The head of the Securities and Exchange Commission promised on Wednesday to ratchet up oversight of the asset management firms—a sector of the financial services industry that has become increasingly important since the 2008 worldwide banking collapse and its aftermath.
Mary Jo White told lawmakers that the SEC is set to soon propose rules that would limit derivatives trading by financial managers. She also said the commission will imminently suggest one rule seeking to submit asset managers to stress tests, and another that would force them to formulate bankruptcy transition plans.
White claimed that the derivatives proposal would come next, and that the one on winding down bankrupt firms would be put forth by the Commission “early next year.”
When asked by Rep. Carolyn Maloney (D-N.Y.) about when proposed stress tests would be released for “large asset managers,” however, White declined to give a clear answer.
“They’re not banks, one can’t just transfer stress-testing for banks into this space,” the SEC chair remarked, describing the creation of a single test for a diverse industry as challenging. “We’re working very hard on it. It’s actually a requirement under Dodd-Frank,” she also noted.
In September, the Commission proposed several rules designed to rein in the asset management industry. Ideas for regulations put forth include liquidity risk management programs and disclosure requirements focused on mutual funds and Exchange Traded Funds (ETFs).
The idea behind the proposed regulations is to give investors a better idea of how safe their money is. The public comment period on those rules is scheduled to close in January.
Last year, a Treasury Department Office of Financial Research (OFR) paper noted that “[a]ssets under management have increased ten-fold over the last five years, driven by a search for yield and a hedge against an eventual rise in interest rates.” It described the flow of capital as as having increased risk “concentrated in nonbank entities that are not directly regulated by banking supervisors.”
A separate OFR report published two years ago noted that in 2012, ten fund overseers each had “more than $1 trillion in global assets under management…including nine US-based managers, as concentration in the sector has increased.” It also said that the lack of reporting requirement for asset managers impacted OFR efforts to collect data on the soundness of the financial industry.
“[D]ata for separate accounts managed by US asset managers are not reported publicly and their activities are less transparent than are those of registered funds,” it stated. “Such accounts, according to estimates below, include roughly two-fifths or more of total assets under management in US firms.”
Treasury estimated in Sept. 2013 that the financial sector in the US “oversees the allocation of approximately $53 trillion in financial assets.”
