SEC Chair White Urges Fund Boards to be Proactive Risk Monitors

June 29, 2016

In a keynote address at the Mutual Fund Directors Forum 2016 Policy Conference, Chair White discussed the evolution of the asset management industry, and noted that the role of mutual fund directors is evolving and should continue to evolve with the industry. Just as the SEC is recalibrating its regulatory program, Chair White said, fund directors also must adjust to growing responsibilities to ensure that funds are “fully addressing current and potential future risks.”

Independent directors "need to be vigilant in considering whether each fund is fully addressing current and potential future risks." To do so, directors should:

  • Ask tough questions of management to ensure that funds are prepared to handle new risks;
  • Ensure that service providers have robust plans and procedures;
  • Determine whether managers have identified potential harms and whether they are ready to handle them;
  • Go beyond generalities and ask specific questions;
  • Understand whether any links may exist between liquidity and valuation with respect to the funds they oversee;
  • Ask whether management has considered back-up systems and redundancies of critical service providers; and
  • Make sure that funds employ “robust, state-of-the-art prevention, detection and response plans” to address cyber security risk.

The SEC needs "to continue to be sensitive to where a director's oversight responsibility could cross the line into day-to-day management" and determine an appropriate dividing line. Chair White noted that drawing such a line is difficult, especially as the SEC grapples with its regulatory initiatives concerning liquidity risk management, derivatives and compliance in general.

Click here to access the speech.


Categories

Speeches & Testimony