July 09, 2009
John C. Coates, the John F. Cogan, Jr. Professor of Law and Economics at HLS, issued a set of recommended reforms regarding the regulation of mutual funds, in June. The recommendations were made to the Committee on Capital Markets Regulation, an independent and nonpartisan organization whose research is aimed at improving financial regulations and practices.
Coates’ recommendations address two problems with domestic mutual funds: tax treatment and government regulation. He credited the recent lag in the growth-rate of U.S. mutual funds to the fact that E.U. markets offer far better tax treatment and oversight of mutual funds. (Will insert attached pdf)
Coates emphasized the need to make the tax treatment of mutual funds more analogous to that which exists in other nations. He proposed that investors who own less than 2% of a fund’s shares should be able to defer capital gains taxes until they sell the assets. He said the U.S. mutual fund market would benefit greatly if capital losses were treated the same way as capital gains and if U.S. investors were allowed to purchase foreign mutual funds only in countries that tax profits and dividends at the time of distribution.
He also called for a relaxing of stringent regulations that inextricably link the success of mutual funds to the response and resources of the Investment Management Division of the SEC. The dependence of mutual funds on the success of the IMD prompted Coates to recommend that the IMD receive increased funding and resources.
Coates joined the HLS faculty in 1997, coming from the New York law firm of Wachtell, Lipton, Rosen & Katz, where he was a partner specializing in mergers and acquisitions, corporate and securities law, and the regulation of financial institutions. At HLS he has taught corporate finance, securities and banking regulation, and business law.