The Financial Stability Oversight Council (“FSOC”) held a public conference on asset management “in order to help inform the ongoing assessment by the FSOC of risks to U.S. financial stability.”
The conference involved discussions by industry participants and other stakeholders on topics related to investment risk management, potential risks across the broader financial system, and operational issues and resolvability. Each panel discussion was moderated by a senior official of an FSOC member agency. Recent media reports have indicated that FSOC is considering whether to designate two asset management firms as systemically important financial institutions (“SIFIs”), thereby subjecting those firms to prudential or bank-like supervision and regulation.
Lofchie Comment: FSOC’s inquiry as to whether investment advisers should be regulated as “systemically important,” raises concerns. The rules at issue are intended to govern systemically important institutions and lessen the damage to the economy that could be caused by the collapse of those institutions; thus, these rules are meant to force such institutions to implement safety measures, such as holding additional capital. The risk that FSOC is analyzing with regard to investment advisers is whether they may make bad investment decisions that will injure the economy. Holding additional capital is not going to prevent investment advisers from making poor investment decisions. There is no reason to believe that the government is able to create wise investment decisions through rulemaking. That the government may regulate directly the making of private investment decisions raises serious concerns in that it would represent an extraordinary expansion in governmental reach. Such an expansion should not be accomplished by the stretching of rules intended for another purpose.
See: U.S. Treasury Department Press Release on Conference; FSOC Asset Management Conference Materials.
Related news: House Financial Services Committee Chairman Calls on FSOC to Cease and Desist (May 21, 2014); SIFMA Says Asset Managers Do Not Pose Systemic Risk (May 8, 2014); SIFMA AMG Submits Comments to the FSB on Assessment Methodologies for Identifying Non-Bank Non-Insurer G-SIFIs (April 7, 2014); SIFMA AMG Submits Comments to the FSB and SEC in Response to OFR Study and with Regard to Separate Accounts (April 8, 2014); SEC Commissioner Gallagher Submits Comment Letter in Opposition to FSOC Process (May 16, 2014); House Financial Services Subcommittee Chairmen Send Letter to FSB and FSOC Requesting Information on Methodologies Used to Designate G-SIFIs (May 12, 2014); FSOC Issues 2014 Annual Report (May 9, 2014); House Financial Services Committee Chairman Hensarling Urges Secretary Lew to Cease Using “Too Big to Fail” Designations (May 9, 2014).