| WASHINGTON, April 7
WASHINGTON, April 7 Memos and emails between
U.S. securities regulators and a Treasury research office show
major disagreements leading up to the release of a controversial
report on the asset management industry, according to documents
seen by Reuters on Monday.
The Sept. 30, 2013 final report sent shockwaves through the
industry because it declared that activities by asset managers
could pose risks to the broader marketplace.
The documents, which were obtained by a U.S. House of
Representatives investigative panel, demonstrate that the U.S.
Securities and Exchange Commission pushed Treasury officials to
make sweeping changes to the report before it was published.
In one memo sent to the Office of Financial Research, SEC
staff members said they had flagged major problems with how a
draft of the report, which looked at risks to financial
stability posed by asset managers, described the current
"The description of registered investment companies'
structural and regulatory framework contains multiple and
fundamental inaccuracies," SEC staff wrote on Feb. 27, 2013. "If
it would be helpful to you, we can re-write that section. But it
will take some time."
In response, OFR officials replied, "We would appreciate any
language SEC can provide."
Despite the SEC's concerns, industry critics later accused
the OFR of fundamentally misunderstanding the regulatory
structure of asset managers after the final report was
published, among other things.
Critics now fear that regulators who make up the Financial
Stability Oversight Council, or FSOC, will use the report to
justify subjecting asset managers to tougher capital
requirements and oversight by the Federal Reserve.
Reuters reported in October that the SEC had warned the
research office of major flaws in drafts of its report. The
documents obtained by the House Oversight Committee confirm the
Lawmakers who obtained the communications said the memos
showed that the SEC tried to point out flaws, but that many were
never corrected in the end. They said the research office
ignored the SEC's suggestions.
"Amazingly, while OFR paid lip service to the SEC staff's
suggestions, OFR failed to meaningfully address the important
issues flagged in the SEC memorandum," wrote House Oversight
Committee Chairman Darrell Issa and Republican Congressman Jim
Jordan of Ohio, in a letter to Treasury Secretary Jack Lew.
Lew chairs the FSOC, which is weighing whether to designate
asset managers as systemic.
"Documents produced to the committee show that OFR
ultimately ignored or dismissed core criticisms from the career,
non-partisan regulatory experts at the SEC," the lawmakers
Although some of the SEC's comments appear to have been
addressed in the final report, industry critics later raised
many of the same concerns as the SEC, including claims that the
report misunderstood how the industry worked and viewed it
through a "bank" lens.
"The study identifies ways in which asset management differs
from banking," SEC staff wrote. "Nevertheless, some industry
participants and observers are likely to object to the study on
the grounds that it examines the industry through a banking
As an example of viewing asset managers through a bank lens,
the SEC pointed to the prominence the OFR gave in its draft to
risks associated with securities lending and long-term funds'
"These activities are not core areas of focus in terms of
risk-management in the asset management industry," the SEC
A Treasury spokeswoman said the department had received the
letter and would respond to the lawmakers in due course.
She noted that the OFR had conducted the study at the FSOC's
request, and that the research office engaged with other
regulators and the industry before publishing it.
"The (FSOC) is in the early stages of analyzing the asset
management industry and its various activities," the spokeswoman
"As that analysis moves forward, the council will continue
to be informed by the work of the OFR and welcomes continued
engagement with asset managers and other stakeholders."
An SEC spokesman declined to comment on Monday.
After the asset management report was published, the SEC
last year released it for public comment, an unusual move that
provided a venue for industry complaints.
According to the memos, SEC staff also raised concerns with
the research office that the draft initially placed an
"overemphasis on money market funds" to inform discussions on
the industry more broadly, according to the documents.
Staff also encouraged the OFR to seek out additional sources
of data to back up its conclusions.
(Editing by Eric Walsh)