SEC to Focus on Portfolio Risks in 2015

SEC Chairwoman Mary Jo White announces in a speech last week that the SEC will be focusing on funds and advisers and their portfolio management activities in 2015. Specifically, the National Exam Program (NEP) and the Division of Investment Management (IM) will review fun and adviser activity regarding portfolio composition risk and disclosures surrounding risk levels in portfolios of all kinds.

Three main areas of concern were addressed by Chair White:

  1. Data requirements for funds and advisers
  2. Fund level internal controls regarding liquidity and risky investment vehicles (i.e., derivatives)
  3. Firm and asset transitioning during times of stress

The SEC plans to review the above areas and determine what steps are needed to strengthen regulatory controls around portfolio composition and operational risk. Advisers to separate accounts will also be reviewed in relation to these areas in order to determine how risks vary among firm and client types.

Securities lending activities and use of derivatives by registered funds will be closely scrutinized. The SEC is looking for increased controls and shareholder disclosures from firms involved in these transactions. Portfolio composition of mutual funds will be viewed in relation to liquidity risk since funds have strict redemption guidelines under Section 22(e) of the Investment Company Act.

Potential rulemaking may include:

  • Rule requiring funds and WTFs to establish risk management programs
  • New fund and ETF liquidity standards and disclosure requirements
  • Rule requiring registered investment advisers to establish written transition plans in case of major business disruptions
  • Rule addressing annual stress testing of the largest investment advisers and funds

View the entire speech here: “Enhancing Risk Monitoring and Regulatory Safeguards for the Asset Management Industry,” SEC Chair Mary Jo White, The New York Times DealBook Opportunities for Tomorrow Conference, December 11, 2014