Proposed harmonization of SEC and CFTC regulatory requirements: How alignment could alter regulatory reporting


Monday, December 17, 2018 | By Joseph Mazzola

Proposed harmonization of SEC and CFTC regulatory requirements: How alignment could alter regulatory reporting

Within the past month, both the Futures Industry Association (FIA) and the Managed Funds Association (MFA) have written to address both the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CTFC) regarding regulation subject to dual registrants. These letters both urge the SEC and CFTC to work together to reduce the burden of regulatory requirements in different ways.

FIA:  Harmonization of SEC and CFTC Regulatory Frameworks
In its letter, the FIA made several recommendations to help align reporting requirements between the SEC and CTFC, including:

  • “Update recordkeeping rules to eliminate duplicative regimes and eliminate unnecessary WORM (“Write once, read many”) compliance;
  • Update reporting rules to accommodate foreign privacy law requirements;
  • Enhance market efficiency through consistent margin rules;
  • Institute consistent Title VII framework for regulatory oversight; and
  • Codify the exemption for security-based swaps from inapplicable securities rules” [1]

The FIA focused on simplifying rules that would apply to firms that are dually registered. These recommendations address filing inefficiencies, inconsistencies between methodologies of securities subject to both SEC and CFTC regulations, and conflicts with other applicable privacy laws.  

MFA:  A Proposal for a Harmonized Primary Regulator Approach to SEC and CFTC Regulation of Dual Registrants
While the FIA addressed specific issues within the filing process, the MFA took a different approach and proposed a “Primary Regulator Safe Harbor.” Under the MFA’s proposal, if a dual registrant’s assets under management across all funds consist of a majority of investments in securities (over 50 percent), then the SEC would be the primary regulator and the CFTC would be the secondary regulator. Likewise, if a dual registrant’s assets under management across all funds consist of a majority of investments in derivatives the CFTC would be the primary regulator and the SEC would be the secondary regulator.

Under this proposal, dual registrants would only be subject to a “supplemental, targeted, or issue-specific examination by the non-primary regulator.” [2] In this scenario, funds currently filing both Form PF and Form CPO-PQR would only be required to file one of the forms based on whichever is the primary regulator.

Benefits of SEC and CFTC Alignment
Although the approach is different, the proposed goals of the MFA and FIA letters are similar in nature in that they both try to address the complexities of regulatory requirements for dual registrants. By aligning requirements, the SEC and CTFC could reduce the cost of reporting such that funds could lessen expenses that are ultimately borne by investors.  We will continue to monitor these regulatory bodies for comment on the FIA and MFA proposals in the coming weeks.

SS&C GlobeOp helps fund managers, global asset managers and financial services firms meet worldwide regulatory requirements by providing data aggregation, expert analysis, reporting and transparency. Our product suite covers requirements under both the SEC and CFTC as well as other regulatory boards, including AIFMD – Annex IV, FormPF, Basel III, CPO/PQR, EMIR, Form 13F, OPERA, Solvency and TIC Reporting. For more information, please download our brochure or contact Richard Clark, Managing Director, Regulatory Reporting or Justin Meagher, Managing Director, Regulatory Solutions at solution@sscinc.com.


Sources

[1] http://www.fia.org/articles/fia-offers-recommendations-cftc-and-sec-harmonization

[2] https://www.managedfunds.org/wp-content/uploads/2018/11/MFA-Proposal-for-Dual-Registrants.final_.11.15.18.pdf



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