendments.  Just to give some examples, on the Advisers Act side, we have issued several no-action letters that assist advisers that previously were able to rely on “the private adviser exemption” from registration.  Some of these letters provided no-action relief allowing certain entities not to register as advisers.²  Another letter set forth extensive “questions and answers” on issues relating to “umbrella” advisers.³  On the fund side, we provided temporary relief in a series of no-action letters that afforded funds some flexibility in applying the Investment Company Act custody requirements to swaps as part of implementation of the Dodd-Frank amendments.⁴

It is quite apparent that our staff guidance can be part of a productive and transparent dialogue.  So in that spirit, we welcome no-action or interpretive letter requests, suggestions on issues that might benefit from being highlighted as staff Issues of Interest, and generally ideas on how we can better serve the public and industry participants through the informal process of guidance and advice.

We are looking at subjects that we can communicate more on with you.  The Division used to do “Dear Registrant” letters and other communications to the industry.  Some years ago this stopped.  With the communications lead and the Chief Counsel’s Office we are actively looking at guidance to get out to the industry.  We encourage you to let us know what you would like to hear about.

IM Risk and Examinations Group

Another recent initiative in IM is our Risk and Examinations Group, or REG.  This group was created partly as a result of section 965 of the Dodd-Frank Act, which mandated that the Division have exam staff to do exams of entities under our jurisdiction.   We are partnering examiners with quantitative and financial analysts as well as accountants.   The Risk and Examinations Group is responsible for analyzing and monitoring the risk-taking activities of investment advisers, investment companies, and the investment management industry as well as new products.  The office assists other Division staff in (1) understanding the characteristics, risks, and benefits of complex investment products that registered investment companies hold and that are the subject of requests for no-action and/or exemptive relief, and (2) reviewing disclosures associated with those products. 

The office also works closely with the Office of Compliance Inspections and Examinations in developing and administering its examination and risk monitoring programs.  Although REG will be conducting its own exams, where practical, REG staff may join OCIE examiners on visits to firms. Conducting exams is just one part of REG’s role.  As the Division works on new initiatives and projects, REG will engage firms in an active dialogue to learn more about issues facing firms and the industry, discuss best practices and help inform our rulemaking.

REG conducts rigorous quantitative and qualitative financial analyses of the investment management industry, including detailed analyses of strategically important investment advisers and investment companies.  Leadership of IM, OCIE and REG has been conducting meetings with senior management and the Boards of asset management firms.  These dialogues help us understand the risks firms perceive and allow us to communicate the risks that we see in the firms or in certain products.  These visits are designed to increase the staff’s understanding of firms’ risk management activities, generate an active dialogue between REG and firms on key risks and issues facing firms and the industry, and help inform policy and the examination process.

Conclusion

I appreciate the opportunity to share with you some of the Division’s recent initiatives.  The Division is committed to helping American investors by protecting investors, promoting informed investment decisions, and facilitating appropriate innovation in investment products and services, through regulating the asset management industry.  Thank you.