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Recent Remarks by Dalia Blass, Director of the SEC’s Division of Investment Management, at Industry Conferences

ICI Securities Law Developments Conference (October 25, 2018)

Ms. Blass’s remarks at the ICI Securities Law Developments Conference focused on fund disclosure, fund use of derivatives and SEC staff guidance. To enhance fund disclosures, Ms. Blass encouraged funds to “tell a clear story” with a “reliable roadmap of the fund’s strategies and key risks.” She said that the staff “regularly see[s] disclosure in which length trumps clarity and the story is buried.” The “poster child,” according to Ms. Blass, is alphabetized risk disclosure. She remarked that “the actual importance of risks rarely, if ever, coincides with the alphabetical order of those risks”—meaning that investors have to “work hard to identify what the fund already knows and should tell them.”

Ms. Blass also criticized the use of standardized, generic risk disclosures that have not been tailored to a particular fund. She cited an example of a fund that invests almost entirely in common stock and holds only a small amount of derivatives but whose summary prospectus included derivatives risk disclosure that appeared first and was more than three times the length of the equity risk disclosures.

Ms. Blass also called for simplicity and clarity in fund disclosures, citing the following disclosure practices:

• Mutual fund summary prospectuses that are much longer than the brief documents the SEC intended;

• Individual sentences that contain over 70 words;

• Explanations of tracking error with more than 1,000 words;

• “Summary” risk disclosure that is identical to the full-scale risk disclosure in the statutory prospectus; and

• Passages full of jargon requiring the staff to “pull out the reference guides.”

As to fund use of derivatives, Ms. Blass, noting concerns expressed by commenters about parts of the 2015 proposal, reported that the staff is taking a “fresh look” in crafting a new proposal and encouraged industry engagement with the staff on the issue.

Regarding SEC staff guidance, Ms. Blass noted the prior statement of SEC Chairman Jay Clayton to the effect that staff statements are nonbinding on the SEC and create no enforceable legal rights or obligations of the SEC or other parties. Consistent with this statement, Ms. Blass reported that the Division continues to review and assess prior staff statements and is evaluating whether the staff needs to make any changes to its prior guidance.

A transcript of Director Blass’s remarks at the ICI Securities Law Developments Conference is available at: https:// www.sec.gov/news/speech/speech-blass-102518

2018 IDC Fund Directors Conference (October 16, 2018)

In her remarks at the IDC Fund Directors Conference, Ms. Blass commented on two recent Division initiatives—the Board Outreach Initiative and the Investor Experience Initiative. She reported on findings from the Board Outreach Initiative, including (1) the shared approach by directors to frame their work from the perspective of the shareholder and to respect the line between oversight and management, (2) the emphasis placed by directors on ensuring that they are having the right conversations with regard to oversight, (3) the ways technology has transformed or will transform the work of directors, (4) the importance of director training and (5) the desire of directors for clarity from regulators regarding their responsibilities. Ms. Blass noted that the Division has already begun putting to work the results of the Board Outreach Initiative by developing an informal framework to guide the Division’s thinking about director responsibilities, including whether directors’ responsibilities are consistent with their oversight and policy roles and are clear and consistent with other regulatory actions. Ms. Blass then discussed areas of action, noting the recent no-action letter permitting directors to rely on CCO representations concerning affiliated transactions.

Director Blass then discussed three priorities of the Division, including (1) improving the retail investor experience, (2) modernizing the regulatory framework and engagement and (3) efficiently leveraging resources. She commented on the Investor Experience Initiative, stating that “ensuring investors have the tools they need to make informed investment decisions is foundational to our capital markets.” Ms. Blass discussed the staff’s request for comment, which seeks to improve the experience of individual fund investors by improving content, design and delivery of fund disclosure, as well as the proposed new rule for ETFs, which seeks to create a consistent, transparent and efficient regulatory framework, and she noted the importance of the role of directors in creating effective investor disclosure and overseeing ETFs and their compliance policies and procedures.

A transcript of Ms. Blass’s remarks at the 2018 IDC Fund Directors Conference is available at: https://www.sec.gov/ news/speech/speech-blass-101618

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Vedder Price P.C. attorneys provide a full range of services to a diverse financial services clientele. Attorneys practicing in the firm’s Investment Services Group are experienced in all aspects of investment company and investment adviser securities regulations, broker-dealer regulatory and compliance matters, derivatives and financial product matters, and ERISA and tax matters. Clients include mutual fund complexes, hedge and other private funds, money managers, broker-dealers, independent directors, and many other types of institutions such as banks, savings and loans,...

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