The US Securities and Exchange Commission is poised to pass rules for the $20 trillion private fund industry
Signs are seen at the US Securities and Exchange Commission (SEC) headquarters in Washington, DC, the United States, May 12, 2021. REUTERS/Andrew Kelly/File Photo Acquire License Rights
Aug 17 (Reuters) – Wall Street’s top regulator is set to adopt new transparency rules for the $20 trillion private mutual fund industry next week, according to an official release, in response to a proposal that has drawn strong industry objections.
The five-member US Securities and Exchange Commission is also scheduled to vote on Aug. 23 on a proposal originally presented in 2015 that would see more broker-dealers registered with the Financial Industry Regulatory Authority (FINRA).
In early 2022, the SEC proposed a series of changes for private fund advisors that would, among other things, require them to file quarterly performance and fee statements and undergo annual audits. Among other things, they would also be prohibited from charging fees for services that were never rendered.
The final version of the proposal, which has not yet been published, may have changed after an extended notice and comment period. Democrats have the majority on the commission, meaning passage of the final text is all but certain.
Lawmakers and regulators have sought to increase oversight of the private wealth management sector, citing risks to financial stability and inadequate investor protection in an industry that the SEC says has more than doubled in size over the past decade.
Financial reform advocates and Democratic lawmakers have backed the changes, saying they would help protect millions of retirement savers, most of whose money is parked in privately managed funds, and the retail investors increasingly attracted to private debt funds.
Industry organizations say the SEC lacks legal authority to adopt the rule, citing a 2022 Supreme Court ruling that severely limited the federal government’s powers to enact climate regulations.
“Congress had no intention of giving the Commission unlimited powers to regulate private fund advisers or restrict the ability of investors to negotiate terms that they and advisers deem reasonable,” the Securities Industry and Financial Markets Association said in a letter.
The second proposal, up for debate next week, if passed, could require dozens of broker-dealers to register with FINRA. The SEC originally issued the proposal in 2015 under then-Chair Mary Jo White.
Under current rules, some broker-dealers who transact proprietary on exchanges of which they are not members are not required to join FINRA. But SEC officials say that given the growth in securities markets, that exemption is outdated and inadequately protects some investment firms from oversight.
The proposal would now require FINRA membership for such broker-dealers unless they are members of national securities exchanges and do not hold client accounts.
Reporting by Douglas Gillison; Edited by Andy Sullivan and Alistair Bell
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