ICI Supports FSOC Improvement Act
Commentary by Steven Lofchie
The Investment Company Institute (ICI) voiced support for the Financial Stability and Oversight Council (FSOC) Improvement Act (H.R. 1550). Passed by the Financial Services Committee, the bill (i) addresses potential risks to the financial system; (ii) makes FSOC's designation process more accountable and transparent; and (iii) ensures that a nonbank entity will be designated as a systemically important financial institution (SIFI) only when systemic risk cannot be addressed more effectively by that entity's primary regulator or an action on the part of the entity itself.
More generally, the ICI opposed a SIFI designation for registered funds and their managers. Specifically, the ICI argued that:
- unlike other financial institutions, fund managers act as agents, which means that fund investors (not fund managers) bear the risks of any portfolio losses and the benefits of any gains;
- because regulatory limits are imposed on funds' leverage, they typically have little or none of it; and
- registered funds do not fail like other financial institutions (investment losses are absorbed by fund investors, obviating the need for a government bailout).
ICI President and CEO Paul Schott Stevens asserted that the SIFI designation for registered funds and their managers would result in significant costs for investors and reduce their investment returns, harming retirement savers. In addition, it would distort the fund marketplace, given that some funds or managers would be designated while others engaging in the exact same practices would not be. Designation would impede the important role that funds play as a vital source of funding in our capital markets.
Commentary
The above article is a corrected version of a previous Cabinet summary of ICI's position on the FSOC Improvement Bill. In our prior summary, we stated correctly that ICI opposed the designation of funds as SIFIs, but were incorrect in our statement that ICI opposed the FSOC Improvement Bill.