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SEC Chiefs Testify at Congressional Budget Hearing

On March 10, 2011, SEC Chairman, Mary L. Schapiro, and each of the agency's division directors testified before a Congressional subcomittee on budgetary matters.  Chairman Schapiro's testimony focused on reorganization and revitalization efforts at the SEC, as well as the need for additional resources to implement financial market oversight reforms.  IM Director, Eileen Rominger, made her first appearance before Congress as chief of the Division, testifying about the pending and future plans for the IM Division.  Her remarks provide an outline of Ms. Rominger's priorities, and a glimpse of the regulatory agenda she has in mind for the fund industry.  

In particular, Ms. Rominger focused on regulation of money market funds.

Important reforms the Commission adopted in the regulation of money market funds became effective in FY2010 and FY 2011. Included in these amendments was a requirement for money market funds to report their portfolio holdings to the Commission on a monthly basis. The Commission thus has begun more extensive oversight and surveillance of money market funds based on this data. In the coming year, IM plans to continue and expand initiatives to improve its monitoring of money market funds and ability to analyze trends in money market funds’ portfolio exposures, liquidity levels and average maturities.

Ms. Rominger also stated that the Commission will move forward with further efforts to reform the regulation of money funds, though she did not discuss the time frame for these potential further reforms.  

Also, IM is considering recommending additional reforms aimed at further improving the regulatory regime for money market funds and lessening their susceptibility to runs. Last year, the President’s Working Group on Financial Markets (of which the SEC Chairman was a member) published a report examining various options for additional money market fund reforms. The Division’s staff contributed substantial assistance and resources to this effort and continues to consult with their counterparts in the other agencies that comprise the Financial Stability Oversight Counsel (FSOC). The Commission requested comment on the options discussed in this report and will consider the comments received in evaluating additional regulatory reform.

Rominger also listed the pending rulemaking efforts left over from her predecessor's agenda, chief among them, Rule 12b-1 reform, suggesting that the effort is alive and well.

Rule 12b-1. The Commission proposed to rescind rule 12b-1, the rule that permits funds to make payments from fund assets for expenses incurred in the distribution of fund share, and replace it with a new rule and regulatory framework governing asset-based distribution fees. IM is currently reviewing the more than 2,000 comments the Commission received on the proposal and will evaluate whether to recommend that the Commission adopt 12b-1 reforms.

Ms. Rominger also listed other pending rulemaking priorities.

Target Date Funds. The Commission proposed changes to rules regarding fund names and marketing materials with respect to target date funds. A target date fund is typically intended for investors whose retirement date is at or around the fund’s stated target date. American workers increasingly rely on target date funds for their retirement needs. After consideration of public comments, the Division will evaluate whether to recommend that the Commission adopt rule changes to address target date funds.  

Investment Adviser Brochures. In July of last year, the Commission adopted final rules that substantially overhauled the primary disclosure document registered investment advisers must provide their clients and prospective clients. Form ADV, Part 2 – commonly referred to as the “brochure” – includes information on an adviser’s qualifications, investment strategies, business practices, and disciplinary information. The new brochures, which will be posted to the Commission’s web site as advisers file them, will have expanded content and an improved narrative plain English format.  

Pay to play. The Commission adopted in June of last year a new rule to address so-called “pay to play” practices in which investment advisers make campaign contributions to elected officials in order to influence the award of contracts to manage public pension plan assets and other government investment accounts. The rule, adopted in response to a growing number of reports of such activities across the country, is intended to combat pay to play arrangements at the state and local government level in which advisers are chosen based on their campaign contributions to political officials rather than on merit.

IM Director Rominger's testimony gives us a glimpse of what is on her regulatory agenda, and some hints as to what pending rulemaking efforts remain priorities for her division and the Commission.

The full text of Ms. Rominger's testimony begins at page 25 of the following link: