WASHINGTON (Reuters) - The U.S. regulatory risk council should make sure it has enough securities market expertise before deciding whether to designate large financial firms as systemic, Securities and Exchange Commission Chair Mary Jo White said on Thursday.
“I think it is enormously important for (the Financial Stability Oversight Council) before it takes, frankly, any decisions of any kind, to make certain that it has the requisite experience ... on those issues,” White told fund managers at the Investment Company Institute’s annual meeting in Washington.
White’s comments speak to the tensions between the SEC, which regulates asset managers, and the FSOC, which is looking at whether the activities of large asset managers could pose systemic market risks.
The FSOC is a council of regulators created by the 2010 Dodd-Frank law and chaired by the Treasury Secretary. It is tasked with flagging market risks and can designate large firms as systemic, a tag that would impose more rules and oversight by the Federal Reserve.
Large asset managers like BlackRock Inc and Fidelity have said they should not be designated as systemically important. On Monday, FSOC held a public conference to learn more about the industry’s activities and potential risks.
The industry is opposed to designations, saying it already faces strict SEC rules and does not pose systemic risks. It has accused the FSOC of prematurely reviewing managers without the proper data or knowledge.
Before the FSOC’s conference began, Treasury’s Under Secretary for Domestic Finance Mary Miller downplayed the industry’s fears on Monday, saying it had overreacted and there was “no predetermined outcome” on designation.
White, who as SEC Chair gets one vote on the 10-member FSOC panel, countered Miller’s comments Thursday, telling the industry its intense response to the FSOC’s inquiries was justified.
“I don’t think you are overreacting to the process,” she said. “The issues are ... important on every side.”
White also touched on another criticism of the FSOC: that she as a capital markets regulator is outnumbered by banking regulator members such as Fed Chair Janet Yellen and Federal Deposit Insurance Corp Chairman Martin Gruenberg.
That has led the industry to accuse the FSOC of taking a biased approach to asset managers by viewing them through a bank lens. They fear designation could lead the council to force bank capital rules on nonbank financial firms.
White on Thursday did not directly discuss private FSOC discussions about the designation process or her views on whether asset managers pose risks.
But she hinted at concerns about the imbalance on the FSOC. “A number of those 10 voting members are banking regulators,” she said, versus only two capital markets regulators - herself and the head of the Commodity Futures Trading Commission.
To correct the problem, she urged the industry to stay involved.
A lot of the expertise “comes and has come and needs to come from the industry,” she told the audience. “You are the on-the-ground ... experts.”
Reporting by Sarah N. Lynch; Editing by Lisa Von Ahn