Fund Boards Face Broad Threats, SEC's White Warns

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By Rob Tricchinelli

March 29 — The challenges facing mutual fund directors are broader than ever, and boards need to be proactive and nimble in addressing risks across a wide range of subject areas, Securities and Exchange Commission Chairman Mary Jo White told a conference of fund directors.

“As areas such as cybersecurity, derivatives, liquidity, trading, pricing and fund distribution become increasingly complex, boards need to assure that they are equipped to address those challenges,” White said March 29 to the Mutual Fund Directors Forum in Washington.

The SEC has proposed several rules affecting asset managers, including one that would require funds to enhance their liquidity risk management and one that would limit funds' use of derivatives. White told reporters it was a priority to finish those rules this year.

Third Avenue

Recent fund failures and technology setbacks should make directors even more cautious.

The Third Avenue Focused Credit Fund, which concentrated in distressed debt, unwound in December after redemptions and losses made it incapable of honoring new sell-offs .

“Directors of funds should also be thinking about and asking fund managers whether these events could happen at your fund, how to prevent them from happening, and how to respond promptly and effectively if they do occur,” White warned.

BNY Mellon

White also referenced technical problems at Bank of New York Mellon Corp., which in August experienced delays in mutual fund and exchange-trading fund pricing that lasted for days.

The code used to generate net asset values failed and the bank was unable to publish those NAVs on hundreds of funds, state investigators said at the time .

“As a director, it is incumbent upon you to consider what these and other risk areas could mean for your fund in the future,” White said. “Asking tough questions of fund management now can help ensure that your funds are as prepared as possible and you are informed as to how potential issues would be handled.”

To contact the reporter on this story: Rob Tricchinelli in Washington at

To contact the editor responsible for this story: Phyllis Diamond at

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