Read the Fine Print: SEC Reporting Modernization Delay

The SEC announced a nine-month filing delay for Form N-PORT, but make sure to read the fine print!

Just over a week ago, the Securities and Exchange Commission (SEC) announced a nine-month filing delay for the delivery of Form N-PORT to the SEC via the EDGAR system. Citing certain cyber security concerns, the SEC will use the time to implement additional security measures and test the EDGAR system.

When the news broke, many readers assumed this was a delay to the requirements of the rules. After all, the Investment Company Institute requested a six-month delay in July and frankly, the industry has repeatedly expressed their desire for a delay amid the challenges to implementation for both the Reporting Modernization and Liquidity Rules (the rules).

Sadly, a thorough read of the order outlines that the delay solely relates to the delivery of the information and there is still a requirement for funds to maintain, as a “record,” the information requested by the rules in accordance with the original compliance dates. The agency may request information required by the rules as part of an examination and that information must be provided to them within a reasonable amount of time. The fine print makes it clear that the data required under the final ruling must be available and maintained by the original compliance dates.

The transmission of the first filings of Form N-PORT for large US funds is now set for April 2019. Smaller funds maintained the advantage of an additional year’s deferral and will transmit by April 30, 2020. Unfortunately, a consequence of the transmittal delay is that funds will have to continue to complete and file Form N-Q, while housing the information for Form N-PORT, for another nine months until the new form is filed through EDGAR.

As further proof that this delay relates less to the requirements and more to the data security, Form N-CEN is not delayed at all. Since Form N-CEN is an annual filing triggered by fiscal year ends, there is significantly less impact and stress to the EDGAR system.

The new monthly filings require more detailed portfolio information than currently required, some of which the industry claims is highly sensitive. Following the recent admission in October by Chair Jay Clayton of a data breach at the agency, industry advocates stressed the need for a delay so the commission could work to better ensure the safety of data.

Quite simply, the SEC responded to what the industry called for in response to data security. Now the industry is left with a “delay” that doesn’t delay the burden of adhering to the rules themselves. As some may say, the devil is in the details. That could be the case here as the excitement of the delay announcement is now met with the realization that the data burden still exists and there will be duplicative effort for almost a year while funds compile two regulatory filings during the transmittal delay period.

Over the next several months, asset managers should continue with their implementation efforts ahead of the June 2018 compliance dates. Defining and sourcing the data, storing it appropriately, and analyzing responses should all be part of the implementation plan, even if it is not being transmitted to the regulator. Harmonizing these efforts ahead of transmission will give asset managers the opportunity to streamline the process come April 2019.