The Managed Funds Association (MFA) is urging Securities and Exchange Commission (SEC) to consider the aggregate cost of its rulemaking on investment advisers, investors, and the markets.
Instead, MFA, which represents the global alternative asset management industry, said the SEC should evaluate the overall effect of its proposals and seek less burdensome alternatives before finalizing any of the proposed rules.
MFA, in a letter to the SEC, detailed the business impact and compliance costs for 13 SEC proposals. Specifically, MFA said these proposals would cause investment advisors to reassess the economics of their businesses and potentially restrict or cease trading in certain markets; renegotiate contractual arrangements with investors, counterparties, and vendors; build new infrastructure or modify existing infrastructure; hire programmers, new vendors, and other professionals to assist with implementation; and develop new policies, procedures, controls, recordkeeping, and reporting practices.
“The failure to consider the true cost means the SEC does not know how its proposals will affect markets or investors,” Bryan Corbett, MFA president and CEO, said. “The rules are interconnected in ways that the SEC hasn’t considered. This creates blind spots that could lead to negative unintended consequences that harm advisers, markets, and investors, including pensions, foundations, and endowments. For the health of the U.S. Capital markets, the SEC should reevaluate the overall effect of its rulemaking before finalizing its proposed rules.”
The letter to SEC emphasizes how the breadth and speed of rulemaking prevents commenters from being able to fully assess the effects of the proposals.
“Not only does the sheer number of Proposals make it challenging for the Commission to conduct a cost-benefit analysis that truly reflects the aggregate costs of the Proposals (e.g., because the baseline is constantly going to change), it also makes it challenging for interested parties to meaningfully comment on the Proposals. In order to comment on one Proposal, it is often necessary to consider how other Proposals, if adopted, would impact the analysis,” the letter stated.
MFA argues that the proposed rules will harm investors by reducing competition, increasing costs, and stifling innovation. From the letter:
“[T]he sheer number and complexity of the Proposals, when considered in their totality, if adopted, would impose staggering aggregate costs, as well as unprecedented operational and other practical challenges, neither of which have been considered by the Commission in its Proposals to date and neither of which are warranted by such Proposals’ limited benefits,” the letter read.
MFA added that the SEC’s rulemaking agenda would make it cost-prohibitive for smaller and emerging managers to operate and would increase industry consolidation.
“The result of the Proposals, if adopted in their current form, would be to harm investors by increasing costs, making private funds less accessible, and decreasing competition by making it cost-prohibitive for many private fund advisers to remain in business and for new advisers to enter the market,” MFA added in the letter.