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Monday, March 17, 2014

Schott Stevens Shouts a Battle Cry

Reported by Tommy Fernandez

Sounds the charge.

ICI president and chief executive Paul Schott Steven issued a battle cry today during his introductory remarks at the ICI Mutual Funds and Investment Management Conference being hosted this week at the JW Marriott Grande Lakes Resort Orlando.

His comments were directed at the growing possibility that U.S. and international regulators may target asset managers for bolstered systemic risk regulation, in particular the 20 largest asset managers targeted as "systemically important financial institutions," or SIFIs, in a report recently released by the Treasury Department's Office of Financial Research.

Schott Stevens warned that any regulatory hammer leveled at the biggest 20 would inevitably start hitting the rest of the industry.

If regulators ultimately decide that certain funds or asset managers should face enhanced prudential regulation, the consequences will reach far beyond the 20 largest managers listed in the U.S. report...

The ICI chief then, painstakingly, started to pick at the argument that fund firms should be considered SIFIs.

His full argument can be found in this ICI copy of his speech as well as the copies of the slides he used to punctuate his argument.

He summed up his argument in this way:

  • First, mutual funds make little use of leverage -- the essential fuel of financial crises.
  • Second, mutual funds simply do not "fail" the way banks and insurance companies do.
  • Third, the specific risks that the OFR Report hypothesizes have no factual predicate.
  • And finally, the structure and comprehensive regulation of mutual funds and their managers not only protect investors, but limit systemic risks and risk transmission.

  • After comprehensively articulating these and other arguments, Schott Stevens then called upon fundsters to raise their voices.

    So let me end with a request. If you are concerned about the implications of these regulatory initiatives -- speak up.

    If you have information or experience from your funds that can bolster our arguments -- speak up.

    If you can provide perspectives that will help regulators understand the asset management business and the comprehensive regulation of funds -- speak up.

    The Conference will last through Wednesday. 

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