A common response to those in the 401(k) market when hearing about how the Securities and Exchange Commission's (SEC) swing pricing proposal would affect mutual fund use in plans is that it would be simple enough to switch to using collective investment trusts (CITs). Not so fast: The SEC is working with bank regulators on the federal and state level to bring similar rules to those plans also.

Gary Gensler, chairman of the SEC, confirmed that regulators are working together to harmonize rules across the pooled investment landscape during remarks this morning at the Investment Company Institute's (ICI) 2023 Leadership Summit in Washington D.C.

"We are working with banking regulators to close the gaps," said Gensler.

The issue, said Gensler, is that market participants often take advantage of gaps in regulations and their behavior could put individuals at risk. He pointed out that CITs had not seen regulatory changes on the federal level since 2012 and that the structure lacks many of the protections of open-end mutual funds such as boards.

Currently there are about $7 trillion in CITs, said Gensler. That figure includes roughly $5 trillion regulated at the federal level and another $2 trillion regulated at the state level.

Gensler likened the Treasury and Federal Reserve to "firefighters" and noted that there were those "in the room" at the ICI meeting who are at firms that called for help from the Fed in March of 2020. Gensler did not identify which firms called for help or provide specifics on those events. He added that Congress had not authorized monetary institutions to provide a backstop to money market funds or bond funds.  

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