Mutual funds are subject to comprehensive legislative and regulatory oversight designed to protect investors and maintain fair, orderly, and efficient functioning of this approximately $27 trillion industry, which becomes increasingly complex as the regulatory landscape continues to evolve.
Related: The Market Infrastructure of the Future
In light of regulatory changes to money market funds (Money Market Reform), and retirement savings plans (SECURE 2.0), DTCC’s Mutual Fund Services implemented a series of enhancements to deliver solutions to meet the operational requirements of these regulations.
To implement these enhancements, the Mutual Fund Services team worked closely with the Investment Company Institute’s (ICI) Broker/Dealer Advisory Committee and Bank/Trust/Retirement Advisory Committee to identify necessary modifications to DTCC's Mutual Fund Services to support both Money Market Reform and SECURE 2.0.
“In light of the regulatory changes for Money Market Reform and SECURE 2.0, it was imperative that we provide our clients with solutions to fulfill their regulatory obligations,” stated John Saxenian, Director of Wealth Management Services at DTCC. “We engaged actively in industry forums with clients to identify necessary enhancements to address the industry's needs.”
Outlined below are the enhancements introduced in 2024 to meet the operational needs of Money Market Reform and SECURE 2.0.
Money Market Reform
Amendments to rules that govern money market mutual funds were adopted by the Securities and Exchange Commission in July 2023. These amendments are designed to reduce the risk of investor runs on money market funds during periods of market stress.
One of the key operational requirements of Money Market Reform required:
- Non-government money market funds to charge a discretionary liquidity fee of up to 2% to redeeming investors if the fund’s board, or its delegate, determines that a fee is in the best interest of the fund.
- Institutional prime and tax-exempt money market funds to calculate a mandatory liquidity fee when the fund has net redemptions above 5% of net assets.
The mutual fund industry did not have a standardized solution for Funds to notify intermediaries when a liquidity fee was being imposed. Mutual Fund Services enhanced its MF Info Xchange service to provide Fund clients with the ability to communicate liquidity fees to intermediaries. This enhancement not only provides an industry solution for communicating liquidity fees but includes standardized data points required for distribution partners to determine if a liquidity fee applies to a redemption.
SECURE 2.0
Part of the Consolidated Appropriations Act of 2023, SECURE 2.0 expands on the SECURE Act of 2019 to improve retirement-savings opportunities.
Key changes associated with the new rules impacting Mutual Fund Services allow:
- Roth contributions to be made to SIMPLE and SEP IRA plans; previously all SIMPLE and SEP IRA contributions were required to be made on a pre-tax basis.
- 529 plan funds to be directly transferred to a Roth IRA tax and penalty free.
These changes required the following enhancements to Mutual Fund Services:
- New Social Codes were added across the Mutual Fund Services product suite to provide required transparency to both intermediaries and Funds to distinguish Roth SIMPLE and Roth SEP IRA accounts from traditional SIMPLE and SEP IRA accounts.
- A new Transaction Type (Fund/SERV®) and Transaction Description Code (Networking Activity File) were added to allow clients to identify a 529 to Roth IRA distribution.
“The collaboration to complete this important work is another example of the long-standing partnerships Mutual Fund Services has established with its clients and the ICI to identify and implement solutions addressing key industry challenges,” said Saxenian. “This initiative exemplifies DTCC’s role as a trusted partner our clients can rely on to meet these challenges.”
To learn more about the Money Market Reform and SECURE 2.0 enhancements to Mutual Fund Services, please refer to Important Notices a9441, a9450, and a9443.