SEC Chair White addresses mutual fund industry’s regulatory concerns

By BenefitsPro


By Nick Thornton

SEC Chair Mary Jo White suggested the U.S. Financial Stability Oversight Council seek industry expertise before designating a financial institution as “systemically important.”

“It is enormously important for the FSOC, before it makes any decision of any kind, to make sure it has the necessary expertise on any of those issues.” White’s remarks where made in a q-and-a session with ICI president Paul Schott Stevens at the institute’s general membership meeting in Washington yesterday.

The FSOC was established under the Dodd-Frank Wall Street Reform and Consumer Protection Act in the wake of the financial crisis. The council is charged with the comprehensive monitoring of the U.S. financial system by identifying risks to financial stability, promoting market discipline, and responding to risks that threaten arise.

Chaired by the Secretary of Treasury, the FSOC has ten voting members and 5 non-voting members, comprised of federal and state financial regulators. Principal among its statutory powers is the capacity to designate nonbank financial companies as systemically important financial institutions, or SIFIs. The designation exposes financial entities to heightened regulation and supervision by the Federal Reserve Board.

Chairwoman White is voting member of the board. Thus far, the FSOC has designated AIG, GE Capital and Prudential Financial as nonbank SIFIs. The concern in the mutual fund industry is that the FSOC will designate other large nonbank institutions—Pimco, BlackRock, Fidelity and others—as SIFIs, exposing them to heightened scrutiny and regulatory burden.

“There’s every indication that the FSOC is proceeding down a path to regulate mutual funds like they were banks, and the implications of this are very worrisome indeed,” said ICI president Stevens in an address to industry earlier in the week. “By designating mutual funds as SIFIs, the FSOC would impair the single best tool available to average Americans for retirement savings and individual investment, as well as a key source of financing in our economy.”

Chairwoman White strongly signaled that she is against the rampant designation of SIFIs in her q-and-a with Stevens. When asked by Stevens if she thought the mutual fund industry was overreacting to the FSOC’s focus on asset managers, White said, “I don’t think you’re overreacting to the process. The issues are very important on every side. Transparency is enormously important.”

White called compliance officers the “first line of defense in an enforcement program,” adding that it would “send the wrong message” to pursue board members and compliance officers who are efficiently executing their duties to markets and investors.

Originally published on BenefitsPro.com