By Andrew Ackerman
WASHINGTON--The Securities and Exchange Commission on Wednesday
took the first in a series of steps aimed at giving regulators a
better handle on risk in the $60 trillion asset-management
industry.
The SEC voted 5-0 to significantly boost the volume of data the
agency collects from the industry, requiring mutual-fund firms such
as Fidelity Investments and BlackRock Inc. to give regulators more
detailed and frequent information about the assets in their funds.
The proposal includes requirements that funds report on their use
of complex and potentially risky derivatives products, data that
aren't frequently or consistently captured by the SEC.
Wednesday's proposal comes amid a debate in Washington about
whether the asset-management industry is vulnerable to stresses,
such as widespread investor redemptions, that could roil markets
and destabilize the financial system.
The proposal will "vastly improve the type and format of the
information that funds provide to the commission and to investors,"
SEC Chairman Mary Jo White said.
Wednesday's move also is the first in a series of initiatives
Ms. White said would boost the SEC's oversight of asset managers.
The rules are somewhat similar to requirements put in place
following the 2008 financial crisis for big banks and other large
financial institutions that regulators believe could pose a risk to
the financial system and economy if they were to collapse. The bulk
of the asset-management industry--which includes mutual funds,
hedge funds and private-equity funds--has yet to be swept up in
many of the rules aimed at curbing systemic risks.
Scott Weisman, managing director in PricewaterhouseCoopers's
financial services regulatory practice, said many asset managers
are supportive of the SEC's efforts and that Wednesday's proposals
represent the first steps in a "potentially transformative" agenda
for the commission.
Additional proposals, expected later this year, will require
funds to better manage liquidity risks--the ability to easily buy
and sell asset holdings--as well as subject them to "stress tests"
to ensure they can survive a crisis and force them to detail how
they could be dismantled in the event of a major disruption in
their business.
The SEC has been criticized by some Federal Reserve officials as
being slow to address systemic risk in the markets it oversees. The
commission acted to limit risks of investor stampedes out of
money-market mutual funds last year, under pressure from a council
of regulators called the Financial Stability Oversight Council, as
well as global regulators.
Daniel Gallagher, a Republican member of the SEC, disputed the
"many false narratives" that inaccurately portray the SEC's
oversight of asset manager as deficient and the industry as
systemically risky. "These narratives are, of course,
preposterous," he said.
Still, Mr. Gallagher said Wednesday's proposals would make the
SEC a more sophisticated overseer of asset managers "and at the
same time illustrate to the bank regulator illuminati that the SEC
is more than up to the task."
Asset-management firms, which have been effective in warding off
regulation in the past, have backed the SEC's efforts to address
potential fund risks, including by boosting reporting requirements.
A spokeswoman for BlackRock, the world's largest asset manager,
said it is supportive of efforts to fill data gaps and improve
transparency. A Fidelity spokesman had no immediate comment.
SEC officials said the new disclosures will give the commission
better vision into securities lending activities, how funds will
react to a rise in interest rates as well as more details about
funds' derivatives counterparties.
A main element of the proposals aims to close gaps in the data
the SEC collects from investment advisers, requiring them to report
on so-called separately managed accounts.
"We're supportive of the SEC's goals here," said Karen Barr,
president and chief executive of the Investment Adviser
Association.
Much of the information the SEC is seeking to collect would be
reported on a monthly basis and some of it would be disclosed to
the public with a 60- day delay.
The SEC will collect comment on the proposals and would have to
vote on them a second time before they can go into effect.
Write to Andrew Ackerman at andrew.ackerman@wsj.com
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