SEC Commissioner Hester M. Peirce urged the SEC to scrutinize and potentially eliminate costly regulations that hinder mutual funds’ ability to generate returns and thus negatively impact investors.
In a speech before the 2018 Mutual Funds and Investment Management Conference, Ms. Peirce argued that the SEC should pay careful attention to the costs and time burdens of complying with rules. Ms. Peirce suggested that the SEC should conduct retrospective reviews of its regulations to assess (i) whether the rules are accomplishing their intended objectives, and (ii) if there are more cost-effective alternatives than the rules currently in place.
Ms. Peirce highlighted that the SEC recently conducted a review of ICA Rule 22e-4, which addresses fund liquidity, before it took full effect. The SEC learned that, among other problems, the liquidity classification requirements in ICA Rule 22e-4 did not accommodate different types of funds and required difficult judgment calls in several instances. Ms. Peirce counseled regulators to remember that funds are not banks and should not be regulated as such.
Ms. Peirce also encouraged the SEC to amend rules to provide investors with disclosure in an easily accessible, readable format. She suggested that the SEC should harness technology to improve fund disclosures. In particular, she advocated for adopting proposed ICA Rule 30e-3, which would allow shareholder reports to be transmitted over a website.
Finally, Ms. Peirce emphasized the need for a rulemaking on ETFs, echoing comments by the Director of the Division of Investment Management (covered here).
Lofchie Comment: There may be no other place in regulation where the tension between (i) adopting regulations that protect retail investors and (ii) imposing regulatory costs that are passed on to retail investors is so obvious. Over time, it seems that regulators tend to focus more and more on investor protection and to ignore the costs. It is important to revisit the trade-offs, as Commissioner Peirce urges.