As required by President Trump’s Executive Order 13772, the U.S. Department of the Treasury issued a report, “A Financial System That Creates Economic Opportunities, Asset Management and Insurance,” addressing the regulatory approaches to covering the asset management and insurance industries, including registered investment companies and investment advisers. Treasury previously issued two other reports in response to the Executive Order for the depository system and the capital markets. The report, issued on October 26, includes the below positions and recommendations of Treasury that are of interest to registered and unregistered investment companies and their advisers. It is unclear at this time what impact, if any, the report’s conclusions and recommendations will have on the various topics addressed within its scope or the reaction of other regulators to Treasury’s views. The uncertainty is potentially more acute with respect to rules that have progressed beyond proposal to adoption, effectiveness and approaching mandatory compliance.

Systemic Risk and Stress Testing

• Entity-based systemic risk evaluations of asset managers or their funds are generally not the best approach for mitigating risks arising from asset management.

• The Financial Stability Oversight Council should maintain primary responsibility for identifying, evaluating and addressing systemic risks in the U.S. financial system, and the Securities and Exchange Commission (SEC) should remain the primary federal regulator of the asset management industry in the United States.

• Treasury supports legislative action to amend the Dodd-Frank Act to eliminate the stress-testing requirement for investment advisers and investment companies.

Liquidity Risk Management

• Treasury supports the 15 percent limitation on illiquid assets codified in Rule 22e-4 under the Investment Company Act (the 1940 Act).

• Treasury supports the SEC adopting a principles-based approach to liquidity risk management rulemaking and any associated bucketing requirements.

• The SEC should take appropriate action to postpone the currently scheduled December 2018 implementation of Rule 22e-4’s bucketing requirement.

Derivatives Rule (Proposed Rule 18f-4 Under the 1940 Act)

• The SEC should consider a derivatives rule that would include a derivatives risk management program and an asset segregation requirement, but reconsider what, if any, portfolio limits should be part of the rule.

• The SEC should reconsider the scope of assets that would be considered qualifying coverage assets for purposes of the asset segregation requirement.

Exchange-Traded Funds (ETFs)

• The SEC should move forward with a “plain vanilla” ETF rule that allows entrants to access the market without the cost and delay of obtaining exemptive relief orders. To this end, the SEC should either repropose or propose a new rule on ETFs for public comment.

Business Continuity and Transition Planning (Proposed Rule 206(4)-4 under the Investment Advisers Act)

• Proposed Rule 206(4)-4 should be withdrawn.

Dual CFTC and SEC Registration

• The Commodity Futures Trading Commission (CFTC) should amend its rules so that a registered investment company and its adviser are exempt from dual registration and regulation by the CFTC as a commodity pool operator (CPO).

• CFTC should amend its rules to exempt private funds and their advisers from registration as CPOs if the advisers are subject to regulatory oversight by the SEC.

Modernizing the Delivery of Fund Disclosures (Proposed Rule 30e-3 under the 1940 Act)

• The SEC should finalize proposed Rule 30e-3 to modernize its shareholder report disclosure requirements and permit the use of implied consent for electronic disclosures.

• The SEC should explore other areas where electronic delivery based on implied consent is appropriate; however, investors should retain the choice to continue to receive paper disclosures.

Implementation of the Department of Labor’s Fiduciary Rule

• Treasury supports the delay of the full implementation of the Fiduciary Rule pending further review of the costs of the rule and exemptions and participation by the SEC and other regulators.

• Within the federal regulatory framework, Treasury believes that the SEC and the Department of Labor should work together to address standards of conduct for financial professionals who provide investment advice to IRA and non-IRA accounts.