Over the last decade, much of the recent regulatory activity in the asset management space was prompted by (or occurred against the backdrop of) misguided efforts of newly created or empowered bodies, such as the FSOC, whose sole responsibility is to identify and make recommendations regarding systemic risk. As they say, when you’re given a hammer, everything begins to look like a nail.

Asset managers don’t “fail;” they merely go out of business. In the event an asset manager closes its doors, their investors move their assets to another manager or its fund boards appoint a new manager and life goes on.  This model is very different from the proprietary asset risk-taking that was pervasive in other parts of our financial system before the financial crisis.  SIFMA AMG heartily supports the Treasury’s and the FSOC’s efforts to focus their attention on the parts of the financial system that can actually lead to contagion risk, and the products, and activities that can be stabilized and strengthened through appropriate supervisory tools.

The Treasury Department recommended in its Asset Management Report that the FSOC shift away from focusing on potentially designating specific non-bank companies as systemically important, and instead focus on activities that create broader risks within the financial system.  SIFMA AMG has supported this refocused approach for some time and welcomed the Treasury Report recommendations. However, with the de-designation of the last remaining non-bank SIFI – a decision we heartily applaud – now is the time to make this recommendation permanent.  The designation process should be reformed, ensuring that never again will a non-bank financial services entity be inappropriately designated as systemically important.

The FSOC certainly has a role in identifying and advising regarding data or regulatory gaps and best practices related to systemic risk, as well as promoting coordination and information sharing among authorities responsible for different segments of the financial system.  This is a far more appropriate focus for this body when considering non-bank entities, particularly when designation subjects the non-bank to inappropriate bank-style oversight by the Federal Reserve.  We look forward to continuing to work with Congress, Treasury, and the FSOC to reform the designation process and ensure that FSOC focuses on real risks to the system.

Timothy W. Cameron, Esq. is a managing director and head of SIFMA’s Asset Management Group (SIFMA AMG). SIFMA AMG’s members represent U.S. and global asset management firms whose combined assets under management exceed $45 trillion. To learn more, visit www.sifma.org/amg.