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Outlook for 2020: Regulation, Market Pressures, Board Self-Reflection

Continued shift is the expectation for the fund governance landscape in 2020. In 2019, fund boards saw several changes that affected their oversight responsibilities. The SEC’s Board Outreach Initiative eased certain fund director responsibilities around affiliated transactions and in-person meetings, for instance. Boards also began to receive reports under the Liquidity Rule framework and improved reporting to address distribution-in-guise and cybersecurity concerns. In the year ahead directors can anticipate regulatory guidance on fund valuation and possibly more outreach efforts from the SEC’s IM division. BlackRock has deftly summarized the last decade of financial regulation, including notes on the liquidity rule, ETF rule, funds-of-funds rule, proxy voting and recent derivatives proposal, showing how regulation continues to reshape the fund industry. Financial columnist Chuck Jaffe noted recently: “Nearly 550 funds and ETFs liquidated or merged out of existence in 2019, according to Morningstar Inc., representing the fourth straight year when the industry lost more than 5 percent of its participants.” In addition to regulations, fund directors will want to keep abreast of oversight matters including fee compression, Fintech, ESG, cybersecurity, industry consolidation, and product rationalization, just to name a few. Boards will continue to self-reflect on their composition, structure and to assess their performance in these shifting times. The NACD recently released its public company governance survey, applicable mostly to corporate directors but still instructive for fund boards. NACD identified the top trends most likely to affect its members’ organizations over the next 12 months as: growing business-model disruptions (52%), a slowing global economy (51%), and heightened competition for talent (51%). NACD’s survey explored issues of board size, structure, and composition; director priorities and trends; and leading oversight practices. The trade group said the member responses to its survey “suggest that boards need to question management on how they are preparing for the next economic recession and what specifically they are doing to foster innovation.”

 
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