U.S. Treasury Report Recommends Implementation Delay of Liquidity Rule Provision

October 31, 2017

A new report from the U.S. Treasury reviewed the regulatory framework for asset management and insurance firms with the aim of identifying reforms consistent with the Trump Administration’s Core Principles for the U.S. financial system. The report focuses on a number of mutual fund regulations, including the Liquidity Rule which goes into effect December 2018. According to the report, while Treasury “supports robust liquidity risk management programs and believes they are imperative to effective fund management and the health of the financial markets,” the Treasury rejected the rule’s “highly prescriptive” approach, specifically the asset-bucketing requirement. The Treasury recommended that the SEC take action to postpone implementation of the rule’s bucketing requirement and adopt a principles-based approach to liquidity risk management rulemaking and any associated bucketing requirements. The Treasury report also recommended:

That the SEC move forward with a “plain vanilla” ETF rule that allows firms to access the market without obtaining exemptive relief.

Legislative action to amend Dodd-Frank to eliminate the stress testing requirement for advisers and mutual funds. The Treasury however supported the view that the stress testing rules for money market funds and liquidity risk management programs satisfy the spirit of Dodd-Frank’s stress testing requirements.

That the SEC 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.

Withdrawal of the SEC’s business continuity planning proposal.

That the SEC finalize a rule to modernize its shareholder report disclosure requirements and permit the use of implied consent for electronic disclosures.

That the DOL continue to reexamine the implications of the Fiduciary Rule. The Treasury encouraged the DOL and SEC to work with the states to evaluate the impacts of a fiduciary rule across markets.