SEC's Gallagher Hits OFR, "F Words"
U.S. S.E.C. Commissioner Daniel Gallagher posted "Comment Letter on the OFR Asset Management and Financial Stability Report". He says, "Today, I filed a comment letter in connection with the Office of Financial Research Asset Management and Financial Stability Report. The comment letter is available at http://www.sec.gov/comments/am-1/am1-52.pdf. It is my hope that my comments will prove useful to the discussion at the conference on the asset management industry and its activities to be held by the Financial Stability Oversight Council on May 19, 2014." Gallagher's letter, filed ahead of Monday's FSOC Conference on Asset Management, tells us, "I submit this comment letter on my own behalf and representing my own views in connection with the Office of Financial Research ("OFR") Asset Management and Financial Stability Report ("OFR Report"). The report was intended to address the purported risks to the stability of our financial markets posed by the asset management industry. Notwithstanding my position as a presidentially-appointed and Senate-confirmed Commissioner at the Securities and Exchange Commission ("SEC" or "Commission") the primary regulator of the asset management industry for the past 75 years -- I have no statutory standing whatsoever in the Financial Stability Oversight Council ("FSOC") and will therefore play no formal role in FSOC's misguided debate over whether to designate asset managers as systemically important financial institutions ("SIFIs") pursuant to Title I of the Dodd-Frank Act. As such, I commend SEC Chair Mary Jo White for posting for comment the fundamentally flawed OFR Report, and it is that document and subsequent regulatory activities about which I offer these comments. I note at the outset that virtually all of the commenters on the OFR Report thus far have sharply criticized the absence of empirical data underlying the generalizations advanced by the report and the flawed methodology used to analyze systemic risk. Many argued that FSOC should not rely on the report to inform its policy decisions and some even called for OFR to withdraw the report. Among other criticisms, many commenters observed that the report reflects a severe lack of understanding of the asset management industry (including by inaccurately describing it as a homogenized group of entities and activities), that it is riddled with unfair generalizations, that it completely fails to address how prudential regulation would address any ofthe risks it purported to identify, and that it ignores the existing oversight authority for asset managers by the SEC and other federal agencies. I also note that FSOC's SIFI designation process is being conducted in a time and manner conspicuously contemporaneous with an even broader initiative on the part of the Financial Stability Board ("FSB"), an unaccountable international body comprised of bureaucrats from many different jurisdictions to identify non-bank, non-insurer entities, including asset managers, as global SIFis, including asset managers. FSOC and FSB -- everyone's favorite "F words" these days, it seems -- are both dominated by banking regulators and are intent on expanding the jurisdiction ofthe agencies led by certain constituent members by designating non-bank entities as systemically important with little to no input from the primary regulators of those entities."
