Commissioner Luis Aguilar spoke about the possible creation of a systemic risk regulator, self-funding at the SEC and money market funds at the Investment Company Institute’s and Federal Bar Association’s recent conference in Phoenix. He also reviewed rulemaking initiatives the SEC may take up in the future. Aguilar’s remarks are posted on the SEC’s Web site.

Aguilar noted that a systemic risk regulator could have a significant impact on the mutual fund industry. The discussion about a risk regulator has already influenced the debate over money market reform, he said. Aguilar favors the appointment of a council of regulators in order to avoid the tensions and conflicts that may arise when one regulator is given combined responsibilities.

One key to how the mutual fund industry will be regulated in the future may depend on whether the SEC is viewed as a robust and effective regulator, according to Aguilar. He has called on Congress to allow the SEC to be self-funded so that it can set multi-year budgets and promptly respond to changing markets.

Aguilar pointed to years past in which the SEC’s budget was flat or declining while the capital market grew significantly. During that same period, he said that the SEC had been given additional mandates, including the authority to regulate credit rating agencies without any additional resources. Without appropriate long-term self-funding, Aguilar said the SEC will not be seen as an effective regulator.

Aguilar reviewed the SEC’s adoption of new requirements to increase the resilience of money market funds during market disruptions. The new requirements decrease the likelihood that money market funds will go through a crisis like the one experienced in late 2008, he said.

Aguilar raised concerns about investors’ views that money market funds are safe since they are not guaranteed. The federal intervention in 2008 may have raised public expectations that the government will step in if another crisis occurs, he said. Aguilar encouraged the industry to inform investors through marketing materials and in oral representations of the potential risks associated with investments in money market funds.

SEC Chair Mary Schapiro and senior staff at the Commission have expressed an interest in more fundamental changes in the money market fund industry, according to Aguilar. He reported that, among other reforms, the staff is examining the merits of a floating, mark-to-market net asset value for money market funds rather than the stable one dollar price.

Aguilar believes that two fundamental priorities should be at the forefront of the SEC’s further reform considerations. First is to recognize that money market fund investments historically have worked well for all investors, including retail investors. Any contemplated changes should take retail investors into consideration to make sure they continue to participate and to benefit.

Second, Aguilar said reform measures should not be so transformative that money market funds are no longer economically attractive. He warned about the potential flight of trillions of dollars to unregistered vehicles that have no regulatory oversight or accountability. A second round of reform measures must ensure that unregistered vehicles do not benefit from a regulatory end-run.

Aguilar asked the industry to share its experiences with the summary prospectus which many fund complexes are now implementing. He expressed interest in the reactions of retail investors and their view about the usefulness of the form to help determine if the summary prospectus is being used to its maximum effect.

Aguilar said he is looking forward to staff recommendations relating to target date funds. He believes that investors should receive clear disclosure that lays out critical information about a target fund’s glide path allocations. Many funds use vague and comforting language in their marketing materials which may perpetuate a “set it and forget it” mentality, he said.

Aguilar also called on the mutual fund industry to prioritize and implement practices to increase board diversity. It is imperative to have processes in place to identify diverse candidates, he said. Aguilar suggested that nominating committees develop a pipeline of diverse candidates before a position becomes available.