The House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises held a hearing titled “Oversight of the SEC’s Agenda, Operations, and FY 2015 Budget Request.” Subcommittee Chair Scott Garrett delivered opening remarks at the hearing and discussed SEC initiatives as well as the Financial Stability Oversight Council’s (“FSOC”) regulation of the asset management industry.
Representative Garrett thanked Chair White for directing her staff to prioritize the examination of the U.S. equity markets “long before the recent media outcry.” Additionally, he commended Chair White for posting the OFR’s study on asset management on the SEC’s website, allowing people around the country to correct many of the study’s “inaccuracies and falsehoods.”
One item that Representative Garrett declared to be a top priority is the “recent push by some at FSOC and other international regulators to expand the government’s safety-net and prudential regulatory approach to those in the asset management business.” Representative Garrett called this a “grave concern” and stated his hope that the Committee and the SEC would work together to send a strong message to the FSOC not to pursue actions in the asset management industry, such as the regulation of asset management firms as systemically important financial institutions.
Regarding the need for Regulation NMS revision, he urged the SEC to make decisions based on data analysis and not a “sensationalized and over-hyped media narrative” (i.e., Flash Boys).
Lofchie Comment: The FSOC’s assertion that it could deem asset managers, which have virtually no assets, to be “systemically significant” succeeded in drawing considerable attention to the decision-making process of the FSOC. The Financial Services Committee and Representative Garrett should push back not only on this single issue, but also as to the appropriate authority of the FSOC in light of the limits of its institutional competence; i.e., that it is part of a historical bank regulator now asserting control over areas which ordinarily would not have been viewed as strengths of the bank regulators, such as asset management and insurance.