(Adds comment from Treasury spokeswoman in last paragraph)
By Sarah N. Lynch
WASHINGTON May 15 A top U.S. Securities and
Exchange Commission official on Thursday railed against the U.S.
regulatory risk council for trying to grab the SEC's power in a
"dangerous" quest to impose tougher rules on large asset
SEC Republican Commissioner Daniel Gallagher vented his
frustrations in a nine-page comment letter about the Financial
Stability Oversight Council (FSOC) and its independent research
arm, saying the FSOC is trying to impose bank-like rules on
"I hereby register a vote of NO in the court of public
opinion on the issue of whether to designate asset managers,"
"The FSOC process itself is far more dangerous to our
financial markets than the purported risk factors it was
purportedly created to address."
Gallagher's letter is unusual for an SEC commissioner.
Typically a commissioner does not submit formal comment letters
on matters in which the SEC is soliciting public feedback.
On May 19, the FSOC will hold a public roundtable of
industry experts and academics to review the asset-management
industry's activities and potential risks. BlackRock Inc
and Fidelity are among some of the largest asset managers.
The FSOC, chaired by Treasury Secretary Jack Lew and made up
of the heads of all financial regulators, can dub large
financial firms as "systemic" and subject them to Fed oversight
if it thinks they are too risky.
SEC Chair Mary Jo White, Federal Reserve Chair Janet Yellen
and other regulators sit on the council. Board and commission
members, such as Gallagher, are not FSOC members and do not get
a vote in the designation process.
That has been a major sticking point for Gallagher and two
fellow SEC commissioners, who have all complained they are shut
out of private FSOC meetings and have no voice there.
The dispute intensified last year after the FSOC's research
arm, the Office of Financial Research, released a report on
asset managers, who are regulated by the SEC.
Gallagher and others at the agency viewed the report, which
found that herding behavior and leverage at asset managers could
pose systemic risks, as an attempt to usurp the SEC's authority.
The Treasury Department, which houses the FSOC and its research
unit, disputes this.
In a protest, the SEC last year issued the report for public
comment, opening the door for a stream of major criticism from
the fund industry and Capitol Hill.
Gallagher's letter on Thursday, which was added to the SEC's
online comment letter file for the asset-management study, was
highly critical of the report's findings.
"The end product was a botched analysis that grossly
overstates ... the potential risks to the stability of our
financial markets posed by asset management firms," he wrote.
A Treasury spokeswoman said: "Rather than prematurely
terminating an inquiry into potential threats posed by this
industry, the Council believes that further consideration is
(Reporting by Sarah N. Lynch; Editing by Richard Chang, Sandra
Maler and Jan Paschal)