SIFMA AMG, IAA and MFA Submit Responses to FSOC's Request for Comments on Asset Management Products and Activities (with Lofchie Comment)

The Asset Management Group of SIFMA ("SIFMA AMG") and the Investment Adviser Association ("IAA") submitted a joint response to the request by the Financial Stability Oversight Council ("FSOC") for comments regarding the role played by asset managers in financial markets. MFA also submitted comments in a separate letter.

According to SIFMA AMG and IAA, asset managers and the funds they manage do not present a systemic risk. The SIFMA AMG and IAA letter focused on the following three themes:

• The SEC and FSOC have "distinct but complementary roles," and the SEC is already assessing issues raised by FSOC. SIFMA AMG and IAA stated that, as the asset management industry's "primary regulator," the SEC should lead further inquiries into these issues.
• The scope of FSOC's assessment of "systemic risk" must be appropriately defined and circumscribed by FSOC. SIFMA AMG and IAA stated that, to date, FSOC "has not offered any significant data or analyses to suggest that the asset management industry presents systemic risks, and does not explain how the various hypothetical risks it describes could be converted into systemic risks."
• Thorough data analysis and coordination among regulators is essential to the formation of any potential regulatory response.

The SIFMA AMG and IAA letter also addressed specific questions identified in FSOC's original notice regarding liquidity and redemptions, leverage, operational risk and resolution.

In the MFA comment letter, MFA stated that it does not believe that any risk identified in FSOC's original notice "rises to the level of systemic risk to the U.S. financial system." Specifically, MFA discussed certain key characteristics of the hedge fund industry, explaining that these characteristics and the regulatory regime "make the hedge fund industry and its individual members improbable sources of systemic instability."

Lofchie Comment: FSOC's investigation into whether investment advisers might be deemed systemically significant seems misdirected, unless you consider the possibility, suggested by some, that banking regulators should assert more control over investment decisions made by private actors. This seems like a dangerous overstepping of government power. See, e.g., Macroprudential Regulations.

See: SIFMA AMG and IAA Letter; SIFMA Press Release; MFA Letter; MFA Press Release; MFA Fact Sheet on Hedge Funds' Role in U.S. Financial System. Related news: FSOC Requests Information on the Asset Management Industry (with Lofchie Comment) (January 30, 2015).