Managed Funds Association has raised significant concerns about the Financial Stability Oversight Council’s Proposed Risk Analytic Framework and Nonbank Designation Guidance Proposal in a comment letter sent to FSOC.
Managed Funds Association (MFA) has raised significant concerns about the Financial Stability Oversight Council’s (FSOC) Proposed Risk Analytic Framework and Nonbank Designation Guidance Proposal in a comment letter sent to FSOC.
MFA’s letter highlights that private funds do not pose a systemic risk and historically have been a source of stability for the markets during times of stress. Additionally, the letter stresses that the Proposed Guidance fails to provide transparency around how FSOC identifies and assesses risks to financial stability, and when FSOC will use its designation authority. MFA argues, for these reasons, that FSOC designation is a blunt tool that would be inappropriate to apply to the private fund industry.
“Alternative asset managers do not pose a systemic risk and are already subject to the SEC’s robust regulatory regime,” said Bryan Corbett MFA President and CEO. “Private funds are not banks, do not carry the same risks as banks, and the business model is incompatible with bank-like regulation. FSOC’s flawed Proposed Guidance would hurt financial stability and increase systemic risk. For the sake of the US capital markets, FSOC needs to considerably overhaul its Proposed Guidance.”
The Proposed Guidance would change how FSOC decides if a nonbank financial company is a threat to financial stability and how FSOC designates an entity as a systemically important financial institution (SIFI). If a firm is designated as a SIFI they are subject to prudential regulation from the Federal Reserve.
