6 Trends & Reminders in Today’s Evolving Investment Industry– April 18, 2022 by Lindsay Selick

After recently attending the 2022 ICI Conference in Palm Desert, we walked away with a definite sense of priorities for the industry. From rule making and implementation to cybersecurity and climate, it’s clear our evolving industry has much to sort through, and look forward to, in the near future. Below are a few of the areas we as a firm found insightful from the event.

1. The SEC Continues Ramping Up the Rules While Shortening Comment Periods

The Securities Exchange Commission (SEC) continues to pick up the pace as it relates to rulemaking, and it doesn’t appear it will be slowing down any time soon. Not only is there a larger volume of proposals to keep up with, but the response time to comment on them has shortened. In just the past 12 months, the SEC has issued approximately 25 proposals, and the timeframe for comments was significantly reduced — from, on average, 60-90 days to a mere 30-60 days. In addition, there is continued concern surrounding the increased costs to funds and boards to evaluate and implement these proposals. Although the SEC acknowledges the need to further analyze costs related to reporting and monitoring these proposals, one would hope these costs will be taken into consideration for future proposals as well.

2. The Time is Now for Valuations and Derivatives Compliance

The industry also continues to discuss the importance of the upcoming compliance with both Rule 2a-5 (the valuation rule) and Rule 18f-4 (the derivatives rule). Boards and investment advisers have been actively working on complying with these rules. However, conference presenters repeatedly highlighted the need to continue to ensure discussions are happening, and processes are being implemented, to meet these compliance dates (August 19, 2022, for Rule 18f-4 and September 8, 2022, for Rule 2a-5). Flexibility will also be needed, as the first versions of reports complying with the new rules will evolve as they are reviewed and standard practices are defined.

>> Read “SEC Continues Modernization Efforts, Adopts Rule 18f-4 – Use of Derivatives”

3. The 3 Cs: Cybersecurity, Cryptocurrency and Climate

Enforcement and disclosure trends focus on the 3 Cs: cybersecurity, cryptocurrency, and climate. Barely a week before this conference, the SEC proposed broad new climate rules that require enhanced disclosures to investors (comment period to close in May 2022). With this rule attracting many comments, especially due to its far-reaching impact, there doesn’t seem to be a consensus at this time as to what this rule’s future is. In addition, in early March 2022, Rule 38a-2 was proposed and would require public company boards to approve policies and procedures related to cybersecurity. For the cybersecurity rule at least, much of the discussion centered around a unified effort by the board, management and service providers to understand and strengthen cybersecurity beyond a quarterly report to the board. Representatives from the SEC also highlighted that not all cyber events result in an enforcement action, but firms must ensure they take reasonable action when events do occur and reexamine policies regularly, not just in the case of events.

4. Examinations and Enforcements – 2022 Priorities

Attendees eagerly awaited the final session of the conference, which covered examinations and enforcements under the current Gensler Commission. Vanessa Horton, associate regional director of the SEC, led the session with the anticipated 2022 exam priorities. Ironically, just hours later, the SEC released these examination priorities for 2022 with a publication posted to the SEC website. In short, Ms. Horton was spot on with her expectations. For those of you who may have missed this release, the more pertinent exam priorities are noted to be surrounding private funds, ESG investing, standards of conduct, information security, and robo-advisers and cryptoassets. Ms. Horton also touched on the 3 Cs but acknowledged at that time that these may not be included within the final exam priorities for 2022.

>> Read the full 2022 Examination Priorities Report (sec.gov)

5. Data is (Still) King

Outside of rules already in progress and the priorities outlined above, a precise direction in which rulemaking is headed is uncertain. What is clear is that the industry is at a point where the amount and quality of data available is greater than ever. The SEC’s focus is on processing this information as quickly as technologically possible to identify trends and issues in real time. For those hoping for revisions to rules already in place or the implementation of new rules, they will have to come prepared with the data to back up their positions.

6. The Board’s Burden of Rules and Resources

It’s no surprise that investment company boards have a lot of responsibilities to oversee; however, there were two main areas of concern that remained in the spotlight during the conference: rules and resources. As discussed above, rulemaking has become even more aggressive, and boards are tasked with understanding each proposed and final rule, and understanding how it will be implemented for their funds. A shortage of resources was another focal point, as the “Great Resignation” has continued to impact all areas of business, including the investment industry. Investment advisers, as well as the service providers that help keep the wheels in motion, have all experienced turnover. Whether we will see a deficit of resources or a lack of experienced resources in the industry continues to be an area of concern for many boards.

One additional point to make, while not a technical takeaway from our time at ICI this year, is that while the past two years “on hiatus” from live events has taught the industry new ways of meeting and doing business virtually, it is clear that in-person interactions are still the preferred method for many in the industry. Conference attendees took advantage of the live event to spend time with clients, colleagues and friends they likely haven’t seen in person for the past few years. And we all enjoyed seeing some of the familiar, popular events of the past take place again, hosted by law firms, CPA firms and other fund service providers close to the industry.

As we continue to keep an eye on the trends and evolution of our industry, this conference and many others continue to be a great way to keep a pulse on the future of our industry for the coming months and years ahead.

Contact Lindsay Selick at lselick@cohencpa.com , Deborah Hogan at dhogan@cohencpa.com or a member of your service team to discuss this topic further.


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Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.