ICI Action on Select Policy Developments, Fiscal Year 2020

COVID-19 Response

ICI’s COVID-19 response: In March, the World Health Organization (WHO) declared COVID-19—a disease caused by a novel coronavirus—a pandemic, as cases surged around the globe. The spread of the pandemic has caused many sectors, including the fund industry, to change many aspects of how they conduct their business.

In early March 2020, ICI began conducting surveys to understand members’ response to COVID-19. To date, ICI has conducted three surveys. The first, which was conducted when the virus was largely off US shores, focused on the travel restrictions members were imposing on their employees. The second survey was conducted later in March as members contemplated how to transition to a remote work environment. The third, most in-depth survey was conducted in late June and focused on issues members are considering in the transition of employees back to an office environment.

In addition, ICI continues to hold frequent member calls with many ICI member committees, review and disseminate regulatory actions, and maintain a comprehensive COVID-19 resource center on the ICI website. In summer 2020, an ICI working group conducted a wide-ranging study of the pandemic’s effect on the financial markets and how regulated funds and their investors reacted, and coordinated with policymakers and offered critical member services as the pandemic took hold.

COVID-19 relief for funds: The COVID-19 pandemic and measures taken to counter it caused significant disruptions in the economy, which caused market dislocations in March 2020. Funds requested relief from certain provisions of Rule 17a-9 under the Investment Company Act of 1940 to enhance their liquidity and better meet their shareholder redemptions.

In March, ICI requested, and secured, two pieces of important relief for the industry: a staff letter permitting advisers of long-term mutual funds to purchase debt securities from the fund and another permitting certain affiliates of money market funds to purchase securities from their funds.

See the following sections for more information on COVID-19 as it relates to fund governance, regulatory relief, global financial stability, cybersecurity, legislation, and taxation.

Financial Markets

Implementation of initial margin requirements for uncleared swaps: Consistent with guidelines issued by the Basel Committee on Banking Supervision (BCBS) and the board of the International Organization of Securities Commissions (IOSCO), global regulators have adopted margin requirements for uncleared swaps to be phased in according to the swap activity level of the covered entity. While the implementation deadlines for the largest firms have passed, the dates for the final two margin implementation phases, which affect some ICI members, remain.

Due to challenges caused by the COVID-19 pandemic, ICI joined 19 other trade associations in a letter to BCBS and IOSCO in March 2020 requesting an extension of these deadlines. In April 2020, BCBS and IOSCO agreed to extend the deadline for completing these implementation phases by one year. ICI is continuing its advocacy on initial margin implementation with US regulators, including the CFTC.

LIBOR transition: The Financial Conduct Authority (FCA), the UK regulator of the London Interbank Offered Rate (LIBOR), has confirmed that it will not compel panel banks, which contribute rates for the calculation of LIBOR, to submit LIBOR rates beyond 2021. As a result, market participants and regulators are actively preparing for transition from LIBOR to alternative rates.

ICI is working closely with members to address the regulatory and operational challenges that registered funds face in transitioning from LIBOR to the Secured Overnight Financing Rate (SOFR) by forming a new working group for members to hear from experts and discuss concerns. ICI is engaging in ongoing discussions with SEC staff about how registered funds are approaching LIBOR transition, and promoted members’ views in a July 2020 comment letter to the US Treasury recommending that it consider the need for standardized rate conventions in its potential issuance of SOFR-indexed floating-rate notes. ICI staff continues to monitor developments by engaging in joint industry discussions.

Market Structure

  • Cboe speed bump proposal: In June 2019, Cboe Global Markets filed a proposed rule with the SEC to create a trading “speed bump” on the Cboe EDGA Exchange that would delay certain liquidity-taking stock orders. The delay was intended to protect liquidity providers against certain high-frequency trading strategies.

ICI submitted a comment letter in October 2019 opposing the delay on the basis that it would unfairly discriminate against liquidity-taking investors. In February 2020, the SEC issued an order disapproving the proposal.

  • Market data infrastructure proposal: In February 2020, the SEC proposed rules to modernize the content of and speed in which the public consolidated feed is provided to investors. These rules would expand the current scope of data in the feed to include stock quote information such as smaller “round lot” sizes and “depth of book” information; and allow other market data providers to compete against the exclusive securities information processors (SIPs) in collecting and disseminating those data. The proposed rules aim to improve the NMS market data infrastructure by reducing the disparity in content and latency between the public consolidated feed and the proprietary data feeds that exchanges sell directly to market participants.

ICI submitted a comment letter in May 2020 conveying strong support for the proposed rules and recommending that the SEC take further steps to provide greater transparency into the exchanges’ market data fees.

  • National Market System (NMS) plan fee amendment: In October 2019, the SEC proposed a rule to ensure that any new fees or fees changes to an NMS plan are fair and reasonable before they go into effect. Current SEC rules allow such fees to become effective automatically upon filing to the SEC. The proposed rule would instead allow the public to comment on these filings and require the SEC to approve them first.

ICI submitted a comment letter in December 2019 supporting this change, specifically noting that the rule would provide consumers of the public consolidated feed with prior notice and a say in the costs of those data.

  • NMS governance final order: In January 2020, the SEC proposed an order requiring the exchanges to develop a single new NMS plan that would enhance the role of asset managers and other market participants in governing the public consolidated feed. This plan would allow non-exchange participants to weigh in on important operational matters by granting representation on the operating committee and voting rights under an augmented majority voting system. The order was intended to address conflicts of interest between the exchanges’ own commercial interests in providing market data and their regulatory obligation to operate the public consolidated feed for the benefit of investors.

ICI submitted a comment letter in February that strongly supported the proposed changes and urged the SEC to closely monitor the progress in adopting these reforms. In May 2020, the SEC unanimously adopted the order as proposed.

  • Transaction fee pilot amicus brief: In December 2018, the SEC adopted a Transaction Fee Pilot Program to determine whether exchange fees for matching stock orders—the “maker-taker” system—harm the equity markets. ICI has held that this pricing model is harmful because it increases market complexity and causes brokers to route orders based on capturing exchange fees and rebates, rather than execution quality on behalf of investors.

After the exchanges filed a legal challenge against the pilot program in a federal appeals court, ICI submitted an amicus brief explaining how the pilot benefits investors and equity markets, and why it fits squarely within the SEC’s mission. In June 2020, however, the court ruled in favor of the exchanges and invalidated the pilot program. ICI continues to advocate for similar equity market structure reforms as appropriate to improve market quality.

Prohibition of post-trade name give-up: Through a practice called “post-trade name give-up,” some swap execution facilities (SEFs) disclose the identity of each swap counterparty to the other counterparty after a trade has been matched anonymously on the SEF. This practice harms regulated funds and their shareholders by resulting in information leakage and less-favorable trading terms. After an earlier request for comment, in December 2019, the CFTC issued a proposed rule that would prohibit post-trade name give-up for certain swaps.

ICI filed comment letters in January 2019 and March 2020 urging the CFTC to abolish this practice, and engaged in further advocacy with the CFTC commissioners and staff. The CFTC unanimously adopted a final rule in June 2020 that prohibits this harmful practice.

Reform of commodity broker bankruptcy rules: In April 2020, the CFTC proposed amendments to its rules governing the bankruptcy of a futures commission merchant (FCM) or a derivatives clearing organization. These rules, which have not been updated for 37 years, are critical to protect regulated funds when they engage in derivatives transactions.

In July 2020, ICI filed a comment letter with the CFTC supporting the aspects of the proposal that would enhance customer protection and bring needed clarity and modernization to the commodity broker bankruptcy process. ICI expressed concern, however, that certain aspects of the proposal would harm customers and cause uncertainty and market disruption in a time of stress. ICI is continuing its advocacy on this important rulemaking.

Fund Regulation

Advertising requirements for advisers and private funds: In December 2019, the SEC proposed changes to the advertising and cash solicitation rules that apply to investment advisers and private funds. While the proposed changes to those rules were not intended to apply directly to registered fund advertising, the proposal, if adopted, would conditionally permit advisers and private funds to report hypothetical and related performance and to use testimonials and social media.

ICI submitted a comment letter in February 2020 recommending that the SEC more closely align requirements for registered fund advertising with any final requirements for advisers and private funds to enhance investor understanding and facilitate comparisons among products. ICI also urged the SEC to explicitly exclude registered fund communications that are already regulated under the Investment Company Act from the scope of any final advertising or cash solicitation rules under the Investment Advisers Act to eliminate unnecessary overlap in compliance burdens.

Commodity pool operators: SEC-registered advisers to some registered funds are also required to register as commodity pool operators (CPOs) with the CFTC. These dual registrants face overlapping requirements in areas such as regulatory reporting. In April 2020, the CFTC issued a proposal to streamline the periodic reporting requirements for CPOs.

ICI has long urged the CFTC to reduce unnecessary regulatory burdens for CPOs to registered funds. In October 2019 and February 2020, ICI President and CEO Paul Schott Stevens met one-on-one with CFTC Chairman Heath Tarbert to engage directly on this issue. In addition, in June, ICI reinforced the message with a letter endorsing the CFTC’s reporting proposal and urging its swift adoption.

Expedited process for exemptive relief: In October 2019, the SEC proposed an expedited 45-day review for exemptive relief applications that are substantially identical to relief that it had recently granted, a 90-day nonbinding time frame for staff to take action on other applications, and a requirement to publish on EDGAR staff comments on applications and responses regarding an application after its final disposition.

ICI filed a comment letter strongly supporting this proposal as a whole but requesting additional flexibility for applicants and recommending that the SEC eliminate its proposal to publish staff comments and applicant responses. The SEC adopted the final rule in July 2020, largely reflecting ICI’s comments by adding more flexibility for applicants to use the expedited procedures and deferring a decision on whether to publish staff comments and applicant responses, pending further consideration.

Financial Stability Oversight Council (FSOC) approach to exercising authorities: In March 2019, the FSOC proposed prioritizing an “activities-based approach” to evaluating and addressing potential risks to financial stability. It further proposed enhancing the process by which it would consider designating nonbank financial companies as systemically important financial institutions (SIFIs)—reserving this designation power for rare instances.

ICI’s May 2019 comment letter strongly supported the proposal and suggested ways to improve it. The FSOC finalized its revised interpretive guidance in December 2019, following years of advocacy by ICI and its members. As ICI has long urged, an activities-based approach provides a more effective way to address underlying sources of risk, enhances the role of primary regulators with frontline expertise, and capitalizes on the FSOC’s valuable convening and coordinating powers. In those unusual circumstances when it considers SIFI designation, it will do so under a process that is more analytically rigorous, transparent, and accountable.

Funds’ use of derivatives: In November 2019, the SEC issued its long-awaited reproposal to reform the regulation of US-registered funds’ use of derivatives, aiming to consolidate 40 years of guidance, no-action letters, and informal comments into a single, comprehensive rule. The reproposal would permit funds to use derivatives in more than a minimal amount, if they implement a derivatives risk management program and if their derivatives use does not exceed specific risk-based leverage limits.

ICI submitted a comment letter in April 2020 commending the SEC for crafting a proposal that would both protect investors and preserve fund managers’ ability to use these practical portfolio management tools. The letter recommended several targeted adjustments to enhance the proposal, such as increasing the leverage limits and amending the proposal to lessen the impact on funds and their shareholders. The Institute continues to engage closely with the SEC and staff to incorporate the recommendations pending a final rule.

Proxy Voting

  • Fund proxy reform: The SEC’s recent proxy work—begun in 2018—initially contemplated addressing only proxy advice, the shareholder proposal rule, and “proxy plumbing” reform (i.e., actions to modernize the overall proxy system to promote greater efficiency and accuracy). In July 2020, however, the SEC added fund proxy reform to its rulemaking agenda.

ICI submitted two documents to the SEC in 2019 that made the case for SEC reform of the fund proxy system. The June 2019 letter described the unique challenges that funds as issuers face in seeking shareholder approvals and offered several recommendations for improving the system. The December 2019 report, which included seven years of survey data on fund proxy campaigns, examined proxy cost information together with shareholder voting data and demonstrated that the current proxy system is failing to facilitate a cost-effective fund governance process. In July 2020, the SEC added fund proxy reform to its rulemaking agenda.

  • Proxy advice: In November 2019, the SEC proposed proxy voting advice amendments. The proposal would have granted companies conducting proxy campaigns the right to review and comment on proxy advisory firms’ draft advice before funds and other clients received it.

ICI’s February 2020 comment letter opposed this aspect of the proposal, maintaining that such a review framework would adversely affect the timeliness and cost of proxy advisory firms’ advice, and thus its overall value to funds. ICI recommended an alternative whereby funds would receive proxy reports concurrent with their release to companies for review and comment. The final amendments, adopted in July 2020, incorporated a review and comment framework similar to ICI’s recommendation.

  • Shareholder proposals: In November 2019, the SEC proposed changes that would slightly raise the eligibility and resubmission standards in the shareholder proposal rule. This rule conditionally permits a company’s shareholders to include proposals (i.e., recommendations or requirements that a company and/or its board take action) on a company’s proxy statement.

ICI’s February 2020 comment letter generally supported these changes as reasonable to preserve access to the company proxy for smaller shareholders while seeking to align the interests of shareholder proponents with those of long-term shareholders generally. ICI also recommended applying a different vote-counting methodology for shareholder proposals resubmitted to closed-end funds to account for the unique attributes and characteristics of those funds and their shareholders.

SEC’s fair value proposal: In April 2020, the SEC issued its proposal on the fair valuation responsibilities of a fund and its board and investment adviser. The SEC last addressed valuation under the 1940 Act comprehensively in 1969 and 1970.

ICI’s July 2020 comment letter generally supported the proposal’s process-oriented framework, its deference to accounting standards, and its acknowledgment of the complementary and essential roles that investment advisers and fund boards play in valuing portfolio securities. ICI recommended several improvements to the proposal to reduce compliance costs and to better reflect funds’ current valuation practices and the 1940 Act’s flexible standard.

Standards of Conduct

  • DOL fiduciary rulemaking: In June 2020, the DOL issued its proposed prohibited transaction exemption that would permit investment advice fiduciaries to receive compensation for their advice on retirement plans and IRAs. The DOL also reinstated its five-part test to determine whether a person is an investment advice fiduciary and restored several exemptions to their pre-2016 content. The proposal is dramatically narrower in scope than the 2016 fiduciary rulemaking, which significantly expanded the range of persons treated as fiduciaries to retirement plans or IRAs.

While this latest effort from the DOL represents an important step toward aligning standards of care for all investors saving in a retirement account or other investment accounts, ICI’s August 2020 letter commenting on the proposal urged that the DOL clarify certain statements it made in the preamble to the proposal on the application of the five-part test. ICI also suggested changes to the conditions needed under the exemption to meet the DOL’s intended goals and provide retirement savers with the benefits of an aligned regulatory structure.

  • Implementation of SEC Regulation Best Interest (Reg BI) and Form CRS: June 30, 2020, marked the compliance date for Reg BI and Form CRS. Reg BI creates an enhanced “best interest” standard of conduct for broker-dealers providing recommendations to retail investors, while Form CRS requires a two-page summary outlining key aspects of the relationship between the investor and the investment professional.

ICI has continued to assist members in understanding the compliance implications of these rules for their businesses and provides an ongoing forum, through the member working group, for members to discuss issues with their peers.

  • State fiduciary developments: Many state regulators strenuously opposed Reg BI, asserting that it would not adequately protect their residents. Various states have proposed laws or regulations that would impose a fiduciary duty or enhanced disclosure requirements on financial professionals. In addition, the attorneys general of seven states and the District of Columbia filed an unsuccessful lawsuit against the SEC seeking to invalidate Reg BI.

ICI members and other market participants remain highly concerned about a potential proliferation of state fiduciary initiatives that may be inconsistent with federal standards. ICI has been tracking state activity on standards of conduct for financial professionals, and submitted comments in response to a number of state proposals, including letters in January and March 2020 on proposed regulations in Massachusetts and Oklahoma, respectively. Both letters reminded the states to consider how the preemptive provisions of the National Markets Improvement Act of 1996 may affect their proposals.

Summary prospectus for variable insurance products: In March 2020, the SEC adopted a new rule to allow issuers of variable annuity contracts and variable life insurance contracts to use a summary prospectus to satisfy their prospectus delivery obligations.

The final rule reflected many of ICI’s previous recommendations.ICI was particularly pleased that the final rule permits a “notice and access” method of delivery for underlying fund prospectuses. Under this approach, the summary prospectus must include an appendix with key information about the underlying funds offered through the insurance product, along with links to where the underlying fund prospectuses may be found online. The simplified disclosure and delivery requirements will benefit investors by allowing them to receive information in a more reader-friendly manner.

Volcker Rule reform: Enacted as part of the reforms after the 2007–2009 financial crisis, the Volcker Rule restricts banks from using their own resources to trade for purposes unrelated to serving clients. It generally prohibits banks from engaging in “proprietary trading” and from sponsoring or investing in hedge funds, private equity funds, or other similar funds—collectively referred to as “covered funds.” While Congress did not intend for the Volcker Rule to apply to US-registered funds and their foreign counterparts, the implementing regulations adopted in 2013 have negatively affected some of these funds.

In February 2020, the five agencies responsible for Volcker Rule implementation proposed changes to the covered fund provisions, including the exclusion for “foreign public funds,” that were consistent with ICI’s views. In an April 2020 comment letter, ICI strongly supported the foreign public fund changes. The final rule adopted in June 2020 reflects concrete progress in ICI’s long-standing efforts to advance reforms that avoid impeding the activities and investments of ICI member funds while still achieving the intended purposes of the Volcker Rule.

Closed-End Funds

Access to private markets: In 2019, the SEC issued a concept release seeking input on expanding private market access while maintaining investor protection. Building on ideas from that concept release, in 2020, it proposed to expand the definition of accredited investor, the threshold that investors generally must meet to invest in the private market.

ICI filed comment letters in response to the concept release and accredited investor proposal, urging the SEC to carefully consider investor protection measures in expanding private market access. The letters highlighted that regulated funds provide investors with both access to the private markets and strong investor protections and recommended that the SEC modify regulations and certain staff positions to encourage private market exposure through these vehicles. SEC staff recently indicated that they are exploring ways to provide enhanced access to private investments through regulated fund structures, such as target date and closed-end funds.

Activist campaigns: In 2010, the SEC staff issued a no-action letter that limited the ability of closed-end funds to defend themselves against activist investors seeking short-term profits.

In March 2020, ICI submitted a comprehensive report to the SEC, countering the letter’s legal conclusions and providing detailed data and context on the history of the closed-end fund market, recent activist campaigns, and the harm those campaigns have caused to closed-end funds and their long-term shareholders. The Institute met with policymakers to explain the report’s findings and to highlight the benefits of closed-end funds—including their ability to offer retail investors more exposure to private offerings. The SEC staff withdrew the letter in May 2020 and is analyzing how closed-end funds can help give retail investors greater access to private markets.

Offering reform: In response to legislation that ICI strongly supported, in 2019 the SEC proposed rules that would modify the registration, communications, and offering processes for business development companies and registered closed-end funds. The rules would simplify the offering process for eligible funds, permit them to engage in more forms of public communication, and allow delivery of written notices in lieu of final prospectuses. In addition, the SEC proposed amendments to harmonize the regulatory framework of these funds with other issuers. Among other things, those amendments would require closed-end funds to file current reports when specified events occur.

ICI filed a comment letter supporting the proposed streamlined registration process, enhanced communications options, and modified prospectus delivery methods. The letter recommended, however, that the SEC eliminate the current report requirement, given the numerous filings and timely information closed-end funds already provide. The SEC adopted final rules in April 2020, largely as proposed, but followed ICI’s recommendation and eliminated the current report requirement.


COVID-19 response: During the COVID-19 pandemic, IDC has focused on delivering resources to assist the independent director community in navigating these unprecedented times.

IDC has taken proactive steps to communicate regularly with fund directors during the crisis, developed specialized programming and outreach, and provided opportunities for virtual engagement. For example, in lieu of its signature chapter meetings, IDC has hosted a series of regional virtual roundtables, reaching directors across the country. These wide-ranging efforts will continue until the public health crisis subsides.

Engagement with the SEC: The Investment Company Act requires fund boards to approve certain matters, including the fund’s contract with its adviser, at an in-person meeting. The coronavirus pandemic, however, has restricted travel and limited the ability of boards to meet in person.

IDC engaged with SEC staff to seek relief for funds from the in-person board meeting requirement. In March 2020, the SEC issued a temporary exemptive order granting this relief, which built upon no-action relief IDC had previously obtained on the in-person meeting requirement. IDC also sought an extension of the temporary exemptive relief, and the SEC issued a new exemptive order in June granting the temporary relief until further notice.

Regulatory initiatives: The SEC proposed four rules affecting independent fund directors: fair valuation, auditor independence, derivatives, and proxy voting advice.

IDC submitted comment letters that supported each proposal’s overall goals and offered suggestions on ways to improve the final rules and amendments:

  • Auditor independence: In a joint comment letter, IDC and ICI supported the SEC’s proposed amendments to its auditor independence rule. These amendments are intended to modernize the rule so that relationships and services that do not pose threats to the auditor’s objectivity and impartiality do not trigger non-substantive violations or potentially time-consuming audit committee reviews of immaterial matters.
  • Funds’ use of derivatives: IDC strongly supported the SEC’s reproposed derivatives rule, which addressed many of the concerns raised by IDC and others about a previous SEC proposal. IDC, however, expressed reservations about the proposed reporting relationship of the derivatives risk manager to the board, suggesting modifications to better reflect an appropriate oversight role for fund boards.
  • Good faith determinations of fair value: IDC strongly supported the proposal’s framework giving fund boards the option to assign determinations of fair value to the investment adviser, but urged the SEC to make modifications to address the proposal’s prescriptive, one-size-fits-all elements.
  • Proxy voting advice: IDC supported the proposal’s essential goal to help ensure that investors, like funds, who use proxy voting advice receive more accurate, transparent, and complete information to make voting decisions. IDC, however, stated concerns about the proposed framework and timeline for companies to review and comment on proxy advisory firms’ draft advice before that advice is provided to clients, including funds. The SEC adopted rule amendments reflecting substantial revisions to its proposed review and comment framework, consistent with comments made by IDC and others.


Common ownership: The “common ownership” hypothesis is the notion that institutional investors holding small, noncontrolling stakes in competing companies in concentrated industries, such as airlines or banks, decrease competition and raise consumer prices.

ICI remains engaged with policymakers, regulators, and other interested parties to rebut unproven claims of anticompetitive effects under this hypothesis. In response to questions from the Federal Trade Commission (FTC), in November 2019, ICI submitted a comment letter further explaining how investment advisers—which act as fiduciaries to thousands of funds and other clients with different investment goals—lack both the incentive and mechanism to affect price competition. The letter details why investment advisers and the managers of commonly held firms likely could not discern a competitive strategy that maximizes returns among diverse investors. ICI also continues to stay abreast of recent developments abroad on common ownership. For example, the European Parliament recently published a study about common ownership in the EU banking sector that declined to conclude that common ownership harms competition.

Data privacy in Canada: The Canadian government is considering sweeping updates to its privacy and data protection laws, including amendments to the Personal Information Protection and Electronic Documents Act (PIPEDA), in which it will address treatment of transborder dataflows.

In March 2020, ICI Global submitted a letter offering recommendations based on “lessons learned” from members’ experience with data privacy laws in the United States and European Union. ICI expects to provide more detailed feedback when the government releases proposed text of any legislative amendments to PIPEDA.

Due diligence questionnaire: Funds face unique challenges in performing intermediary oversight, especially in light of MiFID II requirements, changing regulatory landscapes, and the absence of an agreed-upon industry standard between funds and their distribution channels.

To help address these challenges, ICI Global brought together an industry working group, joining with distributors and fund managers to issue a common protocol for distribution oversight. The resulting due diligence questionnaire serves as the standard for UCITS and alternative investment funds (AIFs) in performing onboarding and ongoing oversight of distribution channels.

ESG: As part of the EU Action Plan on Sustainable Finance, policymakers adopted new environmental, social, and governance (ESG) disclosure requirements for asset managers and funds. Policymakers also continue to propose additional requirements for ESG disclosure, the consideration of ESG in the investment process, and the distribution of ESG funds. These requirements will create substantive new obligations for managers.

Through numerous meetings and comment letters, ICI Global advocated for more workable standards and requirements that will not impose unnecessary burdens on managers, hinder investment choice, or stifle the growth and innovation of the ESG market.

Global derivatives/leverage: In March 2020, ESMA proposed guidelines that regulators in EU member states would use: a) to assess how alternative investment funds’ use of leverage contributes to systemic risk in the financial system; and b) to design, calibrate, and implement macroprudential leverage limits for those funds. The assessment phase would include a two-step framework that would identify funds that may cause risks to financial stability, then determine for which funds leverage limits are appropriate. The guidelines would set high-level principles on the timing and level of such limits.

ICI Global filed a comment letter generally supporting the two-step assessment framework, providing specific recommendations for the framework to serve as a screening tool to meaningfully narrow the group of funds that would be subject to further analysis. The letter discussed how national regulators should consider imposing appropriate leverage limits to address the specific risks they identify in their jurisdictions.

Global financial stability: The role of regulated funds in financial stability continues to draw policymakers’ attention, especially in Europe. Open-end funds investing in less-liquid assets, as well as money market funds, remain areas of focus. Some policymakers contend that market stress or other events could trigger heavy redemption activity, necessitate “fire sales” of portfolio assets, or both. More broadly, bank-oriented policymakers have called for extending “macroprudential policy” beyond the banking sector.

ICI continues to engage actively with policymakers, providing data on the experience of regulated funds to help inform policy decisions. ICI representatives met with officials from the FSB (including FSB Chair Randal Quarles), IOSCO, the European Central Bank, and the European Systemic Risk Board, among others. ICI conceived and cosponsored (with BVI, the German funds association) a March 2020 conference on how regulated funds manage liquidity and leverage risks. At the FSB’s invitation, ICI President and CEO Paul Schott Stevens shared preliminary data on US fund flows during the COVID-19 crisis.

Global pensions: Policymakers worldwide are considering pension system reforms to help citizens build more retirement savings.

ICI provided extensive input to the Working Party on Private Pensions (WPPP), a group of national pension regulators from Organisation for Economic Co-operation and Development (OECD) member countries that conducts research on retirement systems around the world. Specifically, ICI offered feedback on WPPP research papers, including perspective on the design of DC plans, the US retirement system, and the role of effective disclosure.

India’s new rules for foreign portfolio investors (FPIs): After extensive consultation, the Securities and Exchange Board of India (SEBI) adopted new regulations in September 2019 for FPIs, replacing the FPI regulations from 2014. The revised rules streamline and rationalize the FPI framework to align it closer to international standards and ease foreign investment in India.

ICI Global was very supportive of SEBI’s efforts to reform the FPI framework, but also sent comment letters highlighting unresolved challenges for regulated funds. The final rules, adopted in late September, were welcomed by the industry as they resolved many challenges that ICI had raised.

Japan foreign investment restrictions amendments: In November 2019, the Japanese National Diet passed an amendment bill to the Foreign Exchange and Foreign Trade Act (FEFTA), lowering the threshold for requiring preapproval for the acquisition of shares of restricted companies from 10 percent to 1 percent. The Ministry of Finance (MOF) draft rules implementing the bill included an exemption for certain foreign financial institutions, but not all regulated funds were within the scope of the exemption.

ICI met with the MOF in Tokyo and subsequently submitted two letters expressing concerns with the limitations of the exemption and requesting that regulated funds be included. The MOF addressed ICI’s request in the final implementing rules by specifically including within the scope of the exemption US-registered investment companies, UCITS, and registered investment companies similar to those authorized under Japanese law, regardless of legal form.

Pacific Policy Council (PPC) working group on retirement savings: In August 2019, the PPC recommended that ICI set up a working group on retirement savings with representatives appointed by each PPC member. The group met its initial objective by developing recommendations for the PPC on the countries and issues ICI should prioritize with respect to retirement policy in Asia. The PPC approved the working group’s plan in November 2019.

ICI presented several documents at the PPC’s June 2020 meeting, including a pamphlet illustrating the status of the Japanese retirement system. ICI also presented examples of “keys,” or short documents to facilitate members’ discussions with regulators and policymakers. Each key describes one design feature of a successful retirement savings system.

PEPP: Policymakers continue to work on the pan-European personal pension (PEPP) product—a voluntary savings vehicle that investors can take with them across member states.

Though ICI Global is hopeful that PEPP can succeed, it is unclear if the regulatory framework will translate into a viable product, as the framework may be too rigid to foster a competitive marketplace. One impediment is a legally required fee cap on the basic investment option, and ICI Global will continue to encourage EU policymakers to remove the fee cap as part of their work on relaunching the Capital Markets Union.


Auditor independence: In December 2019, the SEC proposed amendments to its auditor independence rule to ensure that relationships and services that do not pose threats to the auditor’s objectivity and impartiality do not trigger non-substantive violations or potentially time-consuming audit committee reviews of immaterial matters. For example, the amendments would exclude certain investment advisers and the funds they manage from the investment company complex entities from which a fund’s auditor must be independent.

ICI and IDC filed a joint comment letter in March 2020 supporting the proposed amendments. The letter argued that the non-substantive violations the amendments seek to address amount to “false positives” and that the amendments would enable audit committees to more effectively focus on accounting and auditing matters of importance to the integrity and reliability of the fund’s financial statements.

Cybersecurity: Beginning in mid-March 2020, tens of thousands of mutual fund employees, not only in the United States but around the world, were sent home to work remotely due to COVID-19. While constant planning and testing of business continuity plans by firms enabled members to transition without interruption to fund operations, the threat landscape expanded dramatically.

ICI’s Chief Information Security Officer Committee, which typically meets three times per year, began meeting every two months. This community of peers discussed new challenges and risks faced by the remote workforce, and member participation in the meetings increased significantly. Concurrently, the committee and ICI updated and disseminated, in the United States and globally, its annual Cybersecurity Survey, which includes a new section on COVID-19.

Fraud prevention: Fraudulent schemes—identity theft, romance scams, COVID-19 cures, and a host of other swindles—continue to pose threats to fund shareholders. ICI members have reported that fraud and fraud attempts have increased significantly and that the methods for perpetrating fraud have evolved and become more sophisticated.

ICI continued its critical role supporting members’ fraud prevention efforts on several fronts, including work from its Fraud Prevention Working Group, launched in 2018. ICI Operations developed a mechanism to provide members with a year-over-year comparison of key fraud statistics and trends gathered on a quarterly basis from working group participants. In March 2020, ICI Operations published a comprehensive white paper, Red Flag Indicators: Warnings of Potentially Fraudulent Activity, to help funds and transfer agents identify red flags that may be indicative of fraud, identify possible enhancements to their fraud prevention and Reg S-ID: Identity Theft Red Flag programs, and augment their internal fraud prevention training resources. Finally, ICI continues to serve as a conduit for members to share real-time fraud alerts with working group participants.

Interval fund operational efficiencies: A significant barrier restraining the growth of interval fund distribution is the lack of standardized operational practices for managing interval funds, resulting in disjointed processes, manual strategies to compensate for lack of automation, and inefficient processing.

ICI’s Broker-Dealer Advisory Committee (BDAC) has embarked on a multiyear strategy to expand interval fund distribution through improved operational efficiencies that reduce operational risk. The committee’s Interval Fund Task Force has published a paper, Consider This: Interval Fund Operational Practices, to encourage common practice adoption in interval fund operations. The committee’s desire to standardize interval fund communication resulted in the addition of an Interval Fund Transaction Schedule to DTCC’s MF Info Xchange, a real-time solution that centralizes communication of critical operations information between funds and intermediaries. The task force is currently working through proposed changes to DTCC Fund/SERV® to allow interval fund repurchases (redemptions) to be sent throughout a repurchase period—eliminating the risks associated with order warehousing and facilitating efficient, straight-through order processing.

Small Funds Sales and Marketing Subcommittee: Sales and marketing activities present unique challenges for small funds. Smaller staffs and smaller budgets restrict distribution efforts. The ever-accelerating move to third-party distribution and rationalization of products on these distribution platforms adds to the demands sales and marketing professionals face. The rapid evolution of available technology in a highly regulated business presents opportunities and additional complexity.

To address these needs, the Small Funds Committee formed the Small Funds Sales and Marketing Subcommittee. The goal is to bring sales and marketing professionals at small funds together to explore key issues. The newly formed group is currently focusing on sales technology, effective use of social media, and market trends. These will be examined using presentations, workshops, and peer discussions.


CARES Act: In March 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) to provide emergency assistance and healthcare response for individuals, families, and businesses affected by the COVID-19 pandemic. The CARES Act included several welcome changes to rules affecting retirement plans and IRAs.

ICI advocated for the suspension of required minimum distribution rules for defined contribution plans and IRAs for 2020, ultimately included in the CARES Act, along with special rules permitting penalty-free retirement plan distributions and expanded plan loan availability. ICI immediately began outreach to the IRS and Treasury Department to alert them to guidance needed to implement the CARES Act provisions.

Electronic delivery: In 2020, the DOL finalized a regulation it had proposed in October 2019, creating a new safe harbor, using a “notice and access” structure. The new safe harbor allows retirement plans to use electronic delivery as the default for notices sent to participants and beneficiaries, while still allowing participants and beneficiaries to opt for paper delivery.

ICI submitted a comment letter in November 2019 in response to the proposed regulation, voicing strong support for the proposal and encouraging the DOL to finalize it without delay. The letter described the many advantages of using electronic delivery and offered specific suggestions, several of which the DOL incorporated in the final regulation.

Environmental, social, and governance (ESG) investing: In June 2020, the DOL proposed a regulation on selecting ESG investments for retirement plans. The proposal broadly treats any fund that includes environmental, social, corporate governance, and/or “any similarly oriented assessments or judgments in their investment mandates” as “ESG investments” subject to heightened scrutiny and increased administrative burden. In addition, the proposal would add new requirements applicable to all plan investments, including a troubling requirement to compare each plan investment to all “available alternative investments or investment courses of action.”

In July, ICI submitted a letter urging the DOL to withdraw the proposal, explaining that mutual funds’ portfolio managers—even those of funds that do not include ESG-related terms in their names or market themselves as ESG funds—routinely include ESG considerations in their decisionmaking to enhance performance, manage investment risks, and identify emerging investment risks and opportunities. Singling out one investment category for special treatment is inconsistent with long-standing DOL precedent and will have far-reaching effects on the selection of all plan investment options.

Multiple employer plans (MEPs): The DOL continued its work on MEPs, issuing two requests for information (RFIs) in 2019 and 2020. The 2019 RFI sought views on whether the DOL should allow “open” MEPs (a single 401(k) plan adopted by two or more unrelated employers). The second RFI, in June 2020, specifically pertained to pooled employer plans (PEPs)—a new type of open MEP created by the SECURE Act—seeking information on the possible parties, business models, and conflicts of interest that might be involved in the formation and ongoing operation of PEPs.

In response to the 2019 RFI, ICI urged the DOL to permit unrelated employers to participate in open MEPs sponsored by financial services firms. ICI explained that financial services firms offer unique qualifications that make them ideal candidates to sponsor MEPs. In response to the 2020 RFI, ICI urged the DOL to provide guidance needed to implement the SECURE Act’s PEP provision and to ensure that no barriers will stand in the way of financial services firms participating in the PEP market, noting that their involvement is crucial to ensure a robust competitive marketplace for PEPs.

SECURE Act: On December 20, 2019, the president signed into law the Further Consolidated Appropriations Act, 2020 (H.R. 1865), which includes the Setting Every Community Up for Retirement Enhancement Act (the SECURE Act). The SECURE Act makes several changes intended to encourage greater participation and savings in defined contribution plans and IRAs and to allow savers to better manage their assets in retirement.

Many provisions of the SECURE Act became effective within days after enactment, and ICI quickly approached the IRS and Treasury Department for guidance and relief urgently needed by financial institutions and their clients to implement the legislation. In the months following, ICI continued engaging with member companies to communicate implementation issues to the IRS, Treasury Department, and the DOL.


COVID-19 tax challenges: The novel coronavirus pandemic raised tax issues for regulated investment companies (RICs) as the federal government, fund complexes, and service providers closed their offices to prevent the spread of the virus. The closures made it nearly impossible for funds to file timely tax returns and obtain from the IRS certificates of residence (CoRs) needed to recover certain foreign taxes. Stress in the credit markets also created distribution issues for business development companies (BDCs) and some closed-end funds, as interest payments on debt securities held by the funds were postponed.

ICI sought and received from the IRS filing extensions until July 15, 2020, for RIC tax returns. ICI also sought relief permitting the use of digital signatures and received some relief extending the validity of funds’ CoRs. After discussions with ICI, the IRS provided relief to BDCs and closed-end funds by permitting such funds temporarily to pay up to 90 percent of their dividends in stock.

Financial transaction taxes (FTTs): The United States and Europe have both advanced proposals to tax financial transactions. FTTs would harm fund investors, especially those saving for retirement and other long-term needs.

ICI and members provided policymakers in the United States and in Europe with detailed explanations, both in writing and in person, of the negative impact of FTTs on fund investors. ICI continues to strongly oppose FTTs despite minor changes responding to a few concerns.

India surcharge tax: The 2019 Indian budget proposed a significant tax increase on capital gains of all FPIs organized in noncorporate form (e.g., as trusts). The 2020 Indian budget included a new mechanism to impose the tax surcharge on dividends paid to noncorporate FPIs.

ICI Global sent comment letters to and met with Finance Ministry officials and other senior government officials in New Delhi to oppose the application of the surcharge tax to capital gains of noncorporate FPIs. The government later withdrew this proposal. ICI Global also has sent comment letters to government officials opposing the application of the tax to dividends.

Maryland services tax proposal: A 5 percent sales tax on services (including professional services such as legal, accounting, and investment management) was proposed in the Maryland legislature. This tax would have placed Maryland-based firms at a competitive disadvantage.

ICI submitted written testimony opposing this bill, recommending that the tax not apply to any services consumed by funds and their advisers. ICI further urged that a comprehensive study must be conducted before any services tax proposal advances to prevent fund investors and their advisers from suffering unintended consequences. The bill was subsequently defeated.

OECD initiative to expand taxing rights: The Organisation for Economic Co-operation and Development (OECD) is crafting global solutions to tax challenges arising from the “digitalizing economy.” These initiatives are not limited to “digital” companies, but instead will affect all firms that operate globally by fundamentally changing the existing international tax regime.

ICI prepared detailed submissions to the OECD, presented concerns at the public consultation in Paris, and advanced its concerns with the US Treasury Department. While no final agreements have been reached, senior OECD officials have confirmed publicly that funds are not intended targets of the proposed “minimum tax.” Related assurances also have been received.

Recovering European taxes: The “free movement of capital” article of the Treaty on the Functioning of the European Union prevents discrimination favoring EU taxpayers over comparable non-EU taxpayers. Two favorable decisions by the European Court of Justice have been cited by funds claiming that EU member states cannot tax dividends paid to US funds while exempting “comparable” local funds from the same tax.

For many years, ICI has been helping members recover taxes imposed by some EU member states on US funds while those countries exempted “comparable” local funds from those taxes. By working with members, meeting with foreign tax officials, submitting detailed memoranda, and testifying in court, ICI achieved three significant victories for funds and their shareholders this year. France, which had the largest amounts at issue, began conceding claims and paying refunds. In Spain and Sweden, the highest courts ruled in favor of US claimants. ICI members’ funds are recovering more than $3.5 billion dollars from these three countries, and ICI continues its efforts elsewhere.

Regulatory guidance implementing 2017 tax legislation: The 2017 tax legislation enacted a provision allowing individuals to deduct 20 percent of their real estate investment trust (REIT) dividends but did not specifically permit RIC shareholders to deduct 20 percent of their RIC dividends attributable to REIT investments. Changes to the rules governing the timing of income for tax purposes also raised uncertainties about certain types of discounts on debt, possibly creating administrative burdens for RICs and other taxpayers. The legislation also placed new limits on interest expense deductions for corporations.

ICI submitted comment letters and met with Treasury and IRS officials seeking regulatory guidance on these issues. The government recently issued final regulations, as requested by ICI and National Association of Real Estate Investment Trusts (Nareit), permitting RICs to pass through to shareholders REIT dividends eligible for the 20 percent deduction. Also, in response to ICI requests, the IRS proposed regulations providing that the new income timing rules generally do not apply to market discount and original issue discount. Finally, in addition to finalizing the interest expense limitation regulations to address issues raised by ICI, the IRS also proposed regulations to permit RICs to pass through “interest dividends.” These proposed regulations will provide a RIC’s corporate shareholders with interest income that will increase the amount of their deductible interest.