S4:E14 | The Impact of Data on Compliance Part II | Compliance In Context

Written By Patrick Hayes
 

Welcome back to the Compliance in Context Podcast! On today’s show, we welcome back in welcome in David Scalzetti, Senior Director of Regulatory Products and Strategy at ICE, for Part II of a part of a two-part program looking at the impact of data on compliance. In this program, David will focus on how data can dramatically help firms trying to navigate new regulations, especially in areas affecting mutual funds and broker dealers. In our Headlines section, we review two recently adopted rules from the SEC that expand the definition of “broker-dealer” under the SEA. And finally, we’ll wrap up today’s show with another installment of Outtakes, where we review another significant enforcement action relating to text messaging and related messaging applications.

 

Show

Headlines

  • The SEC adopted two new rules under the Securities Exchange Act (Rule 3a5-4 and 3a44-2) to further define the term “as a part of a regular business.”

  • The new rules expand the scope of firms that are required to register as broker-dealers and as government securities broker-dealers.

 

Interview with David Scalzetti

  • Background on the SEC Names Rule requiring registered investment companies whose names suggest a focus in a particular type of investment to adopt a policy to invest at least 80 percent of the value of their assets in those investments (an “80 percent investment policy”).

  • What specifically do managers of a mutual fund need to do to comply with the Names Rule?

  • What are some of the ways firms can do to better manage the data to ensure compliance with the Names Rule?

  • How can data assist in the portfolio management process to benchmark against how other firms are evaluating their growth, value, or sustainable investment strategies?

  • What are some best practices firms can utilize to comply with the Names Rule or enhance its own internal controls?

  • Background on SEC Rule 15c2-11 (Broker Dealer Quotations over a quotation medium)

  • What can firms do to ensure compliance in difficult areas like fixed income that carry new requirements under SEC Rule 15c2-11?

  • How can data assist in determining which fixed income securities may be eligible for the relief provided in the SEC Staff’s December 16 No-Action Letter?

 

Outtakes

  • SEC Fines 16 Firms More Than $81 Million for Off-Channel Communications

 

Quotes

11:24 - “So the names rule dates back to the dot.com era. Really when the SEC was finding some nefarious actors were marketing themselves as technology funds because everyone was getting in on technology. Although, they may not have been investing in true technology funds. So they introduced the requirement to have an 80 percent investment policy requirement for the use of thematic or even industry-specific or even location-specific terms implied in the fund’s name, that at least 80 percent of investments need to align with that. That rule was recently amended to add two things. Explicitly add strategy terms like value and growth which were considered exempt from the 80 percent policy.” – David Scalzetti

15:18 - “So the investment policy requirements (the 80 percent test) is exactly a data… So from my perspective, we view this as you have a value fund. You advertise that you’re a value investor. Well, what does that mean to you? And not every value fund is going to have the same exact definition of what constitutes a value strategy. But no matter what your definition is, the rule is going to require you to be transparent around that definition.” – David Scalzetti

19:26 - “Something doesn’t have to be sustainable today if you’re using your ownership as a stewardship to improve the greening of those investee companies. But then, if that is your strategy, you should be showing improvement of those companies over time, in whatever metric you consider to be sustainable.” – David Scalzetti

24:47 - “From my perspective, data providers, such as yourselves, should have one rule: ‘What can we do to help that audience, your audience here, most seamlessly use this data to simplify and streamline those workflows that they’re going to have to do anyway?’” – David Scalzetti

Patrick Hayes
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S5:E1 | The State of the Investment Adviser Industry | Compliance In Context
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S4:E13 | The Impact of Data on Compliance Part I | Compliance In Context