SEC To Investigate Conflicts Of Interest Arising From Payments To Intermediaries: FT

The U.S. Securities and Exchange Commission's enforcement division has launched an investigation into ETF revenue-sharing practices, questioning fund groups about payments made to brokers and other financial intermediaries, reported Financial Times.

According to terms of a letter shared with BoardIQ, a sister publication of the Financial Times, the SEC wants data related to "any compensation paid by an adviser or an ETF to a financial intermediary based on assets held by the financial intermediary."

Investigators also requested information on any payments based on the activity of an intermediary, whether such payments are made by the ETF or an adviser, and samples of any agreements relating to such payments.

The report noted the regulator wants detailed information about revenue-sharing payments for each ETF and intermediary.

“This, to me, looks like a sales practice issue,” focused on intermediaries, the report quoted a one ’40 Act attorney. They had anticipated a regulatory focus on ETF revenue sharing and the issues that can arise when intermediaries suggest one ETF over another or an ETF over a mutual fund.

“It all comes down to the same thing — if there’s a conflict, [SEC officials] expect you to disclose it,” the attorney said. According to a review of filings, broker-dealers generally disclose such relationships, as do ETF managers. The question is, “who knows how granular those disclosures are” they added.

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