Funds Get Delay for SEC Liquidity Risk Management Rule

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By Andrew Ramonas

Mutual funds have six more months to satisfy parts of an SEC rule intended to enhance liquidity risk management, following an industry push for an extension of what it termed “costly and vexing” requirements.

The Securities and Exchange Commission Feb. 21 said it delayed the compliance date for requirements that will compel open-end funds to classify their portfolio investments as part of a rule that mandates programs for assessing and managing liquidity risks. The postponement gives funds until at least mid-2019 to assign their portfolio investments to buckets ranging from “highly liquid” to “illiquid” as required by the regulation, also known as Rule 22e-4.

The delay is a “measured step” to “promote a smoother and more effective implementation process for the rule” the agency adopted in 2016, SEC Chairman Jay Clayton said in a statement. The commission’s action came after the Investment Company Institute told the agency in November the rule is “complex, and has no real antecedent in industry practice or regulation.”

“Our members are working diligently and taking the steps necessary to complete systems to implement the new requirements, and this action will provide critical time to help ensure compliance with the new rule,” ICI general counsel Susan Olson said in a statement to Bloomberg Law.

Compliance Dates

Larger fund groups have until June 1, 2019, to comply with the rule’s classification provisions. Smaller fund groups must be compliant by Dec. 1, 2019.

Other requirements—such as the adoption of a liquidity risk management program and restricting illiquid investments to 15 percent of a fund’s portfolio—will become effective Dec. 1, 2018, for larger fund groups, and June 1, 2019, for smaller fund groups, as initially planned.

The extra time for the classification requirements “should provide sufficient time” for compliance, according to an SEC release on the extension.

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