Statement at an Open Meeting on Investment Company and Investment Adviser Reporting

Commissioner Daniel M. Gallagher

Washington D.C.

Thank you, Chair White. And thank you to the staff from the Division of Investment Management (“IM”) who worked so diligently on today’s proposing releases, in particular Dave Grim, Diane Blizzard, Sara Cortes, Dan Chang, Matt DeLesDernier, Jay Krawitz, Andrea Magovern, Michael Pawluk, Dan Kahl, Sarah Buescher, and Bridget Farrell. And I would be remiss if I did not mention, as Chair White did earlier, the Herculean efforts of former IM Director Norm Champ in crafting the conceptual framework for today’s proposals. Thanks as well to staff from IM’s Risk and Examinations Office, the Division of Economic and Risk Analysis, and the Office of the General Counsel.

The rule proposals we are considering today represent a very important step forward for the Commission. It is critical for the SEC to change and adapt as the markets and market participants we oversee evolve. We cannot assume that our regulatory paradigms will stand all tests of time and instead focus our attention on the shiny object of the day, as convenient as that sometimes may be. The agency must be introspective, analyzing the efficacy of our programs and rulesets, using all available data to inform decisions about whether or how to adapt to changed circumstances. With today’s rule proposals, we are doing just that, and without a Congressional mandate to do so!

For far too long, a dark shadow has been cast over this agency by the many false narratives underlying the financial crisis and the SEC’s role in it. One of those false narratives is that the SEC’s asset management regulatory program is deficient and that the industry and its participants pose systemic risks. These narratives are, of course, preposterous, but they appear to hold water at the Basel cocktail parties. And so, while I do not believe we should ever promulgate rules to stave off the nonsense of bank regulators, I am pleased to be here today with a set of proposals that will enhance our oversight of an incredibly important segment of the capital markets, and at the same time illustrate to the bank regulator illuminati that the SEC is more than up to the task.

Today, we are charting a new course in our oversight of asset managers, breaking from the lawyer-driven mentality that has far too long dominated the SEC’s oversight of this industry. We have taken a ground up approach, thinking critically about the data we need as regulators to fully understand how regulated funds operate and to proactively identify potential risks that could harm investors. We have taken a hard look at how we use the data that we are already receiving and whether we are using it efficiently and intelligently. We have worked to streamline the data reporting process and to bring it into the 21st century. And we have done all this with a view towards minimizing as much as possible the burden on regulated entities and the investors they serve. The culmination of this work is a set of rule proposals that, if adopted, will make the SEC a much more sophisticated overseer of the asset management industry.

Not only do today’s proposals require funds to report new types of data, such as risk metrics and the use of derivatives, but they also require more frequent reporting to the SEC, significantly enhancing our ability to monitor their activities for potential risks. Funds would also be required to report data in a structured format, allowing us to escape from the dark ages and take advantage of smart technologies that are currently useless to us because of dated data formatting requirements. Today’s proposals would also require disclosure of new data points under Regulation S-X, enhancing the quality of information available to investors in registration statements and shareholder reports, and would introduce new requirements on Form ADV for the reporting of data about assets, derivatives, and borrowing activity in separately managed accounts. I would like to point out how important it is to collect this new information on debt security holdings as the Commission begins to think about reforms in the fixed income markets.

I was particularly pleased to see that the staff acted on my recommendations to include a scaled compliance period, allowing smaller funds a longer period to implement the technological and procedural changes necessary to comply with the new reporting requirements, and to allow website transmission of shareholder reports. This significance of this proposal cannot be overstated, and I believe it is imperative for the Commission to revisit all disclosure delivery rules to make similar updates where appropriate.

I have spoken time and again of how important it is for the Commission to focus on its core responsibilities — the basic “blocking and tackling” of securities regulation. Today’s rule proposals are exactly the type of organic initiatives that we should be pursuing. By equipping the agency with better tools to understand and manage the risks inherent in the markets we regulate, these rules will allow us to be more sophisticated, more nimble, and more efficient overseers of the asset management industry.

Again, I sincerely appreciate the hard work that the staff put into today’s proposed rules. I support today’s recommendation and I have no questions.

Last Reviewed or Updated: May 20, 2015