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FSOC Gets Curious: Are Asset Managers’ Products and Activities Creating Systemic Risk?
8 January 2015
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The Financial Stability Oversight Council (the “FSOC”) recently issued a notice seeking public comment (the “Notice”) on whether asset management products and activities may pose potential risks to U.S. financial stability.
Specifically, the FSOC seeks comment on the systemic risks posed by: (1) liquidity and redemption practices, (2) use of leverage, (3) operational functions and (4) resolution – that is, the extent to which the failure or closure of an asset manager, investment vehicle or an affiliate could have an adverse impact on financial markets or the economy.
The Notice is the latest step in the FSOC’s multi-year consideration of the risks posed by the asset management industry. The underlying focus of the FSOC’s efforts has remained relatively consistent, although the authorities and regulatory tools that the FSOC is employing have changed. In particular, after considering whether to use its most direct authority – designation of certain asset managers as nonbank systemically important financial institutions – the FSOC appears to be taking a more open-ended approach and deferring, at least for now, to the Securities and Exchange Commission’s developing agenda to adopt new regulations for the asset management industry.
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