A press release entitled, "SEC Announces 2017 Examination Priorities," and subtitled, "New Areas of Focus Include Electronic Investment Advice, Money Market Funds, and Senior Investors," tell us, "The Securities and Exchange Commission today announced its Office of Compliance Inspections and Examinations' (OCIE) 2017 priorities. Areas of focus include electronic investment advice, money market funds, and financial exploitation of senior investors. The priorities also reflect a continuing focus on protecting retail investors, including individuals investing for their retirement, and assessing market-wide risks." We first learned of the SEC news from a Reuters article. We review the brief update below, and we also cover the latest "Money Market Mutual Fund Assets report from the Investment Company Institute.
Outgoing SEC Chair Mary Jo White comments, "These priorities make clear we are continuing to focus on a wide range of issues impacting our markets, from traditional areas such as market-wide risks to new forms of technology including automated investment advice.... Whether it is protecting our most vulnerable senior investors or those investing in the trillion dollar money market fund industry, OCIE continues its efficient and effective risk-based approach to ensure compliance with our nation's securities laws."
OCIE Director Marc Wyatt adds, "OCIE's priorities identify where we see risk to investors so that registrants can evaluate their own compliance programs in these important areas and make necessary changes and enhancements." Note: Four of the money fund industry's top lawyers will present at our Money Fund University late next week in Jersey City, and we expect them to discuss the SEC's notice in more detail.)
The full "Examination Priorities for 2017" document explains, "As part of the SEC's mission to maintain fair, orderly, and efficient markets, we will examine for structural risks and trends that may involve multiple firms or entire industries. In 2017, we will focus on the following initiatives: Money Market Funds. In 2014, the SEC adopted amendments to rules governing money market funds to make structural and operational reforms to address redemption risks in money market funds, while preserving the benefits of the funds for remaining investors."
It continues, "We will examine money market funds for compliance with these rule amendments, which became effective in October 2016. Examinations will likely include assessments of the boards' oversight of the funds' compliance with these new amendments as well as review of compliance policies and procedures relating to stress testing and funds' periodic reporting of information to the Commission." A Footnote says, "See Money Market Fund Reform; Amendments to Form PF, Release No. 33-9616, (July 23, 2014)."
Reuters first wrote about the news in "SEC to review money market funds for compliance in 2017." The piece explains, "Money market mutual fund operators can expect a visit this year from federal securities regulators, who announced on Thursday they plan to conduct exams to ensure funds are complying with sweeping new rules that took effect in October. The Securities and Exchange Commission announced its intention to scrutinize money funds, as part of its annual list of top compliance examination priorities for the coming year."
The article continues, "The priorities were announced by outgoing SEC Chair Mary Jo White, who is slated to depart after President-elect Donald Trump takes office. It is unclear whether Trump's pick to replace her, attorney Jay Clayton, would seek to make any changes to the priorities. Money market mutual funds were the target of major structural reforms in 2014, in an effort by regulators to reduce the risk of runs on the funds by panicked investors in the event of a market crisis. The final rules required "prime" money funds used by institutional investors to float their values, instead of letting them maintain a stable value at $1 per share."
It adds, "The SEC said on Thursday its exams in 2017 will focus on a few key themes: retail investors, senior investors and retirees, cyber security, market-wide risks and a closer look at how the Financial Industry Regulatory Authority (FINRA) is carrying out its duties as Wall Street's self-funded regulator."
In other news, ICI MMF Assets release says, "Total money market fund assets decreased by $22.49 billion to $2.69 trillion for the week ended Wednesday, January 11, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $25.43 billion and prime funds increased by $3.48 billion. Tax-exempt money market funds decreased by $540 million." Total Government MMF assets, which include Treasury funds too and which represent 80.9% of all money funds, stand at $2.177 trillion, while Total Prime MMFs, which total 14.2%, stand at $389.3 billion. Tax Exempt MMFs total $131.1 billion, or 4.9%.
ICI explains, "Assets of retail money market funds decreased by $3.48 billion to $986.55 billion. Among retail funds, government money market fund assets decreased by $2.46 billion to $607.61 billion, prime money market fund assets decreased by $490 million to $252.68 billion, and tax-exempt fund assets decreased by $530 million to $126.26 billion." Retail assets account for just over a third of total assets, or 36.7%, and Government Retail assets make up 61.6% of all Retail MMFs.
The release continues, "Assets of institutional money market funds decreased by $19.00 billion to $1.70 trillion. Among institutional funds, government money market fund assets decreased by $22.97 billion to $1.57 trillion, prime money market fund assets increased by $3.97 billion to $129.61 billion, and tax-exempt fund assets were unchanged at $4.83 billion." Institutional assets account for 63.3% of all MMF assets, with Government Inst assets making up 92.1% of all Institutional MMFs.
