2021 ICI Highlights
At the ESG Forefront
The environmental, social, and governance (ESG) space continues to rapidly evolve, and we worked to support members in navigating this very dynamic policy area. ICI has leveraged its convening power for its members, providing frequent and regular opportunities to interact with senior regulatory personnel and influence expected ESG regulations in the United States and the European Union. We’ve sought to shape public policy debate as an active presence in public forums and on industry panels, and we have drafted written submissions to US, EU, Asian, and international regulators and standard-setting bodies to enhance the consistency and comparability of sustainability information from public companies.
In addition to shaping policy outcomes, ICI has sought to shape media narratives around ESG efforts and the industry, engaging with reporters and editorial boards, and advancing our messaging through opinion editorials and digital content. This year’s highlight of ICI’s thought leadership on ESG, however, is the ICI Board of Governors’ statement on financing the transition to net zero. This statement sent a message to policymakers, industry leaders, and other stakeholders about the important role that private finance—including regulated funds such as mutual funds and exchange-traded funds (ETFs)—can have in funding the transition to a net zero economy.
- ESG Resource Center
- Eric J. Pan Speaks About ESG on CNBC’s Power Lunch
- MarketWatch opinion by Eric J. Pan: The Fund Management Industry Wants Better ESG Disclosure—Here’s What It Says Biden Should Do
- News Release: ICI Calls on SEC to Require Companies to Disclose Greenhouse Emissions and Workforce Data
- News Release: ICI Comment on IFRS Foundation’s Planned Creation of an International Sustainability Standards Board
- News Release: ICI Board Unanimously Calls for Enhanced ESG Disclosure by Corporate Issuers
Producing Value for Members
Regulatory and policy advocacy is at the heart of ICI’s work for members, and our engagement with the Securities and Exchange Commission (SEC) in 2021 exemplified this focus. Through comment letters, commissioner meetings, and communications with staff, ICI has advanced a productive dialogue with the Commission on behalf of members. We were able to deliver substantial benefits for regulated funds and their investors across key areas, including three major SEC rulemaking packages. Reflecting our recommendations, the SEC:
- modified or dropped numerous harmful provisions—including a disruptive and unnecessary redemption restriction—from its fund-of-funds rule;
- revised its derivatives rule reproposal to preserve fund managers’ ability to use these important financial instruments for the benefit of investors, while providing robust investor protections; and
- streamlined requirements in its valuation rules to better reflect the current practices of funds, fund advisers, and fund boards.
Money Market Funds
Promoting Well-Reasoned Money Market Fund Reforms
In the wake of the March 2020 market turmoil, policymakers quickly turned their attention to determining its causes and contributors. As money market funds came under the microscope, ICI shaped and informed the policy conversation on several major fronts, beginning with a thorough, highly substantive series of reports examining funds’ experiences during the turmoil. Drawing from the reports in the series on the experiences of money market funds during the crisis, we submitted formal comments to policymakers—both in the United States and globally.
ICI also hosted a roundtable attended by more than 160 international and domestic stakeholders, where ICI staff advocated for sensible, targeted reforms for money market funds with regulators around the world. Here, and through numerous other channels, we challenged the perception—with our meaningful data and analysis—that money market funds caused the stress in the short-term funding market in spring 2020. We urged policymakers to consider the facts before enacting measures. Our work in this space informed the thinking of policymakers, including the final report from the Financial Stability Board (FSB) on enhancing money market funds’ resilience.
Delivering Robust Representation and Expertise for ETFs
When Senate Finance Committee Chair Ron Wyden (D-OR) introduced a proposal to change the tax treatment of in-kind redemptions, ICI demonstrated the power of its voice as an industry advocate. While our Government Affairs team conducted outreach to congressional offices to explain the adverse impact this proposal could have on millions of Americans who invest in exchange-traded funds (ETFs) and mutual funds to save for their long-term financial goals, ICI President and CEO Eric J. Pan spearheaded a public education campaign. He used ICI’s highly credible research and deep expertise in this critical moment of debate to show how the proposal would subject middle-income investors, especially those saving through ETFs, to more frequent and larger capital gains distributions.
Through public statements, live television appearances, and background media briefings, ICI messaging drove coverage around this issue across traditional and social media to shape the public policy debate. As a result of these messaging and government affairs efforts, ICI has activated key allies on Capitol Hill to stand against proposals designed to increase barriers for millions of Americans working to build financial security.
Working to Make the Financial System More Resilient for Funds and Their Investors
In addition to ICI’s research, advocacy, and thought leadership capabilities, members have long relied on ICI to help enhance operations to benefit funds and fund shareholders. The critical role of operations has been on full view as the March 2020 volatility and meme stock frenzy earlier this year produced an extraordinary volume of trades to settle and unusually high demand for margin payments on broker-dealers and other market participants. Because regulated funds are a primary source for the daily trading transactions, ICI is leading the way to shorten the settlement cycle to trade date plus one (T+1) and is collaborating with the Securities Industry and Financial Markets Association (SIFMA) and the Depository Trust & Clearing Corporation (DTCC).
Moving to a T+1 settlement cycle is a complex undertaking requiring significant planning, execution, and testing throughout 2021, as it fundamentally changes the US market structure. This extraordinary undertaking is made possible through ICI’s work to convene members and interested parties in discussions and workshops, which will put the industry on track to shorten the settlement cycle and secure the tangible benefits of T+1 as soon as possible.
Modernizing the Successful US Retirement System
Throughout 2021, we continued our strong advocacy for retirement plan modernization proposals that build upon the successful US retirement system. ICI supported several commonsense provisions in the Securing a Strong Retirement Act (SECURE Act 2.0), the Retirement Security and Savings Act, and other efforts by leadership of the House Ways and Means Committee and Senate Finance Committee to further help individuals save and invest for their retirement. SECURE Act 2.0 builds on the success of the original SECURE Act, which was signed into law in 2019 and included important provisions to expand access to retirement savings plans and improve Americans’ ability to save.
ICI’s public advocacy for these legislative efforts advanced a key theme: all Americans dream of a secure retirement—whether it’s spending time with grandkids, traveling, or just being able to live with dignity after years of working. Regardless of their specific goals, Americans need financial resources to make it all possible. Our efforts helped build bipartisan support for SECURE Act 2.0, and we will continue to urge congressional leaders to prioritize passing and signing this legislation into law.
- Eric J. Pan editorial in Investment News: Congress Should Continue Updating the Retirement System
Expanding Our Commitment to Diversity and Inclusion in the Fund Industry
As ICI member firms seek to promote diversity and inclusion (D&I) across our industry, ICI has launched a series of initiatives to facilitate discussions on how the fund industry can take meaningful steps to achieve real change. ICI is renowned for its data-driven approach, and D&I is no exception. We conducted an industry benchmark survey that provided data about the need for greater representation of women and individuals from underrepresented communities in all levels of asset management.
These data have provided a backdrop for the crucial D&I conversations that we have convened, including our Juneteenth fireside chat with renowned academic and cultural influencer Dr. Mary Schmidt Campbell, who discussed the importance of continuing to work toward welcoming and including investors and employees of all backgrounds. We have provided a platform not only for industry leaders to speak on D&I issues, but also for D&I thought leaders to engage with our industry. Representative Joyce Beatty (D-OH), chair of the Congressional Black Caucus and the House Financial Services Subcommittee on Diversity and Inclusion, joined an ICI event to discuss the importance of diversity in industry leadership with Yie-Hsin Hung, CEO of New York Life Investment Management and chair of the ICI Board of Governors, Cynthia R. Plouché, independent director at Northern Trust Funds/Northern Trust Institutional Funds, and Anne Robinson, general counsel of Vanguard.
We also recognize that diversity at the top of the industry starts with a strong pipeline into ICI member firms. That’s why ICI has launched the Talent Connection program this year, which introduces undergraduates and law students from underrepresented communities to job opportunities in our industry. The ICI Education Foundation (ICIEF) is also supporting efforts to grow future industry leaders by partnering with Girls Who Invest to increase the number of women in portfolio management and executive leadership in the asset management industry. ICIEF also continues its partnership with the Toigo Foundation to nurture the career advancement and increased leadership of underrepresented talent in the finance industry and will soon announce winners of ICIEF’s 2021 Toigo Foundation scholarships.
Cybersecurity and Fraud
Deepening Engagement on Cybersecurity and Fraud Prevention
During the pandemic era, member engagement on cybersecurity and fraud prevention grew markedly. Virtual meeting platforms enabled Chief Information Security Officer Committee meetings to double in frequency to six times a year, while attendance also doubled, facilitating greater trust and information-sharing among members. In addition, we continued our cybersecurity survey of the regulated fund industry, a resource not available elsewhere, enabling fund companies to benchmark their activities against those of their peers.
During the pandemic period, we broadened our focus beyond account fraud to help members to protect against employment fraud, in which their employees’ information is used to apply for unemployment, or their firms’ logos are used for fake job postings. This year, we launched our Fraud Prevention Resource Center and continued to publish quarterly fraud incident reports and year-over-year comparisons to help keep members updated on the fraud landscape.
Informing a Major Policy Debate
As policymakers continued to debate key issues around financial stability, ICI issued a series of detailed reports examining the impact of the pandemic on economies and financial markets, as well as the experiences of US exchange-traded funds, US money market funds, and UCITS during the market turmoil it triggered in March 2020. These reports, together with a series of shorter ICI examinations of the experiences of US bond mutual funds, provided comprehensive, data-driven analyses challenging the narrative that funds caused or amplified the market turmoil.
In addition, ICI, with the participation of the Organisation for Economic Co-operation and Development, convened top policymakers and industry leaders at a roundtable on how the market turmoil affected fixed-income markets and open-end funds. The roundtable focused on the events that contributed to the turmoil, the experiences of market participants, and factors to consider in developing any policy reforms.
Fund Disclosure and Information Delivery
Supporting Efforts to Modernize How Investors Receive Information
We have long advocated for fund investors to receive clear, concise information about their investments at a reasonable price, and that work continued this year on two major fronts.
As part of our resolute work on reforms to deliver disclosure to investors in the form they want and can best use, we responded to a Securities and Exchange Commission (SEC) proposal to improve fund disclosure, by urging the Commission to pursue reforms that would better reflect investor preferences, better enable use of technology, and promote tailored risk disclosure
We also called on the SEC to take over the deeply flawed framework governing the processing fees that intermediaries charge funds for delivering materials to fund investors, outlining reforms that would save investors hundreds of millions of dollars.
Increasing Opportunities for American Retail Investors
We successfully advocated on Capitol Hill for introduction of the Increasing Investor Opportunities Act, which provides closed-end funds with enhanced investment flexibility and strengthens their protections for retail investors.
The bipartisan legislation, introduced by Representatives Gregory Meeks (D-NY) and Anthony Gonzalez (R-OH) in June, addresses challenges preventing investors from realizing the potential that closed-end funds can offer.
In our advocacy to solve these challenges, we met with policymakers to highlight the benefits of closed-end funds and the challenges they face. Based on ICI’s work, the legislation expands opportunities for Main Street investors to access private investments through closed-end funds under the strong investor safeguards that only regulated funds provide under the Investment Company Act. It also eliminates a loophole that activist investors have used to extract short-term profits at the expense of retail investors.
Preventing Harmful Financial Transaction Taxes (FTTs)
We educated lawmakers and provided testimony in state legislatures explaining the harmful effects of an FTT on each state’s capital markets and individual savers, particularly middle-income retirement savers. Through written testimony in New York and New Jersey and oral testimony in New Jersey, we detailed how even a small-sounding FTT results in multiple layers of taxation and cancels the benefit of falling expense ratios on investment returns.
ICI Global Helps Funds Recover Billions of Dollars of Foreign Taxes
For many years, we have 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, we achieved significant victories for funds and their shareholders that have resulted in billions of dollars of recoveries this year.
The most significant amounts were recovered this year from France. Although the Spanish tax authorities continue to resist claims, following a Spanish Supreme Court decision favorable to the industry, our member support work has resulted in many recoveries. We continue to support recoveries in other countries; among other efforts, we are preparing a complaint with the European Commission against Italy.
Independent Directors Council (IDC)
Promoting Excellence in Fund Governance
This year, IDC brought the best minds and latest thinking to the independent director community through its IDC Speakers Series.
Promoting excellence in fund governance in a rapidly changing world depends on delivering insights to fund independent directors on the biggest issues of the day that shape the environment in which regulated funds and boards operate. With programs covering diversity, inclusion, and implicit bias, as well as the state of global markets after the COVID-19 market turmoil, IDC brought prominent experts and cutting-edge ideas to fund directors.
In the same way that fund boards learned and adapted to the challenges of the pandemic, IDC also found ways to innovate in delivering education and fostering engagement with the independent director community. IDC hosted three virtual conferences in fiscal year 2021 with strong attendance; held webinars on timely topics, including digital assets and the future of the workplace; and offered multiple virtual roundtables where, for example, directors in each of 14 regions met to discuss what was top of mind. IDC successfully pivoted to a virtual Foundations for Fund Directors® for newer directors. These programs draw on the expertise of some of the most experienced voices in fund governance—to provide directors with the necessary knowledge and skills to succeed in their oversight role.
IDC tirelessly supported directors as they transitioned back to in-person board meetings. IDC met with and submitted a letter to the Securities and Exchange Commission requesting that the Commission provide at least six months’ notice—rather than two weeks’ notice—before withdrawing the current temporary relief from the in-person fund board meeting requirement. IDC also recommended that the in-person meeting rules be modernized by providing greater flexibility on a permanent basis.
General Membership Meeting
Bringing the Industry Together
In 2021, ICI once again brought the industry together at our premier annual gathering, the General Membership Meeting, featuring two days of connections, insights, and leading voices. As our first virtual GMM, this year’s event demonstrated that unprecedented times require innovation and flexibility, and showcased discussions on policy, industry trends, and lessons learned from the COVID-19 pandemic.
Featuring conversations with JPMorgan Chase Chairman and CEO Jamie Dimon, former SEC chair Jay Clayton, and former CFTC chair J. Christopher Giancarlo, GMM carried forward important industry priorities, including D&I and ESG investing.
We look forward to seeing you in person at the 2022 membership meeting in Washington, DC, on May 25–ּ26.
ICI Education Foundation
Increasing Financial Literacy for Women, Underrepresented Communities
Reflecting ICI’s renewed commitment to diversity and inclusion, the ICI Education Foundation continues to work in partnership with the Robert Toigo Foundation to further diversity and inclusion industry initiatives. And in new efforts, we supported grants for a learning experience teaching core finance and investment concepts by Girls Who Invest, investor education seminars by the Society for Financial Education & Professional Development (SFE&PD) student ambassador program at Howard University, and a financial literacy program at the University of DC.