The Securities and Exchange Commission is concerned that some mutual funds and actively managed and leveraged ETFs, in particular, may be investing too heavily in swaps and derivatives.

If the staff determines that the investments are inconsistent with the leverage, concentration and diversification provisions of the Investment Company Act, it will cease granting exemptions going forward. Funds that already received exemptions would not be impacted, the SEC said.

The Commission recently issued an investor warning on leveraged ETFs, and advisors have responded by clearly explaining the risks involved with investing in leveraged ETFs beyond one day.

"Although the use of derivatives by funds is not a new phenomenon," said Andrew Donohue, director of the Division of Investment Management at the SEC, "we want to be sure our regulatory protections keep up with the increasing complexity of these instruments and how they are used by fund managers."

The SEC will also investigate whether funds with derivatives holdings maintain and implement adequate risk management, pricing and liquidity, and if their boards are providing appropriate oversight. Further, the SEC will examine whether prospectuses adequately address the particular risks created by derivatives.

If necessary, the SEC will impose additional reporting requirements on such funds.