Regulatory Outlook 2021 and Beyond

Regulatory Outlook 2021 and Beyond 2 | BROADRIDGE Staying up-to-date on evolving regulations is an essential requirement for TABLE OF CONTENTS financial institutions large and small. Yet, continuous regulatory changes, delays, United States 4 and additions can complicate an already challenging task. Canada 8

Take advantage of our Regulatory Outlook 2021 and Beyond to quickly assess International 9 what’s new regarding regulations around the globe. You’ll gain insights into Europe 10 how you can proactively prepare and respond to recent shifts in the regulatory landscape. You’ll also learn about the expertise and solutions that can improve Asia Pacific 14 your processes, increase efficiency — and ultimately bring some ease to the Conclusion 15 complicated world of compliance.

3 | BROADRIDGE UNITED STATES

California Consumer Dodd-Frank Wall SEC Corporate Privacy Act (CCPA) Street Reform Disclosures

Following on the heels of the European Union’s and Consumer Public companies must keep their shareholders General Data Protection Regulation (GDPR), the CCPA informed on a regular basis. The Securities and grants consumers new rights concerning the collection Protection Act Exchange Commission (SEC) requires all publicly of their personal information. It grants a consumer the traded companies to disclose certain types of business Dodd-Frank is a massive piece of financial reform right to request that a business disclose the categories and financial data to the SEC and to the company’s legislation targeting the sectors of the financial system and specific pieces of personal data that it collects stockholders. These documents must be filed so that were believed to have caused the 2008 financial about them, the categories of sources from which they can be made publicly available on the SEC’s crisis, including banks, mortgage lenders, and credit that information is collected, the business purposes EDGAR website and subject to review by SEC staff for rating agencies. It originally contained numerous for collecting or selling the data, and the categories of compliance with federal securities laws. provisions that were to be implemented over a period third parties with which the information is shared. It of several years, including the establishment of a also requires a business to make disclosures about the The composition, filing, and printing of SEC disclosure number of new government agencies to oversee its information and the purposes for which it is used. materials can be a cumbersome process — with components and, subsequently, many aspects of the significant consequences for non-compliance. We help financial system. However, Congress recently rolled Many companies doing business in California will streamline compliance, reduce costs, and accelerate back some restrictions in response to protests that need to reassess data collection and use and modify outcomes with a full range of services for capital the regulatory burdens it imposes could make United their business processes to meet CCPA requirements. markets transactions and compliance disclosure. States firms less competitive. New requirements cover We help companies manage communications data three key areas of an institution’s workflow: execution, to comply with privacy requirements and protect the LEARN MORE >> clearing, and reporting. Specifically, amendments to interests and preferences of their customers. the Volcker Rule effective October 1, 2020, change who can own collateralized loan obligations (CLOs) LEARN MORE >> and what CLOs can contain; changes which may significantly impact the CLO market.

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4 | BROADRIDGE UNITED STATES

SEC Rule 22c-2 SEC Rule 22e-4 SEC Rule 30e-3

With shareholder trading activity moving further away The Securities and Exchange Commission’s liquidity In an effort to improve the investor experience, the from fund managers, the responsibility to ensure rule is designed to benefit fund investors and help Securities and Exchange Commission’s Rule 30e-3 compliance remains with the fund. The Securities reinforce public confidence by promoting more under the Investment Company Act of 1940 allows, and Exchange Commission’s Rule 22c-2 allows fund effective liquidity risk management and better public but does not mandate, mutual funds to use a “Notice companies to request detailed trade information market liquidity transparency. The rule requires asset & Access” method to deliver annual and semi- within omnibus accounts from their intermediaries to managers who offer mutual funds and exchange-traded annual reports. Under the rule, a fund may deliver its be analyzed for market timing activity and to impose funds (ETFs) to establish a robust and formalized shareholder reports by making them publicly accessible short-term redemption fees of up to 2% of redemption program to manage liquidity and report liquidity limit for free on a website and sending investors a paper trades to discourage market timing and sanctions breaches to the SEC and the fund board as needed. notice of each report’s availability by mail. Investors that would block known market timing violators from It also requires each open-end fund, including who prefer to receive the full reports in paper may at buying shares in their funds for a period of time. Rule traditional mutual funds and ETFs but excluding any time choose that option free of charge. 22c-2 requires mutual fund companies to determine if money market funds (MMFs), to establish a formal short-term redemption fees are necessary to prevent liquidity risk management program that includes Challenges around 30e-3 compliance include cost and market-timing abuses. certain key components. impact to the user experience. We deliver efficient solutions to help firms prepare for the implementation We help capture, analyze, and report trading activities of the rule and capture shareholders’ delivery to support compliance, and minimize risk by providing preferences while reducing shareholder costs and partial or fully automated solutions. improving the investor experience.

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5 | BROADRIDGE UNITED STATES

SEC Rule 613 - Regulation Best Consolidated Interest (Reg BI)

Audit Trail (CAT) In these uncertain times, the value of objective Broker-dealers and SEC-registered RIAs are required to financial guidance cannot be overestimated, and the provide a retail investor with a customer relationship With the CAT, the Securities and Exchange Commission importance of the financial profession has never been summary, which discloses certain information about (SEC) aims to create a single, comprehensive database more apparent. Regulatory changes initiated well the firm. This Customer Relationship Summary (Form to track equity and option securities trading across U.S. before any of us had even heard the phrase “social CRS) will need to be delivered to all retail investors, in markets. The primary goal is to improve the SEC’s and distancing” are now in effect and establish a new either print or digital formats. Firms will also need to the Self-Regulatory Organizations’ (SROs’) ability to landscape that governs the relationship between those deliver the form when there are material changes to oversee trading. The CAT will track orders throughout who seek financial guidance, and those who provide the disclosure; upon certain customer activity; and on- their life cycle and identify the broker-dealers handling such services. demand to an investor or prospect, as required. It must them, thus allowing regulators to more efficiently also be posted on broker-dealer and SEC-registered track activity in eligible securities throughout the U.S. June 30, 2020, marked the implementation date of RIAs’ websites. markets. regulations passed by the Securities and Exchange Commission (SEC) more than a year ago. Called LEARN MORE >> We combine industry knowledge and innovation to “Regulation Best Interest” or “Reg BI,” the new rules help firms discover new opportunities, avoid potential include a new standard of care for broker-dealers, as obstacles, and achieve future business efficiency and well as new disclosure and compliance obligations. growth from their CAT implementation. It requires broker-dealers to act in the best interest of the retail customer when a recommendation is LEARN MORE >> made. Under Reg BI, broker-dealers must establish, maintain and enforce policies and procedures designed to identify, and fully and fairly disclose material facts about conflicts of interest.

6 | BROADRIDGE UNITED STATES

SEC Section 15(c) of the Securities Exchange Act Investment Company of 1934

Act of 1940 With this Act, Congress created the Securities and Exchange Commission empowering the SEC with broad Board reporting is an essential part of helping to authority over all aspects of the securities industry. This protect the interest of the shareholders and ensuring includes the power to register, regulate, and oversee service provider accountability for the operation of a brokerage firms, transfer agents, and clearing agencies mutual fund. Under Section 15(c) of the Investment as well as securities self-regulatory organizations Company Act of 1940, the Securities and Exchange (SROs), e.g., New York Stock Exchange, NASDAQ Stock Commission requires directors to request and evaluate Market, Chicago Board of Options, and the Financial — and the fund’s advisor must furnish — information Industry Regulatory Authority (FINRA). that may be reasonably necessary for the directors to assess the terms of a fund’s advisory agreement, known Pursuant to State law, companies are required to as the “15(c) process.” hold an annual shareholder meeting and send annual meeting materials to eligible shareholders. We’ve been providing accurate, independent, and objective fund analysis needed to comply with 15(c) LEARN MORE >> for more than 29 years. Our dedicated solution helps fund directors meet the highest standard of fund board reporting so that they have the information they need The ’34 Act provides mechanisms for the distribution to fulfill their responsibilities and stay compliant. of proxy material to beneficial shareholders.

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7 | BROADRIDGE CANADA

Client Focused Reforms (CFA)

According to the Ontario Securities Commission (OSC), These are supported with the introduction of a securities advisors, dealers, and representatives, are know your product (KYP) provision in the Rule and obligated to put the interests of the client first. Under enhancements to the existing know your client the Client Focused Reforms (CFRs) amendments, they (KYC), suitability, conflict of interest, and relationship will be required to: disclosure information (RDI) requirements. These provisions are designed to work together throughout • Address material conflicts of interest in the best the client-registrant relationship, as an extension for interest of the client, the duty of registrants to deal fairly, honestly, and in good faith with their clients. • Put the client’s interest first when making a suitability determination, and Broadridge Canada has developed a series of components to allow brokers and enterprise financial • Do more to clarify for clients what they should expect firms to address the CFR requirements while increasing from their registrants. efficiency and digital enablement.

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8 | BROADRIDGE INTERNATIONAL

The phase-in period for the Basel IV changes has been Basel III adjusted as a result of the Covid-19 pandemic. The G-20 Reporting changes will now be phased in between January 1, As part of the Basel Committee on Banking 2023, and January 1, 2028. The regulatory directives from the Pittsburgh G-20 Supervision’s (BCBS) continuous effort to enhance summit are meant to increase transparency and reduce the banking regulatory framework, Basel III improves counterparty risk around OTC derivatives, requiring the sector’s ability to deal with financial stress that OTC derivative contracts are reported to a trade through risk management and transparency. It is a repository and cleared through a CCP. How each of the comprehensive set of reform measures to promote Fundamental Review of member states implements the regulation is dependent stability by strengthening regulation, supervision, and on the local regulator; some of these regulations are risk management in the banking sector. Compliance the Trading Book (FRTB) already live, and some are in progress. with new Basel III standards began Jan 2013 and have been progressively phased in. New requirements cover Designed to replace a series of patches introduced Data and processing fragmentation has presented regulatory capital and liquidity ratios. after the financial crisis, FRTB is a comprehensive suite a challenge to G-20 reporting compliance. We take a of capital rules developed by the Basel Committee strategic approach to reporting driven by expertise We advance firms to a best-practice operation for Basel on Banking Supervision as part of Basel III. It is vast and innovation, helping our clients reap new benefits III by helping them efficiently and reliably monitor real- in scope and touches upon a number of complex but from mandatory trade reporting projects like meeting time intraday cash positions for actual, projected, and pivotal issues – from the design of the basic model G-20 requirements. historical balances, as well as make informed, effective, used to measure risk, to the process for deciding what and accurate funding decisions. sits in the banking and trading books. While Basel 2.5 LEARN MORE >> was implemented in the immediate aftermath of the financial crisis as a stopgap measure to lift trading book capital requirements, the FRTB is primarily aimed at consolidating existing measures and reducing Basel IV variability in capital levels across banks.

The 2017 changes to the Basel Accords are generally Compliance has the potential to increase the cost of referred to as Basel IV. The Basel IV changes reduce capital — in particular, to support trading activities — the reduction in the capital that banks realize from the for banks with required infrastructure and workflow use of the internal ratings-based approach established changes. Our award-winning risk management under Basel II guidelines. The key feature of the Basel solutions support and automate the securities life cycle IV sets a floor for Risk-Weighted Assets as 72.5% of to help clients adapt to regulations like the FRTB. the capital calculations using standard methodologies.

9 | BROADRIDGE EUROPE

Alternative Investment Central Securities Client Assets Fund Managers Directive Depositories Regulation Sourcebook (CASS)

(AIFMD) (CSDR) UK firms that hold or control client money or safe custody assets must abide by the rules in the FCA’s The AIFMD is part of an increased push for investor As part of the European Union’s regulatory reform in Client Assets Sourcebook (CASS). The rules intend protections that the European Union undertook just the aftermath of the financial crisis, CSDR supports to ensure the safety of clients’ assets in the event before the 2008 financial crisis. It was accelerated the functioning and stability of EU financial markets of the firm’s failure. Brokers, investment banks, and when the crisis exposed systematic risks to the EU by enhancing legal and operational conditions for custodians must report the value of client assets economy. AIFMD places hedge funds, private equity, cross-border settlement. It introduces the offering of through the CASS compliance process. and other alternative investment firms into a regulated omnibus and segregated accounts, the requirement framework for disclosure and transparency to protect to report internalized settlement, and the settlement LEARN MORE >> investors and set standards for marketing around discipline regime, under which market participants raising private capital, remuneration policies, risk will be liable to pay penalties or charges against each monitoring, and reporting, and overall accountability. transaction that fails.

AIFMD is a complex, sometimes ambiguous rule with CSDR carries clear implications for the broader tight deadlines that poses a significant reporting securities industry in Europe and will mandate changes burden for most managers. We help firms define to a number of steps in the trade life cycle. Broadridge rules, run compliance reviews, and produce in-depth, brings a higher level of efficiency, automation, accuracy, targeted reports in a streamlined, highly automated and control to post-trade and expense management to reporting environment to comply with AIFMD help firms meet CSDR obligations. requirements. LEARN MORE >> LEARN MORE >>

10 | BROADRIDGE EUROPE

European Market FCA’s Assessment of General Data Protection Infrastructure Regulation Value (AoV) Rule Regulation (GDPR)

(EMIR) AoV is the Financial Conduct Authority’s rule requiring The European Union’s GDPR is a legal framework management companies and independent non- that sets guidelines for collecting and processing EMIR aims to increases transparency across the over- executive directors (INEDs) to review and analyze funds personal information from individuals who live in the the-counter (OTC) derivatives market to create a clear to ensure they provide value. It mandates that firms EU. It intends to regulate the processing of personal view of turnover, participants and market manipulation, assess value for each fund and that all fund boards data relating to individuals, whether by an individual, as well as reduce the number of the counterparties must include at least two new independent INEDs. company, or organization. The GDPR mandates that involved and reduce the operational risk for market The rule’s objective is to provide greater scrutiny of sites present EU visitors with several data disclosures participants. In a quest to be more transparent and costs and performance while adding an independent and take steps to facilitate such EU consumer rights as reduce risk, EMIR has introduced new obligations for voice to the process to ensure that investor interests timely notification in the event of personal data being derivative-trading companies, including reporting of are being protected. breached. As a replacement for the Data Protection all derivative contacts, mandatory centralized clearing Directive 95/46/EC (intended to harmonize data of standardized OTC derivatives, risk mitigation Beyond specifically requiring the review of net privacy laws across Europe), the GDPR may be the techniques for non-centrally cleared derivatives, and performance, the FCA gives no other insight on how to most significant change in data privacy regulation enhanced collateral requirements. look at performance. This presents a challenge for firms in decades. looking to establish an AoV process. We help navigate Meeting EMIR requirements poses significant technical the rule’s requirements and furnish efficient ongoing Since the GDPR applies to visitors’ location — not and regulatory challenges. We transform post-trade oversight through streamlined data collection, analysis, where websites are based — it presents challenges control and reporting with strategic solutions to and reporting. to all firms servicing clients in the EU. We transform reduce exposure to EMIR requirements and other communications data management to help companies reporting mandates. LEARN MORE >> comply with privacy requirements and protect their customers’ interests and preferences when it comes LEARN MORE >> to information privacy.

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11 | BROADRIDGE EUROPE

Markets in Financial Packaged Retail Payment Service Instruments Directive II Investment and Providers Directive (MiFID II) Insurance-Based (PSD2)

MiFID II came into force in January 2018. It aims Products (PRIIPs) The Payment Service Providers Directive (PSD) in to strengthen investor protection and improve the 2007 sought to contribute to the development of functioning of financial markets, making them more The PRIIPs regulation, in effect as of January 1, a single payment market in the European Union to efficient, resilient, and transparent. New rules require 2018, set out new calculation methodologies and promote innovation, competition and efficiency in the investment management firms to provide more transparency requirements for investment products EU. In 2013, the European Commission proposed an information about the costs and charges that apply to across the EU. It aims to protect retail investors by amendment (i.e., PSD2), which aimed to enhance these portfolios along with the intended target market of the allowing a comparison of the key features and risks of objectives. It seeks to improve consumer protection, product. these products. The new regulations require investment boost competition and innovation in the sector and product manufacturers to create key information reinforce security in the payments market, which is Any party distributing to the end investor is required documents (KIDs) for their products on an annual basis expected to facilitate the development of new methods to provide a MiFID II Costs & Charges Diclsoure and provide product information on the fund objective, of payment and ecommerce. document, both prior to the investment (ex-ante) and investment policy, intended investor, recommended post investment (ex-post). The disclosure shows clearly holding period, risk levels, costs, practical information the costs that may be incurred and also those which along with how the product may behave, performance have been incurred. wise, in different market conditions.

Fund products will often not be the distributor of UCITS products are currently exempt from the their own products and in these instances will need to regulation, however asset managers will be required transmit their MiFID II costs and charges, and target to produce a PRIIPs KID once the exemption runs market information, to their distributors by means of out. Where a fund product forms part of an insurance the European MiFID II Template (EMT). wrapper product, the fund product must transmit its PRIIPs data to the insurance product by means of the LEARN MORE >> European PRIIPs Template (EPT).

12 | BROADRIDGE EUROPE

Securities Financing Shareholder Rights Undertakings for the Transactions Regulation Directive II (SRD II) Collective Investment in

(SFTR) SRD II is a European Union directive intended to Transferable Securities strengthen shareholder positions and ensure that SFTR is the European Union’s response to the Financial decisions are made for the long-term stability of a (UCITS) Stability Board (FSB)’s policy proposals on securities company. It amends the original SRD, which came The Undertakings for the Collective Investment lending and repos aiming to reduce perceived “shadow into effect in 2007, to improve corporate governance in Transferable Securities (UCITS) is a regulatory banking” risks in the securities financing markets. in companies which have their registered office in an framework of the European Commission that creates SFTR requires market participants to report details of EU member state and whose securities are traded a harmonized regime throughout Europe for the their securities financing transactions (SFTs), including on the EU’s regulated markets. It clarifies definitions, management and sale of mutual funds. To protect repurchase agreements (repos), securities lending, standardizes communication formats, and sets investors, the regulation introduces the requirement sell/buy-back transactions, and margin lending. Like minimum data requirements and deadlines around for product manufacturers to produce key investor EMIR for derivatives reporting, SFTR establishes that shareholder identification, agenda distribution, and information document (KIID), a simple document both parties to a trade need to report new, modified voting by intermediaries and vote confirmation. or terminated SFTs to a registered or recognized giving investors key facts clearly and understandably. The KIID includes product information on the fund Trade Repository (TR) on a T+1 basis. It also offers the Intermediaries need to act quickly to evolve existing objective, investment policy, risk levels, costs, past possibility for counterparties subject to the reporting processes into efficient methods of compliance. By performance and practical information which an obligation to delegate the reporting of these details. extending our world-class global proxy management investor may require. offering and award-winning blockchain-based This regulation represents a significant change to the shareholder disclosure management service, we are LEARN MORE >> securities financing world that will require firms to uniquely positioned to help intermediaries, both retail change their existing processes and overcome many and institutional, meet their SRD obligations. potentially complex challenges. Our expertise in both securities finance and trade reporting regimes LEARN MORE >> will enable clients to adapt to SFTR smoothly while minimizing operational disruption and reducing the impact of compliance.

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13 | BROADRIDGE ASIA PACIFIC

ASIC HKMA Monetary Authority of

The ASIC Derivative Transaction Rules (Reporting) HKMA Reporting refers to the requirement put in Singapore (MAS) 2013 set out counterparties’ requirements to report place by the Hong Kong Monetary Authority and the derivative transaction and position information to Securities & Futures Commission of Hong Kong for The MAS is known to have some of the most derivative trade repositories. firms to submit details of their derivatives transactions comprehensive cybersecurity regulations in the world, to the HKMA trade repository. including its national guidelines for cyberbanking. Some The Rules aim to: MAS requirements include source code inventory and review, vetting of outsourced information technology • Give effect to the Australian Government’s G20 and software, mobile security testing, vulnerability commitments in relation to trade reporting; assessment, and routine information technology audits. Japan Financial Services Penalties for non-compliance with MAS requirements • Implement an Australian trade reporting regime that include fines, reputational damage, and revocation of achieves the stated objectives of the OTC derivatives Agency (JFSA) license to operate in Singapore. reforms, in particular by enhancing the transparency The JFSA is responsible for ensuring stability of of OTC derivative markets, both to regulators and MAS compliance sets the standard for international Japan’s financial system, protection of depositors, the public, leading to an increased capacity for the cybersecurity, but it requires consistent, robust, and insurance policyholders and securities investors, and oversight and monitoring of systemic risk and the granular controls. We help our international clients smooth finance through such measures as planning prevention and detection of market abuse; with global solutions to improve control and spur and policymaking concerning the financial system, business growth. inspection and supervision of private sector financial • Ensure the Australian trade reporting regime is institutions, and surveillance of securities transactions. consistent with other international regimes, including LEARN MORE >> We help our clients in Japan to be compliant with JFSA those in the European Union (EU), the United States regulation and reporting standards. (U.S.), Canada, Hong Kong and Singapore for mutual recognition or substituted compliance purposes; and

• Meet internationally-agreed standards on transaction reporting developed by the International Organization of Securities Commissions (IOSCO) and the Committee on Payment and Settlement Systems (CPSS).

14 | BROADRIDGE If there’s one certainty within the world of compliance, it’s that regulations will continue to change. The mindset around compliance, however, is evolving as well. Many organizations are looking for ways to not only meet regulatory requirements, but also uncover opportunities to improve the customer experience, streamline operations, and even generate revenue. New technologies are ensuring that these objectives become part of compliance reality for leading financial institutions.

Broadridge has long helped clients navigate the evolving regulatory landscape. We offer expertise and innovative solutions that enable our clients to reliably meet the current requirements and stay ahead of pending changes, so that you’re ready for what’s next.

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