ICI Comments on SEC's Liquidity Risk Management for Funds Proposal
Commentary by Steven Lofchie
The Investment Company Institute ("ICI") "strongly endorsed" the SEC's proposal to require long-term mutual funds and exchange-traded funds ("ETFs") to adopt formal, written liquidity risk management programs. The ICI also offered strong and detailed criticism of every aspect of the specific requirements, and argued that the SEC's "prescriptive, cumbersome requirements could actually set back the Commission’s and the fund industry’s shared goal of reducing liquidity-related risk."
The ICI responded to the proposal in four comment letters devoted to: (i)discussion and commentary on the SEC rule proposal; (ii) an analysis of the regulatory impact study conducted by the SEC Division of Economic and Risk Analysis ("DERA"); (iii) "important perspective" from ICI directors; and (iv) the ICI's concerns and recommendation that the SEC adopt alternative approaches to key provisions in the proposal.
The ICI press release provides a good description of specific concerns with the SEC's proposal.
Commentary
Essentially, the ICI's response to the SEC may be summarized as follows: like the concept; hate the implementation (as in really, really, really hate it!). Notwithstanding its "strong endorsement" of the concept, the ICI characterizes the actual requirements as "encumbered," "a setback," "misguided," proposing a classification scheme that is "not a recognized or sound . . . practice," providing a "misleading picture," imposing "enormous operational burdens," introducing "new risks," having the potential to "harm shareholders," providing a false depiction and "potentially increasing systemic risk."