Risk Panel to Focus on U.S. Asset Managers’ Activities

The Financial Stability Oversight Council ordered its staff to conduct “a more focused analysis” of activities and products in the asset management industry, the U.S. Treasury Department said in a statement today.

The council, a group of financial regulators led by Treasury Secretary Jacob J. Lew, has been reviewing the industry and discussed whether firms such as BlackRock Inc. and Fidelity Investments should be designated systemically important and subjected to Federal Reserve oversight.

Today’s statement may indicate that the regulators will emphasize the risks of the firms’ activities over potentially designating them systemically important.

Lew, in a June 24 House hearing, said no decision had been made on asset managers and “the answer could be that there’s no need to designate. The answer could be that there’s some other course of action that’s advised.”

“BlackRock supports efforts to promote transparent and stable markets, which we believe are in the best interests of all investors, and we are encouraged by FSOC’s focus on assessing industry-wide products and activities,” BlackRock spokeswoman Tara McDonnell in New York said in an e-mail statement, referring to the council.

FSOC also “did not rescind” the designations of American International Group Inc. and General Electric Co.’s finance unit as systemically important, the Treasury said.

Annual Evaluation

The FSOC is required to annually re-evaluate systemically important non-banks, and decided today to maintain the label for AIG and GE Capital, which were designated in July 2013. Prudential Financial Inc. was not reviewed because it was designated in September 2013, less than a year ago.

The designated firms are put under Fed supervision and can be subjected to stricter capital, leverage and liquidity requirements.

The council “continued its discussion of non-bank financial companies designations,” the Treasury said. AIG, Prudential and GE Capital are the only companies to have been designated by the council. MetLife Inc., the biggest U.S. life insurer, has been in the final stage of the designation process for more than a year.

The council also said it “intends to monitor” the effectiveness of rules passed by the Securities and Exchange Commission last week for money-market mutual funds, according to the Treasury statement.

‘Better Understand’

The FSOC “believes it will be important to better understand any unintended consequences of liquidity fees and gates, as well as the treatment of retail funds,” the Treasury said. The council said it will report on the impact of the rule changes on financial stability after the changes are implemented.

The SEC voted July 23 to require the riskiest funds to abandon their $1-per share value and allow their prices to float.

Asset managers have campaigned for more than three years against systemic-risk designations. They stepped up opposition after the Treasury’s Office of Financial Research published a study in September 2013 warning that the largest asset managers could disrupt financial markets by “herding” investors seeking higher returns.

After discussing BlackRock and Fidelity in October 2013, the FSOC this year has slowed its deliberations on individual asset managers, according to people familiar with the process. When the council held a conference in May to hear the industry’s viewpoints, Mary Miller, the Treasury’s undersecretary for domestic finance, said regulators could eventually decide against naming any asset firms systemically important.

Big Trades

The asset managers say they differ from banks because their funds aren’t backed by U.S. guarantees, fund companies don’t make big trades with their own assets, and because clients direct their investments and can withdraw them at any time.

Created by the 2010 Dodd-Frank law, the council is charged with monitoring potential threats to the financial system. Under Dodd-Frank, bank-holding companies with more than $50 billion in assets, such as Citigroup Inc. and Bank of America Corp., are overseen by the Fed.

The FSOC’s 10 voting members also include Fed Chair Janet Yellen and the heads of the SEC and Federal Deposit Insurance Corp.

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