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B-334823
December 9, 2022
The Honorable Sherrod Brown
Chairman
The Honorable Patrick J
rank member
Banking, Housing and Urban Affairs Committee
United States Senate
Honorable Maxine Waters
Chairman
Honorable Patrick McHenry
rank member
Financial Services Committee
House of Representatives
Subject: Securities and Exchange Commission: Customized shareholder reports for mutual funds and exchange-traded funds; Payment information in investment company advertisements
Pursuant to Section 801(a)(2)(a) of the United States Code, this is a major rule promulgated by the Securities and Exchange Commission (SEC) entitled “Customized Shareholder Reports for Mutual Funds and Exchange-Traded Funds; Payment Information in Investment Company Announcements” (RIN: 3235-AM52). We adopted the rule in 2011. It’s October 27, 2022. Published in Federal Register As a final rule on November 25, 2022. 87 Fed.
Reg. 72758. Effective date is January 24, 2023.
According to the SEC, this final rule requires open management investment companies to provide concise and visually engaging annual and semi-annual reports to shareholders that specifically highlight key information important to retail investors in evaluating and monitoring their fund investments. SEC rules that certain information that may be more useful to financial professionals and investors seeking more in-depth information do not appear in the funds’ shareholder reports, but are available online upon request, and are provided on a semi-annual basis on Form N-CSR.
The SEC has indicated that it will generally exempt open management investment companies from the scope of the existing rule, which allows registered investment companies to comply with the shareholder report transmission requirements by making these reports and other materials available online and providing notice of their availability. As defined by the SEC, the rule also requires funds to provide their reports to shareholders using a data language structured in-line eXtensible Business Reporting Language to provide machine-readable information for retail investors and other market participants to efficiently access and evaluate investments. Finally, the SEC stated that the regulation will improve the disclosure rules for registered investment companies and business development companies to promote more transparent and balanced disclosures about investment costs.
Our review of the SEC’s compliance with the SEC’s procedural steps with respect to section 801(a)(1)(B)(i) through (iv) of section 5 of the Act is attached. If you have any questions about this report or would like to contact the GAO officials conducting the review regarding the subject matter of the Act, please contact Shari Brewster, Assistant General Counsel, at (202) 512-6398.
Shirley A. Jones
Managing Associate General Counsel
Enclosure
CC: Vanessa A. Country man
Secretary
Securities and Exchange Commission
Enclosure
5 USC § 801 (a) (2) (a) report on the main rule
Given by
Securities and Exchange Commission
Relevant
“Customized Shareholder Reports for Mutual Funds
and exchange-traded funds; Payment information
Investment Company Advertisements”
(RIN: 3235-AM52)
(i) Cost-benefit analysis
The Securities and Exchange Commission (SEC) has conducted an economic analysis of this final rule. Regarding the costs of the rule, the SEC stated that it expects funds and fund shareholders to expect transition costs to adapt to the new approach to shareholder reports for funds. The SEC also noted that some shareholders may incur ongoing costs due to the mismatch between their preferences and the rule’s design, particularly shareholders who choose to receive the initial disclosure as opposed to the brief and customized disclosure they receive in the final rule. The SEC commented that these shareholders may incur costs associated with obtaining additional information online or requesting materials that they do not receive directly. The SEC also stated that the costs of implementing the rule will be expected. In addition to these costs, the SEC stated that the amendment to the notification rule issued in the final rule will increase the costs of some investors, such as the loss of information about fees and expenses, and the costs of third parties involved in investment companies and third parties. Preparing or distributing investment company advertisements.
Regarding the benefits of the rule, the SEC noted that the rule provides concise and easy-to-use fund disclosures that highlight key information for retail shareholders for purposes of tracking the fund’s investments and informing the portfolio. Decisions by providing overlapping access to other information that shareholders currently receive may be more useful to market professionals and some fund shareholders. In addition, the SEC announced that the rule would increase transparency of fees and expenses associated with investing in a particular investment company. Finally, the SEC stated that since the regulation requires standardized fee and expense figures, it would benefit investors by providing consistent fee and expense disclosures in investment company advertisements.
(ii) Regulatory Flexibility Act (RFA), 5 USC §§ 603–605, 607, and 609 related agency actions;
The SEC has developed a final regulatory flexibility analysis. According to the SEC, the analysis will discuss changes in funds’ annual and semi-annual reporting requirements, new Form N-CSR requirements and new website provision requirements, final investment company disclosure rule amendments, final amendments requiring funds to be identified. Shareholder reports online in eXtensible Business Reporting Language, and the latest technical and updates. The analysis prepared by the SEC includes discussion statements
(1) The purpose and objectives of the rule and form amendment; (2) significant issues raised by public opinion; (3) small entities subject to the regulation; (4) proposed reporting, recordkeeping, and other compliance requirements; and (5) agency action to minimize impacts on small entities.
(iii) Agency actions related to sections 202-205 of the Unfunded Liability Reform Act of 1995, 2 USC §§ 1532–1535;
As an independent regulatory agency, the SEC is not subject to the requirements of the Act.
(iv) Other necessary information or requirements in the acts and executive orders
Administrative Procedure Act, 5 USC §§ 551 inter alia.
In the year On November 5, 2020, the SEC published a proposed rule. 85 Reg. 70716. In this final rule, the SEC indicates that it received comments on the proposed rule from various commenters, financial and investment advisors, law firms, other fund service providers, investor advocacy groups, professional and trade associations, and interested individuals.
The SEC responded to comments on the final rule.
Paperwork Reduction Act (PRA), 44 USC §§ 3501–3520
The SEC has determined that this final rule contains information collection requirements under the PRA. The SEC has submitted data sets to Office of Management and Budget (OMB) for review pursuant to the PRA. According to the SEC, the titles for the existing data sets are: (1) “Under Rule 30e-1 of the Investment Company Act, Reports to Shareholders of Management Companies” (OMB Control No. 3235-0025); (2) “Form N-CSR, Certified Shareholder Report for Management Investment Companies Registered Under the Exchange Act and Investment Company Act” (OMB Control No. 3235-0570);
(3) “Promotion by Investment Company under Section 10 of Rule 482 of the Securities Act of 1933” (OMB Control No. 3235-0565); (4) “under Rule 34b-1 of the Investment Company Act, sales literature is misleading” (OMB Control No. 3235-0346); (5) “According to the Securities Act of 1933, 433” (OMB Regulation No. 3235-0617); (6) “Investment Company Act Rule 30e-3, Availability of Internet Reports to Shareholders” (OMB Control No. 3235-0758); and (7) “Investment Company Interactive Information” (OMB Control No. 3235-0642). The SEC estimated the burden of each information collection requirement.
Legal authorization for the regulation
The SEC has promulgated this final rule under various sections of title 15. Title 18, Section 1350; and sections 3506 and 3507 of title 44, United States Code; Also, Public Laws 111-203, 112-106 and 114-94.
Executive Order No. 12866 (Regulatory Planning and Evaluation)
As an independent regulatory agency, the SEC is not subject to the mandate.
Executive Order No. 13132 (Federalism)
As an independent regulatory agency, the SEC is not subject to the mandate.
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