SEC Commissioner Gives Speech on the Application of SIFI to Large Investment Managers

April 10, 2015

SEC Commissioner Dan Gallagher gave a speech titled ""Bank Regulators at the Gates: The Misguided Quest for Prudential Regulation of Asset Managers" at the 2015 Virginia Law and Business Review Symposium in Charlottesville, Virginia. The symposium celebrated the 75th anniversary of the Investment Company and Investment Advisers Acts of 1940.

He stated that the U.S. Financial Stability Oversight Council (FSOC), and the Basel-based Financial Stability Board (FSB) have launched a series of broad-based workstreams aimed at designating asset managers, or the activities of asset managers, as systemically important in order to subject them (as SIFIs) to oversight by the Federal Reserve and other prudential regulators. In his view, the repeated attempts of the FSB and FSOC to characterize asset managers and their activities as systemically risky is nothing more than a ploy to wrest control of a hugely important sector of the capital markets from the SEC.  For prudential regulators, this is about regulatory power and jurisdiction.

Commissioner Gallagher provided a brief history of the activities of FSOC with respect to the asset management industry.  He stated that FSOC, late last year, announced that it was shifting its attention to the products and activities of asset managers, issuing a notice and inviting public comment on “whether asset management products and activities may pose potential risks to the U.S. financial system in the areas of liquidity and redemptions, leverage, operational functions, and resolution, or in other areas.” He added that early this year, the FSB reportedly began developing and considering work plans for an activities-based review of its own.  He noted that it remains to be seen whether this purported shift in focus to products and activities represents an expansion or a retrenchment in the quest to import prudential regulation to the asset management industry.

He concluded his speech by warning that  the systemic risk designation process itself is far more dangerous to the financial markets than the purported risk factors it was created to address.

Click to access his speech.


Investment Advisers, Investment Companies