New SEC rulemaking looks to be gaining momentum based on a recent speech by the Director of the Division of Investment Management (IM). Dalia Blass gave the keynote address at the ICI Mutual Funds and Investment Management Conference on March 18, 2019, and although her speech was to a mutual fund audience, many topics presented addressed investment advisers at large. This ComplianceAlert provides insight into the issues Director Blass presented that could drive new rulemaking this year of the Investment Advisers Act of 1940, as amended (“Advisers Act”).
Several top industry concerns were highlighted in the speech, such as:
- Marketing and Advertising
- Exemptive Applications
- Proxy Advisors
- International Regulations
- Principal Trades
- Soft Dollars
Director Blass hinted at new rulemaking or additional guidance from IM on the valuation of securities, offering reforms, updates to the marketing and advertising rules, and improvements to the exemptive application process.
Much of the speech focused on two main areas: (1) proxy advisors and (2) international regulations such as MiFID II. A SEC roundtable previously taking place on November 15, 2018 was focused on the proxy process and the industry’s use of proxy advisors. Upcoming rulemaking or guidance is expected to cover SEC concerns regarding:
- When and how an adviser should vote on an issuer-specific basis;
- Whether advisers are expected to vote every proxy presented;
- How to evaluate proxy advisor recommendations; especially if a disagreement exists between the issuer and the recommendation; and
- How to address conflicts of interests related to proxy advisors
Comments from Director Blass on international policy revolved mostly around MiFID II and its impact on U.S. research firms and investment advisers. It appears that any new rulemaking in this area would involve changes to the Advisers Act. Specifically, changes could be made to Section 206(3) relating to principal transactions that may be part of any research payment process. Section 28(e) of the Exchange Act could also be modified so it is more in line with the new MiFID II protocols.
Director Blass also mentioned the creation of a new asset management advisory committee to include industry members with the purpose of meeting on many of the above topics, as well as how industry consolidation is hurting small firms.
2019 is shaping up to be a busy year for IM, with potentially significant rule proposals rolled out as part of its agenda.