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 as Washington debates 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.
The move 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, hedge 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
support 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 if a major disruption occurs in their
business.
Some Federal Reserve officials have criticized the SEC 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 portray the SEC's oversight of asset
managers 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 illustrate to bank
regulators that the SEC is more than up to the task.
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. Another element of the proposals
aims to close gaps in the data the SEC collects from investment
advisers, requiring them to report on separately managed
accounts.
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 supports efforts to fill data gaps and improve
transparency.
A Fidelity spokesman said the fund giant shares the SEC views on
the importance of transparency and already provided investors
"extensive information about our fund holdings and the potential
benefits and risks of investing in our funds." He said the firm is
already "well prepared for a potential future rise in interest
rates."
"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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