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ICI Letter Opposes SIFI Designation for Funds

The ICI recently submitted comments to the Financial Stability Board (FSB) on its proposed assessment methodologies for identifying non-bank non-insurer global SIFIs, specifically opposing the possible designation of individual funds as global SIFIs.  The letter states that regulatory efforts

reflect the inclination, on the part of some, to paint the entire canvas of the financial system with a single broad brush and dramatically expand the authority of bank regulators, as well as the applicability of bank regulatory standards that are entirely out of keeping with the way in which other types of financial institutions are structured, operated, and currently regulated.

The ICI letter strongly opposes the designation of funds as global SIFIs and notes that many of the banking-centered concepts at the heart of designation do not apply to registered funds.  In addition, the ICI also expresses concern about the assessment process, urging the FSB and FSOC to “adopt procedures that assure greater transparency and accountability and that promote greater public and industry confidence.”  The letter also outlines the harmful effects that designation could have both on the designated funds as well as the industry more broadly.  The ICI’s concerns include the fact that requirements placed on designated funds would interfere with management of a fund’s investments.   The ICI states that requirements placed on designated funds by the Federal Reserve would impose “obligations on a US mutual fund to promote the safety and soundness of a bank or the banking system or the financial system at large that, in substance, conflict with the exclusive loyalties owed by the fund’s manager and board to the fund.”

Rather than designating funds as SIFIs, the ICI asked regulators to take an activity based approach by engaging in rulemakings to address activities that give rise to particular risks.