Asset Managers May Avoid More Oversight

By Andrew Ackerman and Victoria McGrane 

WASHINGTON--A panel of top financial industry overseers is considering a move away from labeling individual asset managers as systemically important and requiring more oversight, according to people familiar with the matter, a potential victory for the industry that pushed back against the designations.

The Financial Stability Oversight Council on Thursday is expected to discuss whether to refocus its review of the asset-management industry to examine specific activities for systemic risks, these people said.

The oversight council for months has focused on whether two large asset managers, BlackRock Inc. and Fidelity Investments, are "systemically important" and should be drawn in for oversight by the Federal Reserve. Asset managers oppose such moves, arguing individual firms don't pose risks to the system as banks might.

The Dodd-Frank laws says the Federal Reserve must prescribe tougher rules on capital, liquidity and other operational areas for nonbank firms designated as "systemically important."

Rather than designate individual companies for an additional layer of regulation, the new approach could lead the oversight council to direct such front-line regulators as the Securities and Exchange Commission to address specific risky activities.

Already the oversight council has pressured the SEC to address unresolved risks posed by the money-market mutual-fund industry, and the SEC completed new rules for that space last week. The SEC is currently the primary regulator for asset managers.

Since last fall, when the Treasury Department's Office of Financial Research released a report on asset managers, the industry and its allies on Capitol Hill have criticized the Financial Stability Oversight Council's process for reviewing the industry's top players.

At a May 19 public conference convened by the oversight council, there was a broad consensus among academics and industry officials that regulators should focus more on examining the risks of asset managers' activities rather than designating individual firms as systemically important. BlackRock has also long advocated that approach.

Treasury has stressed in public comments that oversight council officials didn't start the review with their minds made up to designate asset managers.

"Indeed, it is possible that at the end of this comprehensive review, the council may choose to take no action," Mary Miller, Treasury's undersecretary for domestic finance, said at the May 19 event.

She added that if the oversight council does find that asset managers or their activities "pose a threat to financial stability," it has more than one policy option, including recommending further regulation by firms' primary regulators.

"If we identify risks that require action, we will seek to deploy the most appropriate remedy," she said.

A Treasury spokeswoman declined to comment.

The shift in focus was first reported by the Financial Times.

Write to Andrew Ackerman at [e-mail] and Victoria McGrane at [e-mail]

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