SEC Investment Management Director Norm Champ Discusses Variable Products, Derivatives

In a speech before the ALI CLE 2014 Conference on Life Insurance Company Products, SEC Division of Investment Management (the "Division") Director Norm Champ discussed a number of issues being addressed currently by the Division, paying particular attention to variable products and the use of derivatives by mutual funds.

Mr. Champ began by discussing market changes in the variable products space. In particular, he indicated concerns over the suitability and disclosure of new features in variable annuities and the use of derivatives to hedge risks associated with living benefits. More generally, Mr. Champ stressed that the SEC seeks to be "proactive" in identifying changes in the variable insurance product space.

Mr. Champ also discussed current issues in the "alternative" mutual fund space. He indicated that Division staff is "focusing closely" on disclosure by the vehicles generally and "derivatives disclosure in particular." Mr. Champ said that Division staff has found that some of the generic disclosures provided by some funds as to derivatives may be of "limited usefulness" to investors.

In a brief discussion on rulemaking initiatives, Mr. Champ remarked upon (i) recently adopted money market funds reforms, (ii) efforts to improve information received in filings about mutual funds, closed-end funds and ETFs, and (iii) ways to improve Form N-SAR, the semi-annual report to the Commission filed by investment companies. Mr. Champ also noted other initiatives under consideration by the Division, including potential policies regarding the use of derivatives by mutual funds and expanding stress testing of the largest asset management firms.