FSOC Seeks Comment on Notice about Risk to U.S. Financial Stability Caused by Asset Management Products and Activities (with Lofchie Comment)

The Financial Stability Oversight Council ("FSOC") issued a notice seeking input from the public on the potential risks associated with liquidity and redemptions, leverage, operational functions, and resolution in the asset management industry.

Comments from the public must be received no later than 60 days after the notice is published in the Federal Register.

Lofchie Comment: Having been criticized for the suggestion that investment advisers might be regulated as systemically significant organizations, FSOC now is more focused on funds than advisers. This seems a logical area in which to devote attention, and FSOC's questions regarding funds are relevant, at least theoretically. However, the general inclination to assert authority even in the absence of any ability to demonstrate that it could improve financial stability without damaging the economy (and it seems impossible that such a demonstration could be made) is an abiding concern. Furthermore, if FSOC were to assert that it could prevent investors in funds from liquidating, then the effect would be to (i) drive fund investments overseas, (ii) motivate investors to hold assets through managed accounts rather than by investing in a fund, and (iii) persuade investors to require fund advisers to liquidate assets within a fund and hold cash (even if the investors could not withdraw the cash immediately).FSOC's questions seem to be based on an implicit assertion that it can prohibit private investors from selling the assets they wish to sell. That seems a dubious assumption - one that suggests a level of government control over private economic decisions that goes well beyond what's thought to be acceptable.

See: FSOC Notice.