ICI criticizes risk council

Jan 27, 2013 @ 12:01 am

By Bloomberg News

The Investment Company Institute, the mutual fund industry's main trade group, last week said that federal regulators exceeded their legal authority in urging the Securities and Exchange Commission to overhaul rules for money market funds.

The Financial Stability Oversight Council drafted recommended rules for the SEC in November without the economic analysis required by the 2010 Dodd-Frank Act, the ICI wrote last Thursday in a letter to the council.

The ICI, reiterating arguments against the FSOC's specific recommendations, urged the council to withdraw its proposals.

“FSOC has overstepped its legal authority as defined by Congress,” Karrie McMillan, the ICI's general counsel, wrote in a statement accompanying the letter. “The fact that FSOC is acting with such haste — and without adequate concern for the process outlined in the Dodd-Frank Act — is very troubling.”

The SEC, under pressure from the FSOC to overhaul rules governing money funds, is expected to receive a rule-making proposal from the agency's staff before the end of March, Republican Commissioner Daniel Gallagher said in a Jan. 16 speech.

Regulators have been working to make money funds safer since the September 2008 collapse of the $62.5 billion Reserve Primary Fund.

“Litigation would be way down the road, and I suspect the industry doesn't want to go down that road, but they are suggesting it's a possibility,” said Michael Krasner, managing editor at money fund research firm iMoneyNet.

FSOC REPORT

Suzanne Elio, a Treasury Department spokeswoman, referred back to the council's proposed recommendation in a response to the ICI's statement.

The FSOC report included an eight-page section that seeks to address the potential long-term economic impact of the changes.

The ICI letter urged regulators to consider a plan it put to SEC commissioners in October that would allow money funds under stress to halt withdrawals temporarily and impose fees on withdrawals for an additional period of time. The plan would apply only to funds that are eligible to invest in corporate debt.

Funds limited to government-backed securities wouldn't be affected.

The FSOC began a process Nov. 13 by which it will recommend that the SEC reconsider rule changes backed by former SEC Chairman Mary Schapiro. Her plan to abandon the funds' traditional fixed $1 share value or force funds to set aside capital was shelved in August after three fellow commissioners said that they would reject it.

Last Thursday, President Barack Obama nominated Mary Jo White, a former U.S. attorney for the Southern District of New York, to be the next SEC chairman.

Money fund executives contend that the changes would destroy the appeal of the funds to investors and deny companies, states and municipalities a source of cheap, short-term borrowing.

U.S. money funds hold about $2.7 trillion and represent the largest collective buyer of commercial paper.

The FSOC, which is headed by the Treasury secretary and includes the leaders of the Federal Deposit Insurance Corp., the Federal Reserve and the SEC, invited public comment on its draft recommendations.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

How (and why) to attract more millennial clients

It is time to take a hint from your grandmother if you want to attract more Gen Y clients. Amy Butte, the former CEO of the NYSE, says you need to learn to speak the language of financial services in a way millennials can comprehend.

Video Spotlight

Help Clients Be Prepared, Not Surprised

Sponsored by Prudential

Recommended Video

Path to growth

Latest news & opinion

Brace for steepest rate hikes since 2006 in new year

Citigroup, JPMorgan Chase predict average interest rates across advanced economies will climb to at least 1 percent in 2018.

Why private equity wants a piece of the RIA market

Several factors, including consolidation in the independent advice industry and PE's own growing mountain of cash, are fueling the zeal to invest.

Finra bars former UBS rep for private securities transactions

Regulator says Kenneth Tyrrell engaged in undisclosed trades worth $13 million.

Stripped of fat commissions, nontraded REIT sales tank

The "income, diversify and interest rate" pitch was never the main draw for brokers.

Morgan Stanley fires former Congressman Harold Ford for misconduct

Allegations against the wirehouse's former managing director include sexual harassment, which Ford denies.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print