Thursday, July 30, 2020

IM director touts division’s pandemic response, continuing investor-protection efforts

By Amy Leisinger, J.D.

In recent remarks, Division of Investment Management Director Dalia Blass reviewed key 2020 developments and noted that stakeholders and investors can expect more to come. Amid the plethora of changes brought about by the COVID-19 pandemic, the division continues to work to improve efficiencies and enhance monitoring efforts, the director explained.

Pandemic response. COVID-19 has tested regulators, business processes, and market structures, Blass noted, but the SEC staff and market participants have shown resilience and adaptability. The director stated that the IM division has remained fully functional and even taken on additional work to accommodate outreach and emergency work efforts, extensive monitoring, and domestic and international coordination. The staff drafted temporary relief for filing and delivery obligations, provided for additional credit tools, and permitted fund boards to meet virtually. The integration of market intelligence with policy tools enabled rapid and informed responses, according to Blass.

In the last few months, some funds faced significant redemption activity as investors shifted assets into short-term, highly liquid instruments. The Commission took steps to address this risk in 2016 by adopting a modernized framework for liquidity risk management, Blass stated. While noting her belief that stress testing elements and the related framework improved fund resilience ahead of recent events, the director invited feedback on whether the changes achieved their purpose. She also asked whether liquidity tools like swing pricing and redemption fees have been underutilized.

"Crises expose weak spots," Blass stated, and, regarding the current crisis, the issues associated with continued operational dependence of fund and adviser communication on paper became apparent, according to the director. Blass opined that it is time to reconsider the SEC’s approach to shareholder and client communication and consider guidance that treats physical and electronic delivery as equals. She also invited comment on the possibility of extending permission for virtual board meetings permanently.

The director noted, however, that making significant, permanent policy changes would be premature and urged asset managers to take look at their own experiences and engage with IM staff in a data-driven dialogue on remaining questions.

Accomplishments and continuing efforts. Although the issues related to COVID-19 difficulties required a great deal of focus in recent months, Blass noted that IM staff also has moved forward on several other agenda items. Particularly, among other things, the director cited the recently proposed increase in the threshold for Form 13F filing and guidance regarding advisers’ proxy voting responsibilities. The Commission also established an expedited procedure for reviewing routine applications under the Investment Company Act and made clarifications related to the "covered fund provisions" of the Volcker Rule, according to Blass. In addition, the SEC considered a proposal to update the framework for fund valuation practices and modified certain processes governing business development companies and other closed-end funds, she said.

Looking ahead, Blass stated that the IM staff plans to make recommendations on outstanding proposals involving "fund of funds" arrangements, use of derivatives, valuation practices, and adviser advertising and solicitation. The staff also will move forward with an initiative to enhance public access to private markets, which could include target date funds and closed-end funds of private funds, she said.

During this challenging time, the SEC staff is making the most of it resources and using technology to improve regulatory oversight, Blass concluded.