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Revised FSOC Approach on SIFIs Takes Heat off of Asset Managers

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Industry groups are applauding the Financial Stability Oversight Council’s revised guidance, issued Wednesday, which sets up an “activities-based approach” when designating asset management firms as systemically important financial institutions, or SIFIs.

Along with the activities-based approach, FSOC’s revised interpretive guidance also includes measures to help ensure that nonbank financial companies are designated SIFIs “only as a last resort,” Paul Schott Stevens, president and CEO of the Investment Company Institute, said Wednesday in a statement.

ICI “welcomes the Council’s action,” Stevens said. “If the FSOC does pursue designation of an individual company, it will do so under a process that is more transparent, accountable and rigorous.”

The revised guidance replaces FSOC’s 2012 guidance and “also makes the most of the Council’s coordinating power, as it promises to better use the expertise and different perspectives of financial regulators,” Stevens said.

FSOC stated that its new guidance “substantially transforms the Council’s previous procedures” when it comes to designating nonbank financial institutions, such as asset managers, as SIFIs.

FSOC has 10 voting members, including the Treasury Secretary as well as the chairman of the Securities and Exchange Commission.

ICI’s Stevens added that FSOC’s guidance also aligns with S.603, the Financial Stability Oversight Council Improvement Act of 2019, bipartisan legislation introduced in the Senate and House that would codify improvements to the FSOC nonbank review process.

“We look forward to working with bill sponsors to move this legislation through Congress,” Stevens said.

The Securities Industry and Financial Markets Association’s Asset Management Group also applauded the revised guidance.

“SIFMA AMG has long advocated a shift away from focusing on designating asset managers as systemically important given the agency-nature of the business-model,” said Timothy Cameron, head of SIFMA’s Asset Management Group, in a statement. “Asset managers are directed by investor clients, generally do not hold custody of assets and, therefore, have small balance sheets. The focus should instead be on activities that may create broader risks to financial stability.”

Cameron opined that “attention should be concentrated on products and activities that can be stabilized and strengthened through consultation with the relevant regulator and use of appropriate supervisory tools,” adding that SIFMA looks forward to further examining the details of the guidance.


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