It’s been an active summer for regulators, with activity and developments on a number of issues. In the latest issue of ACA Insight compliance officers are provided with 15 tips from the SEC’s chief of staff Andrew “Buddy” Donohue. Investment management counsel David Tittsworth (Washington, D.C.) is quoted in the piece, stating that the speech is “a must-read, particularly for in-house compliance and legal personnel,” owing to [Mr. Donohue’s] extensive in-house background, as well as his experience at the highest SEC staff levels.
Subsequently, a June 28 article published by Think Advisor reports that the Securities and Exchange Commission (SEC) is working on a new proposed rule to require large investment advisors and investment companies to perform stress testing. In the article, Mr. Tittsworth notes that Section 165(i) of the Dodd-Frank Act requires certain nonbank financial companies to conduct semiannual stress tests as prescribed by the SEC (in coordination with the Fed), that an estimated 300 firms would be subject to such tests, and that SEC staff "have expressed concerns about whether such tests are appropriate for nonbank entities."
Following this, the Commission released a rule proposal which would potentially require SEC-registered investment advisers to adopt and implement written business continuity and transition plans to address disruption related risks. Using the example with how the agency has treated cyber security, “the SEC has given some reassuring signs to the industry through how it has dealt with [this],” Mr. Tittsworth stated in Ignites. Mr. Tittsworth outlines that the agency has focused on evaluating measures firms have taken to mitigate the fallout from cyber attacks, natural disasters or other events that could disrupt business, recognizing that at times the worst-case scenario is not always preventable.
Most recently, on July 12, Fund Fire published an article on the Financial Stability Board’s June 22 Consultative Document that includes recommendations to address structural vulnerabilities from asset management activities. As such, the document has different focus than previous efforts that have focused on designation of asset management firms as systemically important financial institutions (SIFIs). “[T]here is presently an absence of clarity on the subject,” Mr. Tittsworth outlines. “…[A]sset managers, contrary to banks, do not keep client assets on their books, in addition to the fact no trouble-stricken managers have caused widespread damage to the financial system, there is no requirement to classify managers as systemically important”, Mr. Tittsworth stated, adding that “It’s all still in a state of flux.”
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