Expect more SEC scrutiny of asset managers, and Fed supervision of the very largest.
Asset managers who tuned in to last month's Financial Stability Oversight Council's conference regarding the industry's potential systemic importance heard no surprises. The US Treasury Department and regulators did not defend the September 2013 report by the Office of Financial Research ("OFR Report") which had suggested that the industry's activities as a whole were systemically important.
The near term focus is on the SEC, whose regulatory actions are the industry's best chance at sidestepping SIFI designation for a few of its largest members. SEC Chair Mary Jo White has signaled a shift toward more prudential supervision by suggesting stress tests and calling for more oversight and disclosure obligations. Norm Champ, the SEC's Director of Investment Management, recently added that the SEC will propose a rule to obtain more data from mutual funds and ETFs (somewhat similar to what the SEC has been receiving from money market funds and private funds).
Meanwhile, the SEC commissioners (and industry) have engaged in effective advocacy. A majority of SEC commissioners have criticized the OFR Report, while legislators from both parties have urged the Council not to use the OFR Report as the basis for designation. Furthermore, Chair White recently publicly disagreed with US Treasury Under Secretary Mary Miller's statement that the industry was "overreact[ing]" to the possibility of SIFI designation.
This Regulatory Brief provides our view that (a) asset manager SIFI designations will not occur this year, (b) the SEC's upcoming money market reform rule will play an important role in the debate, (c) the Council is facing increased political scrutiny as a result of the designation process, but (d) nevertheless we continue to believe two to four large asset managers will ultimately be proposed for designation as we have indicated in our prior briefs.