The pace and intricacies of regulatory change in the investment industry are, at times, nothing short of overwhelming. Yet, organizations in this space need to have a clear understanding of evolving regulations, their timing and overall impact.
To help you stay up to date, below is Cohen & Company’s quarterly recap of the latest developments at a variety of regulatory agencies likely to impact our clients.
Securities & Exchange Commission (SEC)
Proposal on Amendments to Rule 2a-7
Designed to improve transparency and guard against a run on assets in periods of stress, in December 2021 the SEC issued proposed modifications to certain rules that govern money market funds.
The proposed amendments include:
- Increasing the minimum liquidity requirements from 10% of total assets in daily liquid assets and at least 30% of assets in weekly liquid assets to 25% and 50%, respectively;
- Eliminating the ability of a money market fund to impose a liquidity fee or suspend redemptions through a gate, which have historically depended on liquidity thresholds;
- Requiring institutional prime and institutional tax-exempt money market funds to implement swing pricing policies, adjusting the fund’s NAV per share by a swing factor, so that redeeming investors bear the liquidation costs of their redemptions;
- Requiring stable NAV funds to convert to a floating NAV fund if future market conditions result in negative yields; and
- Enhancing certain reporting requirements to improve the SEC’s ability to monitor and analyze money market fund data.
>> Read the proposed rule
Impact: The proposals were issued largely in response to investor actions in March 2020 regarding uncertainty of the economic impact of COVID-19. Some of the changes are anticipated to provide a larger buffer in the event of rapid redemptions, while others are included in the hopes of discouraging redemptions in the first place. The comment period is open for 60 days from the time the proposal is published in the Federal Register.
Financial Accounting Standards Board (FASB)
FASB Updates Conceptual Framework
In late December, the FASB issued two new chapters of its Conceptual Framework.
Chapter 4 – Elements of Financial Statements – refers to the building blocks of financial statements. The chapter identifies when a right or obligation gives rise to an asset or liability, as well as clarifies the definitions of asset and liability. In addition, the chapter establishes the distinction between similar transaction classes within the financial statements, e.g., between liabilities and equity; expenses and losses; or revenue and gains.
Chapter 7 – Presentation – discusses items boards should consider when making decisions about how various items are reflected in the financial statements. It also provides guidance on how to prioritize various competing factors deliberated in the decision making process.
>> View the new Concept Statements
Impact: Statements on the Conceptual Framework are not authoritative, nor do either of these chapters represent a change in GAAP. However, the Conceptual Framework is a compilation of objectives and fundamentals FASB can use as a tool to help resolve accounting questions and issues. These statements are intended to help users of financial statements more easily understand the provided information.
Contact Julie Lowry at firstname.lastname@example.org, Lori Novak at email@example.com or a member of your service team to discuss these topics further.
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.