Regulation watch: Uncertainty reigns supreme

Jay Clayton was confirmed as head of the US Securities and Exchange Commission in May, filling one of several high-level vacancies at the regulator.

Clayton has revealed little about his plans for the agency or his views on deregulation, a key objective of the administration. During his confirmation hearing in March, he said cybersecurity will remain a key focus and he questioned whether disclosure was “where it should be”. Otherwise he remained tight-lipped on reform, such as the proposals to strip back the Dodd-Frank Act. With so little information available, it’s hard to predict whether having Clayton at the head of the agency will ease regulatory scrutiny of the private funds industry.

The SEC was not just looking for a new chairman; a number of officials left at the end of the Obama administration, and the people who fill these positions will also have a big impact on the future direction of the agency. There are two empty seats on the five-person commission and a third will be vacated on 5 June. Commissioners’ views on enforcement penalties will dictate the severity of punishments the agency doles out. To date, no nominations have been made.

The head of the enforcement division has a bigger impact on the frequency of enforcement actions than the agency’s chairman. Under its former head, Andrew Ceresney, there were a record number, but it’s unknown if his successor – yet to be appointed – will take such a hard line.

VOLCKER UNDER (MORE) SCRUTINY?
A formal assessment of the effectiveness of the Volcker Rule could be launched following a meeting of the Financial Stability Oversight Council. The closed-door meeting was chaired by President Donald Trump’s treasury secretary, Steven Mnuchin, who said in a statement that “efforts to assess the efficacy of the Volcker Rule” had been discussed. The rule, part of the Dodd-Frank Act, sets limits on the amount of tier 1 capital banks can invest in private funds.

CLARITY ON PRIIPS
The Financial Conduct Authority has clarified how alternative investment fund managers will be affected by a rule affecting firms with high-net-worth clients. The UK watchdog said there were some instances in which the governing body of an alternative investment fund, and not the fund’s manager, would be responsible for preparing and providing documentation investors required under the Packaged Retail and Insurance-based Investment Products regulation. The carve-out would apply when an AIF has appointed an external AIFM, but remains responsible for its own marketing, the FCA said in a note.

The EU regulation should have been introduced on 1 January 2017, but was delayed after the European Parliament rejected its compliance guidelines. It will now enter into force on 1 January, 2018.

SWEDISH CARRY ON
Carried interest in Sweden should be taxed as income, not capital gains, according to a ruling from the Stockholm Court of Appeal. The rules should also be backdated to 2005, it said. The country’s private equity industry body, the SVCA, is appealing against the decision. It wants the country’s highest court, the Supreme Court of Appeal, to make a final ruling on the matter, said Elisabeth Ringqvist, chairwoman of the association.

“Most in the industry want to pursue the claim and it’ll be four to six months until we know if we have a case,” Ringqvist said.