Remarks to the Investor Advisory Committee

Chair Mary Jo White

April 14, 2016

Good morning and welcome. Thank you all for being here. I know that your agenda is full, so I will try to be brief in my remarks. But before I say anything else, I would like to take just a moment, as the Committee is nearing the end of its first full term of membership, to thank each and every one of you for your dedication and service. Both we at the Commission, and investors, have significantly benefited from your service. You have worked hard, collaboratively and compiled an impressive body of work on a wide range of important issues. Your vigorous commitment to investor interests, investor confidence, and the integrity of the securities marketplace is obvious and tangible and much appreciated. Thank you.

Recent Commission Work

Let me just make a couple of points on the Commission's recent work on our Title VII mandates and the staff's disclosure effectiveness review which I know is of significant interest to you.

A major rulemaking priority for the Commission in 2016 is to finish the rules necessary to operationalize the new regulatory regime over security-based swaps. And since your last meeting, we have made substantial progress on that objective. Just yesterday, we adopted a series of significant rules to implement a comprehensive set of business conduct requirements for securities-based swap dealers and major securities-based swap participants. These rules require these security-based swap entities to establish robust supervisory structures and compliance programs. They also impose conduct standards that range from specific communication and disclosure requirements to affirmative duties to act in the best interest of their customers and make recommendations that are suitable to customer circumstances.

And, in February, the Commission adopted final rules to implement the last set of requirements regarding the trades that security-based swap dealers need to include in computing their dealer de minimis thresholds under Title VII. This is an important provision that determines whether a dealer is subject to the registration and other requirements of Title VII. Next in line, over the next few months, I expect that the Commission will consider recommendations to finalize the remaining dealer regulatory framework, which will include the rules related to capital, margin and segregation, recordkeeping, and statutory disqualification.

We have also made progress on the Disclosure Effectiveness Initiative, an initiative this Committee is following closely. As most of you know, yesterday the Commission issued a concept release on modernizing certain business and financial disclosures required by Regulation S-K. I encourage you to review and provide feedback on the concept release, which thoroughly addresses many important disclosure topics. The work we are doing is obviously of enormous importance to investors and we want to be sure that we have the full range of investor views.

This is a very comprehensive undertaking and the staff's work is continuing in a number of areas. For example, going forward the initiative will be reviewing the compensation and governance information required in proxy statements, which may result in future requests for input and recommendations.

Meeting Agenda

Let me pivot from our work to your agenda today. I am glad that my schedule allows me to hear your discussion of your first agenda item on mutual fund cost disclosure, a very important subject on which the Commission continues to focus. Making sure investors have the information they need to make informed choices about their investments in mutual funds, and the costs of those investments, is critically important. We welcome your thoughts and perspective and appreciate your engagement on this important but not easy subject.

Cybersecurity is also on your agenda for this afternoon, obviously another extremely important issue that impacts all of us. Cybersecurity touches virtually every aspect of the Commission's business, and the staff from across the agency has been very active, indeed proactive, on all of the cyber issues within our jurisdiction, including the security of our own technology infrastructure and the regulation of market participants and critical market infrastructures in order to promote robust policies and procedures designed to protect businesses, systems and customers from cybersecurity threats. Our exam staff in the Office of Compliance Inspections and Examinations (OCIE) has been particularly focused on these issues for the past several years as examination priorities.  I look forward to learning from your distinguished panelists about their perspectives on cybersecurity and the related investor protection concerns.

I am also pleased that you will also be receiving an update from OCIE today. OCIE staff is working hard to do more with less by improving our efficiency and maximizing our coverage, influence, and impact on our registrants. It has adopted a risk-based examination process in order to direct resources toward areas of greatest risk to investors and is quite effectively using big data to help with both exam planning and exam execution. I do not want to steal their thunder, but one example of how OCIE is tackling its responsibilities is through the recent creation of an Office of Risk and Strategy (ORS), which will consolidate a variety of teams that focus on risk and quantitative analysis. Integrating these groups will improve coordination among our analysts and enhance our ability to identify risk among registrants across the industry.

As you know, we remain significantly under-resourced, in general and in OCIE, especially in the area of investment adviser examinations, which is so important to protecting investors. In the continued absence of sufficient funding, we are doing everything we can to strengthen and smartly deploy our resources.

We have become smarter about our examinations by using risk-based analytics and employing tools like targeted or limited-scope exams. But more is still needed. The adviser population continues to grow at a rapid rate and our objective is to expand our coverage to protect investors across the spectrum.

In furtherance of that goal, we recently decided, for example, to transition some staff resources from our broker-dealer examination program to the IA/IC examination program, with a goal of increasing overall staffing levels in the IA/IC examination program – between transitioning staff and new hires – by 20 percent. That will help, but is not nearly enough.

We also continue to explore other ways to enhance and improve compliance by registered investment advisers. As we discussed before, I have asked staff from the Investment Management Division to develop a recommendation for the Commission's consideration that would establish a program of independent compliance assessments for registered investment advisers. These reviews would not be in lieu of exams by our OCIE staff, but rather would be designed to enhance investment adviser compliance through an independent review.

But these measures will not close the gap. It is long road to having the resources we need to reach an acceptable level of exam coverage for investment advisers. But, until we get there, we are doing everything we can to enhance our ability to discharge this critical responsibility to investors. And I will continue to press Congress for additional funding and very much appreciate the continuing support of this Committee and our Investor Advocate.


I will stop on that note, thank you again for your work and wish you an interesting and very productive meeting.