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Rating:White Suggests... 40 Act Deja Vu?!?!? Not Rated 0.0 Email Routing List Email & Route  Print Print
Monday, December 15, 2014

White Suggests... 40 Act Deja Vu?!?!?

News summary by MFWire's editors

As expected, Mary Jo White wants to get a better handle on asset managers' risks related to derivatives, leverage, liquidity management, and securities lending. Hmmm, if only there were a federal law that addressed such concerns regarding mutual funds at least ...

Three months ago the Wall Street Journal broke the news that the SEC chairwoman was working on new regulations for mutual fund shops and other asset managers, regulations to increase disclosures, controls and even contingency planning around leverage and liquidity risks and the like. On Thursday, in a speech at the New York Times' DealBook's "Opportunities For Tomorrow" conference in New York City's financial district, she laid out her asset management regulatory vision, in four pieces. And as MFWire argued three months ago, White's proposals seem redundant with the '40 Act, at least when it comes to regulating the mutual fund business. [Read the full text of her prepared remarks here.]

Barron's, Bloomberg, the New York Times, Pensions & Investments, Reuters and the Wall Street Journal all covered remarks.

A word of caution to any fundsters hitting the panic button after White's speech: the SEC isn't implementing this tomorrow, or the day after, or anytime soon, for that matter. In her closing remarks in the speech, White reminded listeners that, "in all these efforts, the details will matter a great deal and there is significant work to do before we have final rules in place." So you've got time to prepare. And she even says she wants your input.

A second note of caution for panicking fundsters: though White did mention mutual funds, she was talking about the entirety of the $60 trillion asset management industry, of which the mutual fund industry is just (as of December 31, 2013, per the ICI) $17.1 trillion. Despite the headlines when word leaked in September, and despite some of the headlines now, White's vision is not an attack specifically on mutual funds.

And hey, Larry Fink doesn't sound unhappy with White's ideas.

In fact, for most non-alternative fundsters, White's vision may not seem so scary, or revolutionary. She wants better data to monitor funds riskiness when it comes to derivatives, liquidity, valuation, and securities lending. She's considering updated liquidity standards, more limitations on leverage via derivatives. And she's considering requiring advisors and funds to come up with transition plans in case they have to shut down and liquidate or hand off assets in a hurry.

Ok, but thanks to the Investment Company Act of 1940 mutual funds already disclose oodles, heavily limit their leverage, and have to be able to liquidate in an orderly fashion. So what's really new here for mutual funds, at least mutual funds that aren't pushing the '40 Act envelope already?

Perhaps the scariest part of her remarks came at the end. She offered "A Word on Systemic Risk," and mentioned the efforts of the Financial Stability Oversight Council (FSOC), of which she is a part. She did praise the FSOC's "current review of the potential risks to the stability of U.S. financial system of asset managers" as "a complement to the work" the SEC is doing. Yet she also offered what might be a veiled word of warning ... to the rest of the FSOC:

"The market perspective that the SEC brings is an essential component of FSOC's efforts," White said.

Does that sound like "You better not do anything behind our backs or against us, guys!" to you? 

Edited by: Neil Anderson, Managing Editor

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