What Makes Buddy Donohue Tick?
We still donít know.
His limited role as moderator at the SECís June 12 interactive date roundtable didnít give us much to go on. But last week, after nearly seven weeks in office, Andrew "Buddy" Donohue delivered his first official speech as director of the SECís Division of Investment Management.
Did he comment on the Goldstein case? Announce new policy initiatives? Explain the status of the long-anticipated valuation and e-mail guidance?
No. His remarks, delivered at a June 26 National Association of Variable Annuities conference, focused on familiar subjects ó interactive data, fund disclosure, the debate over Rule 22c-2, and exemptive applications.
Good and important topics, yes.
But nothing new.
But that doesnít mean that Donohue is going to be a milk-toast director. Our bet is that Donohueís got his own views on things but, for now, is keeping them under wraps. Undoubtedly, he is busy establishing relationships with the IM staff and making sure that his points of view are well-informed and tested by internal discussions before publicly unveiling them. And, of course, he is checking that his views are consistent with those of the Commissioners.
From the tone of his remarks, Donohue seems optimistic about building a collaborative partnership with the regulated industry. He began by noting that the theme of the NAVA conference was "maintaining a competitive edge in todayís regulatory environment." That, he said, may mistakenly suggest that "regulation and competition are somehow at cross-purposes" and that competitiveness is achieved "in spite of" regulation. "In reality," he said, "I think that, in this industry, regulation and competition at their best both have the same goal ó serving the needs of investors."
Similarly, at the end of his remarks, he pledged that the Division would "keep its eyes on Americaís investors." He added: "I trust that you and your companies will do the same as you develop and market variable insurance products. As long as both we and you remain true to Americaís investors, I believe that your companies will be well along the pathway to maintaining a competitive edge within the regulatory environment."
It will be interesting to see whether this refreshingly constructive perspective changes over time, especially once things have hit the fan a time or two.
Donohue highlighted his business background. "Among my many past experiences, Iíve been an officer and a director of an insurance company, and I know the challenges that you face," he said. "From my vantage point, I understand both how difficult the work that you do is and also how important it is to this nationís investors."
But he also acknowledged that he was new on the job and indicated that he was open to suggestions. "I am very interested in hearing from you regarding the challenges that you confront and your views on what the Divisionís priorities should be," he said.
Turning to substance, Donohue highlighted current regulatory initiatives being pursued by the Division and the Commission.
First, he discussed Chairman Christopher Coxís disclosure initiative, indicating that he supported the agencyís XBRL push. Recalling the SECís June 12 interactive data roundtable, Donohue said that he was struck by the consensus of "all these individuals representing many viewpoints" that a short-form mutual fund document could be more effective than the current prospectus "as a tool for getting key information into the hands of investors."
Donohue then turned to the Divisionís beleaguered exemptive applications office, indicating that he plans to "devote significant attention" to it. "I know that a number of people have expressed concerns about the time it takes to get an application through the Division," he said. "I and the Division staff are committed to doing all that we can to streamline the process while maintaining appropriate investor protections." One way to do that, he said, is by codifying more routine applications, as the SEC recently did in its funds of funds rulemaking. "The Division is considering whether there are other particular areas of exemptive relief that may be appropriate for Commission rulemaking," he said. "As the Commission adopts exemptive rules, I expect the queue of outstanding exemptive applications to diminish."
He also touched on the status of Rule 22c-2, the redemption fee rule. Many commenters, he noted, have asked the SEC to extend the October 16 compliance date for information-sharing agreements between funds and financial intermediaries.
Donohue declined to predict whether the SEC would extend the deadline. "While no decisions have been made in this area," he said, "the Division is mindful both that the proposed amendments are still pending and of the efforts that will be necessary to come into compliance with the rule."
Lastly, he touched on variable annuity sales practices, calling them "a persistent area of interest." He cited the high level of exchange activity in variables, estimated at more than half of gross sales. "The rate of exchanges, coupled with product complexity and sales to seniors," he said, "combine to make variable annuity sales practices an area of continuing concern."