In a speech Thursday, SEC Chair Mary Jo White spoke on "Enhancing Risk Monitoring and Regulatory Safeguards for the Asset Management Industry" and gave an overview of the asset management in a "new period of regulatory change." Judging by her comments, it seems the SEC's focus is moving beyond money market funds to other areas, such as data reporting for separate accounts and other investments and Financial Stability Oversight Council concerns over systemic risks. "Over the years, our regulatory program for asset management has grown and adapted, guided by our mission, to address ever-evolving markets and the challenges that evolution presents. We are now embarking on a new period of regulatory change, driven by long-term trends in the industry and the lessons of the financial crisis. This morning, I will talk about the SEC's perspective on the asset management industry today through a review of some of its most important features, highlighting the regulatory issues that the industry presents, and setting out how we plan to enhance and strengthen our response to those issues," said White in her introductory remarks.

She continued, "The Commission has regularly sought to evaluate and enhance its regulations to address portfolio composition and operational risks. Most recently, the Commission approved major reforms to money market funds that demand significant new controls to address the risks those funds present to investors and, potentially, the larger financial system. Working with our fellow regulators, the Commission has also established reporting requirements for advisers to private funds that includes important information about certain private fund activities. With respect to operational risk, the Commission has implemented a number of rules to protect customer information, including, most recently in 2013, rules to address the risk of identity theft."

She then discussed some new initiatives. "First, we must improve the data and other information we use to draw conclusions about the risks of the asset management industry and develop appropriate regulatory responses. Existing data requirements need to be expanded and updated. Second, we must take steps to ensure that registered funds enhance their fund-level controls so that they are able to identify and address risks related to the composition of modern portfolios, whether those spring from the overall financial profile of a fund, such as its liquidity levels, or the nature of specific instruments, such as derivatives. And third, we must take steps to ensure that firms have a plan for transitioning their clients' assets when circumstances warrant. If we have learned nothing else from the financial crisis, it is that we must test and plan for the worst."

On data reporting, she said, "The SEC's ability to effectively identify and address risks in the asset management industry is diminished without the ability to monitor for those risks at the fund level and across the entire industry. While funds and advisers currently report significant information about their portfolios and operations to the Commission, these reporting obligations have not, in my view, adequately kept pace with emerging products and strategies being used in the asset management industry."

She continued, "For example, our rules do not require standardized reporting for many types of derivatives used by funds today. This is a clear gap, particularly given the growth in the volume and complexity of derivatives used by funds. Similarly, we do not today receive the most complete information about securities lending by funds, which is done by approximately a quarter of funds. The staff is developing recommendations for the Commission to modernize and enhance data reporting for both funds and advisers.... Beyond that, the reporting and disclosure of fund investments in derivatives, the liquidity and valuation of their holdings, and their securities lending practices should all be significantly enhanced. Collecting more data on separately managed accounts, where the adviser manages assets owned by a particular client, will also better inform examination priorities and the assessment of the risks associated with those accounts, which are a significant portion of the business of many investment advisers."

On transition planning and stress testing, she explained, "A third focus of our regulatory enhancements is on the impact on investors of a market stress event or when an investment adviser is no longer able to serve its clients.... The staff is therefore developing a recommendation to require investment advisers to create transition plans to prepare for a major disruption in their business.... The staff is also considering ways to implement the new requirements for annual stress testing by large investment advisers and large funds, as required by the Dodd-Frank Act. Building on what we have learned about stress testing through money market reform, the staff is evaluating what protocols would be appropriate for investment advisers and investment companies."

On systemic risk, White said, "Before closing, I want to change my lens a bit and reflect very briefly on the Commission's role in addressing systemic risk, which has become part of the public dialogue about the regulation of asset management. The term "systemic risk" can mean different things to different speakers, and addressing the range of meanings is well beyond the scope of my remarks today. But, clearly, one of the most fundamental post-crisis changes for all of the financial regulators, including the Commission, has been an emphasis on addressing risks that could have a systemic impact on the securities markets or the financial system as a whole. This renewed emphasis, in my view, complements our long-standing mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation."

Further, "Truly tackling systemic risk in any area, obviously, demands a broader program than one agency can execute. Systemic risks cannot be addressed alone -- they are, after all, "systemic." Risks that could cascade through our financial system could have an impact on a range of market participants, many of which we do not oversee. The Financial Stability Oversight Council (FSOC) is an important forum for studying and identifying systemic risks across different markets and market participants. The market perspective that the SEC brings is an essential component of FSOC's efforts. And FSOC's current review of the potential risks to the stability of U.S. financial system of asset managers is a complement to the work we are now undertaking."

In conclusion, White commented, "In all of these efforts, the details will matter a great deal and there is significant work to do before we have final rules in place. We will be looking to investors and market participants to provide us their views, and I will be working closely with my fellow Commissioners to translate staff recommendations into Commission action. While the SEC's regulation of asset management is strong and comprehensive, the source of that strength has been our willingness to take stock of our rules with a clear vision and implement the necessary changes to make effective regulation that fits current market realities. We have done that many times since 1940, and it is essential that we do so again in 2015." (Side note: The FSOC meets next week, Dec. 18, and a "discussion regarding the Council's ongoing work on asset management and a discussion of nonbank financial company designations" is on its agenda.)

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