SIFMA AMG Criticizes SEC's "Overly Prescriptive" Rule Proposal on Investment Company Names
Commentary by Steven Lofchie
SIFMA Asset Management Group ("SIFMA AMG") criticized an SEC proposal to amend Rule 35d-1 ("Investment company names") under the Investment Company Act, commonly known as the "Names Rule." According to the SEC, the rule proposal would prevent investment companies from using names that the SEC regarded as potentially deceiving, particularly names that suggested an ESG focus.
SIFMA AMG described the SEC's rule proposal as "overly prescriptive," "disruptive," "overbroad," "overly burdensome," "harmful to investors," "unworkable," "arbitrary," "costly" and providing "no proportionate benefit." In its Letter, SIFMA AMG argued that the SEC is overemphasizing fund names and objected to needless regulations. SIFMA AMG argued that terms such as "growth, value, income or global" are inherently subjective, and that the SEC's suggestion that a definite and fixed meaning can be imposed upon them is flawed and "cannot be justified by a 'reasonable investor expectations' rationale."
In addition, SIFMA AMG argued that "the SEC's cost benefit analysis in the proposal is flawed in multiple ways." Among other things, SIFMA AMG asserted that the SEC has not identified or quantified any harm to investors under the current rule, that the proposal's envisioned benefits are not articulated sufficiently, that the cost analysis misses the mark and that the compliance costs underestimate the impact of the proposal.
Commentary
Comment letters to the SEC by industry associations usually provide some criticism of the likely burdens of new regulations; however, industry participants are generally cautious of being viewed as oppositional by their regulator. This letter is therefore notable in both substance and tone, and for its discussion of potential administrative procedure failures of the proposal.
SEC Chair Gary Gensler's aggressive program of rulemaking has pushed the boundaries of statutory authority in many cases. In the view of many commenters, this is particularly true with regard to inadequate consideration of costs and exaggeration of benefits. As a consequence, the agency will inevitably face an unprecedented number of administrative law challenges.