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SEC Director Rominger Discusses Use of Data in Regulating the Investment Management Industry

Tuesday, January 3, 2012

Tatiana Rodriguez | Bloomberg LawSEC Speech, Eileen Rominger, Remarks Before the ICI 2011 Securities Law Developments Conference (Dec. 13, 2011)

  • Improvements in gathering and using data will benefit the Division in its rulemaking, exemptive applications, and research.
  • The use of data in regulating money market funds and target date retirement funds highlight the SEC's progress.
Securities and Exchange Commission (SEC) Division of Investment Management (Division) Director Eileen Rominger spoke at the ICI 2011 Securities Law Developments Conference on SEC improvements in gathering and using data to carry out its responsibilities. Her comments primarily focused on the Division's progress in using data to regulate the investment management industry, specifically in the context of regulating money market funds and target date retirement funds.

Division's Use of Data

Rominger described the many ways in which improvements in gathering and using data have benefitted the Division, including with respect to:
  • Rulemaking: Given that the SEC incorporates empirical data into its regulatory process, rulemaking continues to benefit from ongoing feedback and understanding of investment adviser cost structures;
  • Exemptive Applications: Continuing improvements in the SEC's analysis of the performance of certain products already in the market helps the Division in its consideration of exemptive applications; and
  • Research: Collecting data on how investors actually use offering materials make investment decisions helps the SEC improve disclosure requirements.
Still, she acknowledged that relevant data can be difficult or very costly to obtain and requires adequate resources to effectively analyze. Rominger also noted that the SEC must have the ability to quickly employ the data in an industry that is rapidly changing. Turning to the SEC's use of information technology resources, Rominger stated that the SEC is in the planning stages for significant improvements, including investing in staff with relevant experience in data and financial analytics. However, she noted that the Division already benefits from the collection of data on investment advisers through the Investment Adviser Registration Depository system and will also be receiving and compiling data about private funds through the system in the future.

— Money Market Funds

Rominger stated that the regulation of money market funds was a good example of the Division's continued "focus on improving information collection and utilization." She explained how the increased information the Division received from money market fund filings each month could be "used to monitor characteristics and trends of holdings, and to identify areas that raise questions." She noted that this data will also help other regulators with systemic risk monitoring responsibilities, such as the Department of the Treasury and the Federal Reserve. She also stated that this data is increasingly used as a point of reference during examinations.

— Target Date Retirement Funds

Rominger commented on how investor research is helping the SEC improve disclosures for target date retirement funds, including the types of information that investors believe are most useful when choosing investments in this asset class. She noted that the SEC staff is currently conducting investor testing as part of its rulemaking efforts on target date retirement funds, which to date includes 1000 investor participants. Moreover, last year, the SEC proposed a rule on target date retirement funds to address industry concerns. She stated that the testing data and public comments on the proposed rule will be evaluated to determine if the SEC should adopt rule changes in this area.

— Other Initiatives

Rominger also spoke briefly on other data requesting initiatives, which include a concept release on the use of derivatives by funds, an advance notice of proposed rulemaking regarding a rule that provides certain issuers of asset-backed securities with conditional exclusions from the definition of "investment company", and a concept release on real estate investment trusts that invest in mortgages.

SEC Improvements

Rominger concluded by touching on how the SEC is improving in gathering and using data. For example, the Office of Compliance Inspections and Examinations is increasing the use of analytics to prioritize its activities based on quantitative risk assessments; the Division of Enforcement is using an analysis of outlier investment performance to identify potential problem areas; the Division and the Office of Investor Education and Advocacy are engaging in investor testing activities; and the SEC is requesting comments on the development of a plan to retrospectively review significant regulations. DisclaimerThis document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. The Bureau of National Affairs, Inc. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy.©2014 The Bureau of National Affairs, Inc. All rights reserved. Bloomberg Law Reports ® is a registered trademark and service mark of The Bureau of National Affairs, Inc.

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