Industry Groups Offer Recommendations on SEC Valuation Proposal

A number of industry groups and other stakeholders offered recommendations on an SEC's proposal to establish a regulatory framework for fund valuation practices (see previous coverage).

The Committee on Investment Management Regulation of the New York City Bar Association ("Committee") suggested that various aspects of the proposed rule should be clarified or reconsidered. The Committee urged the SEC to consider (i) revising the proposed rule so that it provides guidance, rather than requirements, as to a board's exercise of good faith in determining fair value and (ii) clarifying the scope of a board's oversight role. Additionally, the Committee stated that the SEC should allow a fund's board to rely on the fund's chief compliance officer and investment adviser to identify conflicts of interest.

The Investment Company Institute ("ICI") recommended changes to the rule to account for the (i) differences across asset types with respect to fair value practices and (ii) typical division of responsibilities between pricing services and investment adviser. Additionally, the ICI recommended modifying the frequency, timing and content of information that an adviser must report to a fund's board to make reporting requirements more flexible.

The Independent Directors Council (or "IDC") recommended that the rule be modified to (i) clarify the oversight role of a fund board, (ii) frame the rule as a safe harbor rather than as fixed requirements, (iii) better reflect the role of pricing services, (iv) allow fund boards to assign fair value determinations to the fund administrator, and (v) extend the period for compliance.

The Council of Institutional Investors ("CII") advocated for imposing additional requirements on fund boards to (i) routinely review the selection of pricing services, (ii) maintain records, even when the fair value determinations are assigned to an adviser, and (iii) provide an "attestation or assessment of the advisers' independence." The CII disagreed with the SEC's decision not to provide further guidance on the use of amortized cost in valuing portfolio securities.