Friday, August 1, 2014

FSOC May Seek Better Regulation in Lieu of SIFI Designation for Asset Management Industry

Council Adopts a "Wait and See" Attitude

In an apparent reaction to strong criticism from legislators, asset management industry groups, and even the Securities and Exchange Commission,  the Financial Stability Oversight Counsel (FSOC) has indicated that it may encourage stronger regulation of the asset management industry, rather than designating certain industry participants as SIFIs.  In the FSOC's press release for its July 31, 2014 meeting, the Council indicated that it was encouraged by the new money market rules finalized by the SEC one week prior, and would take a step back to observe their effectiveness before moving forward with implementation of SIFI designations for asset managers and mutual fund groups.

While not proceeding at this time to a final Section 120 recommendation, the Council intends to monitor the effectiveness of the SEC’s reforms in addressing risks to financial stability. In particular, the Council believes it will be important to better understand any unintended consequences of liquidity fees and gates, as well as the treatment of retail funds. After these measures have been implemented, the Council will report on the effects of these reforms and their broader implications for financial stability.

Widespread criticism of the application of SIFI designation to the asset management industry has apparently had its intended effect, with the FSOC now taking a 'wait and see' approach in the short term. According to the Council's press release, the FSOC will “undertake a more focused analysis of industry-wide products and activities to assess potential risks associated with the asset management industry.”