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April 9, 2015

How to Regulate Asset Managers? There’s No Easy Answer

WASHINGTON — If the Financial Stability Oversight Council was hoping for any kind of consensus on whether and how it should regulate asset management companies, the feedback it has received on its request for comment is likely disappointing.
Better Markets agreed with the asset management industry that any designation would have to be “extensive, grounded in fact and law, and contain concrete support for any assertions made.” Dennis Kelleher, the group’s president and CEO, suggested that, should FSOC encounter difficulties in obtaining necessary information to aid it in its investigation of the industry, it should ask the OFR to subpoena the necessary data.
The group also called on FSOC to revisit Money Market Funds in particular, saying that the sector can “create, amplify and propagate systemic risks” and that the SEC’s reforms to date have been “incomplete and insufficient.” The run on the Reserve Primary Fund that was sparked in September 2008 when its net asset value, or NAV, fell below its nominal value, meaning that investors who put $1 in the fund would receive less than $1. The Federal Reserve and the Treasury had to effectively guarantee the entire $3.7 trillion industry, the letter said, in order to restore market confidence.
“This unprecedented and, indeed, breathtaking action from the first days of the 2008 financial crisis conclusively demonstrates that the MMFs are systemically significant and can spread destabilizing risk throughout our financial system,” wrote Kelleher
Read the full American Banker article by John Heltman here.
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