SEC Chair Gensler Defends SEC Regulatory Initiatives on Investment Funds

SEC Chair Gary Gensler defended recent SEC regulatory initiatives pertaining to private and registered funds and described recent rule proposals meant to address emerging trends in investment management.

In remarks before an SEC Division of Investment Management’s Inaugural Conference on Emerging Trends in Asset Management, Mr. Gensler explained the reasoning behind several SEC rulemakings and proposals:

Private Funds. Mr. Gensler said the SEC is working to bolster the "efficiency, integrity, and resiliency" of private funds because of the essential role they play across various sectors of our capital markets. He highlighted (i) a proposal that would require enhanced reporting requirements with respect to fees, expenses, performance, and investor-specific preferential treatment and (ii) recently adopted rules requiring private fund advisors to report indicators of systemic risk or other substantial stress.

Registered Funds. Mr. Gensler emphasized that structural liquidity issues implicating money market and open-end funds can be exacerbated in times of market stress. He pointed to recent SEC proposals that would strengthen reporting and disclosure requirements for various registered funds and advisors, specifically highlighting ESG-related funds and advisers.

Investment Management Trends. Mr. Gensler underscored several recent rule proposals to address emerging trends that would (i) ensure advisers satisfy their fiduciary obligations when using a third-party service provider, (ii) expand the obligations of qualified custodians to enhance investor protections and (iii) improve cybersecurity practices and related-incident reporting of investment advisers and funds. Mr. Gensler added that he requested input from SEC staff for a potential rulemaking on how to address conflicts associated with the use of predictive data analytics and AI by advisers and broker-dealers.