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Investment Industry Wire | March 2023

by Julie Lowry

March 16, 2023 Investment Company Audits, Investment Companies

The pace and intricacies of regulatory change in the investment industry are, at times, nothing short of overwhelming. Yet, organizations in this space need to have a clear understanding of evolving regulations, their timing and overall impact. 

To help you stay up to date, below is Cohen & Co’s quarterly recap of the latest developments at a variety of regulatory agencies likely to impact our clients.

FASB

Accounting Standards Update Issued on Reference Rate Reform

On December 21, 2022, FASB deferred the sunset date of ASC Topic 848, Reference Rate Reform, to December 31, 2024, with the issuance of ASU 2022-06.  

Impact: This change extends the optional expedients related to the accounting for contract modifications and hedging transactions past the June 30, 2023, anticipated cessation date of LIBOR in the U.S.

SEC

Adoption of Amendments to Enhance Proxy Voting Disclosures

In early November, the SEC adopted amendments to Form N-PX to enhance the information that most registered funds report about their proxy votes. While funds have been required to disclose their proxy voting records for many years, the information has often been presented in varying formats and levels of detail, making it difficult for investors to analyze and compare. The amendments will enhance comparability and consistency of the information presented and will require Form N-PX to be submitted in a machine-readable format.

Some of the changes will require funds to:

  • Categorize each matter by type;
  • Where the form of a proxy is available per SEC rules, tie the description and order of voting matter to the issuer’s form of proxy;
  • Use a structured date language;
  • Disclose the number of shares that were voted or instructed to be voted;
  • Disclosure the number of shares recalled, and thus not voted; and
  • Follow the new requirements on how this information should be presented.

The new rule also requires institutional investors to disclose how they voted on executive compensation (“say-on-pay”) matters.

Effective for votes occurring on or after July 1, 2023, the new disclosure and related filings are due July 2024.

For more information, read the Form N-PX Fact Sheet: FACT SHEET: Amendments to Form N-PX and Say-on-Pay Vote Disclosure (sec.gov)


Impact: With the new required standardized format, funds will be required to present the information in the same order, making it easier for investors to find the data they want and allowing investors to compare how various funds vote on the same matter. While the first impacted filings will not occur until July 2024, funds will need to start maintaining the necessary information beginning in July of this year.

Reminder on Differential Advisory Fee Waivers

In February 2023, the SEC issued a reminder to investment advisers and mutual fund boards regarding the potential implications of differential advisory fee waivers and compliance with Rule 18f-3.  

One of the underlying principles of Rule 18f-3 is that all shareholders of a mutual fund, regardless of share class, are charged the same advisory fee, as they receive the same advisory services. While fee waivers are permissible, funds must be careful to consider and document whether long-term or permanent fee waiver differences present a form of cross-subsidization between classes. In cases where differential fee waivers are approved and in place, boards should carefully document their considerations of the various classes, the related waivers and why they believe cross-subsidization does not exist.

Impact: Given that a reminder was issued, this topic seems to have moved up on the Commission’s radar. Ensuring the documentation is in place is key. If there is a bonified reason for differential fee waivers to exist, ensure you document all of the considerations taken into account, as these are the factors levied in deciding whether to disclose the arrangement to shareholders.

Contact Julie Lowry at jlowry@cohenco.com or a member of your service team to discuss this topic further.

Cohen & Co is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.

About the Author

Julie Lowry, CPA

Partner, Cohen & Co Advisory, LLC
Partner, Cohen & Company, Ltd.
jlowry@cohenco.com
216.649.5720
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