SIFMA and SIFMA AMG Question Necessity of Regulating "Information Providers" as IAs
Commentary by Nick Allen
SIFMA and SIFMA Asset Management Group ("SIFMA AMG") criticized the SEC's Request for Information ("RFI") on the activities of index providers, model portfolio providers and pricing services (together, "information providers"), calling it unnecessary and outside of the jurisdiction of the SEC's authority.
As previously covered, the SEC requested information on the activities of information providers to determine (i) whether the providers should be considered investment advisers under particular circumstances, (ii) if the descriptions of each information provider are accurate and comprehensive, and (iii) whether there are any other types of information providers whose activities, in whole or in part, may raise investment adviser status issues.
In their response, SIFMA and SIFMA AMG argued that the nature of the services offered by information providers falls outside the scope of the statutory definition of "investment advice," meaning such information providers do not fall within the definition of an "investment adviser" under historical interpretations of either the Investment Advisers Act or the Investment Company Act. Additionally, the associations asserted that the RFI (i) failed to identify investor protection concerns or policy rationales to support characterizing or regulating information providers as investment advisers, (ii) did not consider any reasonably available alternatives to regulating information providers as investment advisers, and (iii) failed to weigh the adequacy of the current regulatory framework.
SIFMA and SIFMA AMG further claimed that the RFI mischaracterized the discretion exercised by index providers and pricing services, as well as the relationships between a provider and its clients. The associations stated that any new regulation of these information providers would cause significant disruption in the services they provide to investment advisers, other regulated financial intermediaries and other institutional clients.
Finally, the associations contended that the SEC lacked the authority to regulate information providers as investment advisers absent authority from Congress.
Commentary
Even if a determination were made that information providers offer investment advice and, therefore, are within the definition of an “investment adviser,” it is unclear how subjecting their activities and services to the existing regulatory framework would increase investor safety or market soundness, given that the existing framework was designed to address entirely different actors providing significantly different services.