Sunday, October 2, 2016

Reforming the Asset Management Industry is a Global Challenge

Author: David Schwartz J.D. CPA

SEC Chairman Mary Jo White used the occasion of her keynote speech a the September 21, 2016 International Bar Association’s annual conference to address some the challenges the Securities and Exchange Commission faces in regulating an ever more global asset management industry.  With U.S.-registered asset managers increasing their activities in Europe, Africa, and Asia Pacific, the SEC has partnered with IOSCO, the FSB, and others to take transformative steps to modernize regulation of the asset management industry on a more global scale.


Chairman White reported that the SEC has stepped up efforts to coordinate with their global counterparts a more activities based approach to addressing the potential systemic risks posed by asset management activities.


“Internationally, the FSB and IOSCO are pursuing a similar activities-based approach, as evidenced by the FSB’s recent request for comment on asset management activities and potential systemic risk. Likewise, IOSCO recently stated that a current priority is to address data gaps on separately managed accounts generally and in relation to those accounts’ leverage and derivatives exposures. In the U.S., the Financial Stability Oversight Council (FSOC) has also been engaged in a review of the potential systemic impacts of asset management products and activities. We have been heavily engaged across all these efforts, contributing the SEC’s extensive knowledge and the rationale of our recent reforms.”


At the same time, however, Ms. White said that in areas like data protection, widely differing laws between the various jurisdictions are impeding global regulators' harmonization efforts. These diverse laws regarding regulated company data sometimes impede regulators from getting access to the market and company data they need to monitor capitalization, concentration, leverage, interconnectedness, and other indicators of systemic risk.  For this reason, Chairman White urges the changes necessary to enable regulators from different countries to share data and other information about the asset managers and other regulated market participants over which they both have oversight responsibilities.


"More than ever before, it is critical that jurisdictions break down their information-sharing walls. Regulators must be able to directly supervise the entities registered with them to ensure compliance with the laws in their jurisdiction. One of the important lessons of the 2008 financial crisis was that regulators need a complete and accurate picture of the financial firms they regulate, regardless of where these regulated entities are located or where their regulated activities occur. As regulators, we cannot afford to have a blind or even cloudy spot.”


Another area where the SEC is facing challenges and seeing better cooperation with their global counterparts is enforcement against foreign corrupt payments.  Detecting illicit payments and identifying and apprehending individuals involved in bribery requires significant and multi-faceted cooperation from the SEC’s international partners. While Chairman White touted successes in this regard, it is clear that more cooperation, and some tightening of anti-bribery and corruption laws in other nations are  necessary to be effective in the future.  


"To effectively combat bribes paid by global companies that benefit from access to our capital markets by listing their stock on U.S. exchanges, the SEC is often dependent on our international counterparts to provide vital cooperation and assistance. And I am very pleased that the SEC has received assistance from an expanding list of countries in FCPA cases filed this fiscal year.”


"The fight against bribery and corruption is obviously a global effort and not limited to offending U.S. companies or their employees operating abroad. We all recognize its importance, as evidenced by the renewed commitment and focus on what more the entire international regulatory community can do to be more effective and better coordinated in dealing with corruption issues worldwide. As a first step, this requires countries to pass strong comprehensive laws targeting bribery and many jurisdictions have taken this crucial step.”


The full text of Chairman White’s address is available via: