SEC Votes to Propose New Asset Manager Reporting Rules


The Securities and Exchange Commission on Wednesday took the first in a series of steps aimed at giving regulators a better handle on risk in the $60 trillion asset-management industry.

The SEC voted 5-0 to significantly boost the volume of data the agency collects from the industry, requiring mutual-fund firms such as Fidelity Investments and BlackRock Inc. to give regulators more detailed and frequent information about the assets in their funds. The proposal includes requirements that funds report on their use of complex and potentially risky derivatives products, data that aren't frequently or consistently captured by the SEC.

Wednesday's proposal comes as Washington debates whether the asset-management industry is vulnerable to stresses, such as widespread investor redemptions, that could roil markets and destabilize the financial system.

The proposal will "vastly improve the type and format of the information that funds provide to the commission and to investors," SEC Chairman Mary Jo White said.

The move is the first in a series of initiatives Ms. White said would boost the SEC's oversight of asset managers. The rules are somewhat similar to requirements put in place following the 2008 financial crisis for big banks and other large financial institutions that regulators believe could pose a risk to the financial system and economy if they were to collapse.

The bulk of the asset-management industry--which includes mutual, hedge and private-equity funds--has yet to be swept up in many of the rules aimed at curbing systemic risks.

Scott Weisman, managing director in PricewaterhouseCoopers's financial-services regulatory practice, said many asset managers support the SEC's efforts and that Wednesday's proposals represent the first steps in a "potentially transformative" agenda for the commission.

Additional proposals, expected later this year, will require funds to better manage liquidity risks--the ability to easily buy and sell asset holdings--as well as subject them to "stress tests" to ensure they can survive a crisis and force them to detail how they could be dismantled if a major disruption occurs in their business.

Some Federal Reserve officials have criticized the SEC as being slow to address systemic risk in the markets it oversees. The commission acted to limit risks of investor stampedes out of money-market mutual funds last year, under pressure from a council of regulators called the Financial Stability Oversight Council as well as global regulators.

Daniel Gallagher, a Republican member of the SEC, disputed the "many false narratives" that portray the SEC's oversight of asset managers as deficient and the industry as systemically risky. "These narratives are, of course, preposterous," he said. Still, Mr. Gallagher said Wednesday's proposals would make the SEC a more sophisticated overseer of asset managers and illustrate to bank regulators that the SEC is more than up to the task.

SEC officials said the new disclosures will give the commission better vision into securities- lending activities, how funds will react to a rise in interest rates as well as more details about funds' derivatives counterparties. Another element of the proposals aims to close gaps in the data the SEC collects from investment advisers, requiring them to report on separately managed accounts.

Asset-management firms, which have been effective in warding off regulation in the past, have backed the SEC's efforts to address potential fund risks, including by boosting reporting requirements. A spokeswoman for BlackRock, the world's largest asset manager, said it supports efforts to fill data gaps and improve transparency.

A Fidelity spokesman said the fund giant shares the SEC views on the importance of transparency and already provided investors "extensive information about our fund holdings and the potential benefits and risks of investing in our funds." He said the firm is already "well prepared for a potential future rise in interest rates."

"We're supportive of the SEC's goals here," said Karen Barr, president and chief executive of the Investment Adviser Association.

Much of the information the SEC is seeking to collect would be reported on a monthly basis and some of it would be disclosed to the public with a 60- day delay.

The SEC will collect comment on the proposals and would have to vote on them a second time before they can go into effect.

(By Andrew Ackerman)