In this report, we build on our initial alert and provide an in-depth assessment of the SEC’s plans for U.S. asset managers. On Tuesday, FSOC will again take this issue up. We expect it to ratify the chair’s plans, premising this in part on the risks OFR cites in its 2014 report (see Client Report SYSTEMIC74). Much in the 2015 SEC and FSOC agenda is forecast in FedFin’s white paper on asset management http://bit.ly/1BdL9nf, where we also lay out the obstacles the Commission now will face implementing the new plan. There, as in this report, we also link the new plan to other regulatory work, especially the SEC’s focus on new leverage requirements for broker-dealers and the FRB’s ongoing work to reform G-SIBs and reduce systemic liquidity risk (see Client Report GSIB). Key to Chair White’s approach, as we expect it also to be for the FSOC, is a move away from SIFI designation for the largest MMFs and mutual funds in favor of activity-based regulation. This is consistent with the new global approach (see Client Report REFORM109), although the U.S. framework has already identified portfolio-composition (liquidity, leverage) and operational risk as its two main concerns. In the near term, the SEC and FSOC plan to gather a lot more data; over time, the agenda now laid out would redefine U.S. asset management, limiting its ability to take on financial-intermediation roles and offer products like ETFs.
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