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SEC Issues Investment Company Reporting Modernization Rules

Date: 3 November 2016
Investment Management Alert
By: Alyssa B. Sherman, Lucie G. Enns, Yoon Y. Choo

On October 13, 2016, the Securities and Exchange Commission (“SEC”) adopted significant reforms under the Investment Company Act of 1940, as amended (“1940 Act”), that impose extensive new disclosure and reporting obligations on most registered investment companies (“funds”) (collectively, the “Reporting Rules”).[1],[2]  Over the last twenty years, the fund industry has seen the introduction and growth of new products, such as exchange-traded funds (“ETFs”), target date funds, and non-traditional bond funds, as well as the use of increasingly complex strategies and practices, including an increase in the use of derivatives by some funds.  According to the Adopting Release for the Reporting Rules, the SEC believes that information that funds are currently required to report lags the evolution of the fund industry.  The SEC has also begun to leverage technology by using structured and interactive data formats that allow it to collect and analyze information reported by funds more efficiently and effectively.  The Reporting Rules are intended to bring fund reporting up to date with these developments.

The Reporting Rules greatly expand the volume of information regarding fund portfolio holdings and investment practices that must be disclosed.  Moreover, the Reporting Rules mandate that most of the new information be submitted in extensible markup language (“XML”) — a structured data format that will increase the transparency of submitted data, permitting the SEC and third parties to efficiently collect, aggregate and analyze the new information.  Thus, with the adoption of the Reporting Rules, the SEC will acquire a potentially powerful new database of information that will permit it to assess risk at the fund-specific level, across different types of funds, and across the industry as a whole.  The SEC has stated that it expects to use the data collected under the new reporting regime to, among other things, assess fund regulatory compliance, identify funds for examination, monitor risk, and inform rulemaking.  As SEC Chair Mary Jo White stated in her opening remarks at the open meeting during which the Reporting Rules were approved, “[t]his modernized reporting framework will, in short, fundamentally change how the [SEC] and investors can monitor and assess funds, including their potential risks.”[3]

To read the full alert, click here.


[1] Investment Company Reporting Modernization, Release Nos. 33-10231; 34-79095; IC-32314 (Oct. 13, 2016) (“Adopting Release”)

[2] We use “funds” to mean all registered investment companies other than face-amount certificate companies, except as otherwise noted.

[3] Mary Jo White, Chair, SEC, Statement at Open Meeting: Modernizing and Enhancing Investment Company and Investment Adviser Reporting (Oct. 13, 2016)

This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer. Any views expressed herein are those of the author(s) and not necessarily those of the law firm's clients.

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