ICI Presses Congress to Modernize Fund Rules
Commentary by Steven Lofchie
The Investment Company Institute ("ICI") urged Congress to maintain and expand access to regulated funds through targeted reforms, investor choice, and innovation.
In testimony before the House Financial Services Committee's Capital Markets Subcommittee, ICI chief of government affairs Tom Quaadman said the Investment Company Act of 1940 ("ICA Act") "the foundation of the fund industry," is overdue for a comprehensive review by the SEC. He argued that updates should (i) support middle-class wealth creation, (ii) restore the ability of funds to cross-trade fixed income securities, (iii) strengthen closed end funds ("CEFs") by giving them additional tools to combat harmful predatory activists and expanding their flexibility to invest in private market assets; (iv) adopt electronic delivery of information as the default delivery option; (v) reform the fund proxy system and (vi) update requirements for in-person voting by directors.
Mr. Quaadman urged Congress to pass the Incentivizing New Ventures and Economic Strength Through Capital Formation ("INVEST") Act which contains many of the reforms of the ICA act mentioned above. In particular, he argued that proxy campaigns cost $675 million to $1.14 billion from 2020 through 2025 and calling it inefficient and costly. He also said the ICI supports the Generating Retirement Ownership Through Long-Term Holding ("GROWTH") Act, saying that it's unfair that investors owe taxes even when they do not sell shares. (See also, ICI Fact Sheet.)
Mr. Quaadman said the ICI supports the SEC's "Make IPOs Great Again" initiative, saying that policymakers should widen retail access to private markets.
Commentary
According to the 1992 study, Protecting Investors: A Half Century of Investment Company Regulation, referred to as the SEC's last comprehensive review of the Investment Company Act of 1940, registered investment companies held $1.5 trillion in assets. According to Mr. Quaadman's testimony, that number is now $46.1 trillion, coming from more than 125 million accounts. The pace of change has only accelerated; some products referenced in the ICA (face amount certificate companies) are non-existent, and other products (ETFs) that don't quite fit into a statutory box are of huge import. That does not take into account the impact that digitalization of trading, crypto assets, and AI will have on funds and advisers. The passage of time, the value of the assets, and the rate of increase certainly warrant another full look at the ICA, before the next half century has run.