More On Legal & Compliancefrom The Advisor's Professional Library
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
- Agency and Principal Transactions In passing Section 206(3) of the Investment Advisers Act, Congress recognized that principal and agency transactions can be harmful to clients. Such transactions create the opportunity for RIAs to engage in self-dealing.
Senator Michael Crapo, R-Idaho, ranking member on the Senate Banking Committee, told Treasury Secretary Jacob Lew in a Monday letter that he was concerned about the Treasury’s Office of Financial Research study on asset management firms’ systemic importance, and the likelihood that some of these firms could be designated as systemically important financial institutions.
The OFR’s report on asset management firms, which effect companies like Black Rock, will likely be discussed at the Senate Banking Subcommittee on Economic Policy’s Wednesday hearing regarding the annual report and oversight of the OFR.
“I understand that OFR conducted its study at the request of the Financial Stability Oversight Council (FSOC), who appears to be contemplating whether or not certain asset management firms should be designated as systemically important financial institutions” or SIFIs, Crapo told Lew, who is also FSOC’s chairman. “Many concerns have been raised as to the integrity of the OFR study as well as the lack of transparency surrounding its development.”
Indeed, industry trade groups told the Office of Financial Research in November to “formally withdraw” what they say is an “inaccurate” report released by OFR in September on asset management firms’ systemic importance.
OFR’s report, Asset Management and Financial Stability, provides an overview of the asset management industry and analyzes how asset management firms and the activities in which they engage can introduce vulnerabilities that could threaten financial stability.
Crapo said in his Monday letter that “as to the lack of transparency of process, I note that it was the U.S. Securities and Exchange Commission — not the OFR or FSOC — who voluntarily posted the OFR study to invite public comment.”
The Investment Adviser Association and the Securities Industry and Financial Markets Association’s Asset Management Group told the SEC in their joint comment letter that both groups are concerned that the OFR’s study “does not accurately characterize the role of asset managers and the factors that link asset managers and investment products to potential financial market distress.” Further, the groups argue that OFR has not “meaningfully involved” asset managers in the research it conducts.
Crapo said to Lew in his Monday letter that he was “concerned that OFR’s failures to take into account the perspectives of and data from market participants will result in a flawed evaluation of the asset management industry by FSOC and, worse, a move towards designation of asset management firms as SIFIs without an accurate understanding of the role they play in the financial system.”
Crapo asserted that there “should have been a transparent process in place for soliciting comments from the industry and the SEC, who is the primary regulator of asset managers, prior to the issuance of the OFR study.”
In July 2013, Crapo reminded Lew that he asked the Government Accountability Office to study the process used by FSOC to designate SIFIs. “The same concerns that gave rise to that request are at work here with respect to the OFR study.”
In early January, the the Financial Stability Board (FSB) and the International Organization of Securities Commissions (IOSCO) published for public comment its Assessment Methodologies for Identifying Non-bank Non-insurer Global Systemically Important Financial Institutions (NBNI G-SIFIs), to identify systemically important non-bank non-insurer (NBNI) financial entities.
Check out Are Asset Managers Now Too Big to Fail? on ThinkAdvisor.