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Review of Directors’ Responsibilities Among Top Priorities for New IM Director

Mutual fund boards were a main focus of a recent address by the Director of the SEC’s Division of Investment Management. Dalia Blass, the new division director, said review of the role and responsibilities of fund directors is among key initiatives she intends to undertake with her staff. Blass recognized that boards have seen steadily increasing responsibilities over the last few decades and noted that mutual funds could benefit from a recalibration of those responsibilities. She listed several questions worth tackling, including: “Where is board focus most valuable? What does the information flow to directors look like? When do directors feel that they have a meaningful role to play, and when are they overseeing matters more appropriately handled by others?” She announced that the division is actively reaching out to boards to get their input. The division’s board outreach and engagement follow industry groups’ requests that the division review directors’ responsibilities as regulations such as money market fund reform and the liquidity rule expanded directors’ oversight role. “The premise here is not that responsibilities should simply be shifted away from the board to somewhere else,” Blass said. “Instead, we are asking if funds could benefit from recalibrating the “what” and the “how” of board responsibilities.” Blass also discussed planned efforts to improve the investor experience with respect to disclosures, noting the raft of disclosure forms currently available and a need to explore more efficient ways to deliver information to investors in an age of smart phones and other technology. Commissioner Kara M. Stein in a speech also discussed the investor experience in the current technological age. She acknowledged the continuing debate over proposed rule 30e-3, which would allow funds to provide shareholder reports via the Internet even when investors do not choose e-delivery. She noted her support for e-delivery but noted that some investors may prefer paper or may not have access to a computer or the Internet, especially in rural areas. It would be unrealistic “to expect that we can impose this additional burden on busy investors without negatively affecting their engagement,” Stein said. Stein also noted the rapid change in the exchange-traded products space. She said the challenge for the SEC in 2018 “is to ensure that its approach to ETPs matures along with the maturation of the market.” She noted that there are currently decades of data and observations that can help the SEC answer key questions about ETP trading, volatility, transparency, arbitrage, and investor protection.