WASHINGTON May 14 The U.S. Treasury Department
is staunchly refuting claims by Republican lawmakers that a
research report highlighting risks in the asset management
industry failed to incorporate feedback from the sector's
In a terse 11-page letter to Congressman Darrell Issa, which
was reviewed by Reuters, the Treasury Department insisted this
week that its independent research office "engaged extensively"
with the Securities and Exchange Commission before publishing
the September 2013 study.
The study by the Treasury's Office of Financial Research
(OFR) sent shockwaves through the industry because it concluded
that certain activities by large asset managers could pose
systemic risks. It raised concerns, among other issues, about a
reliance on borrowing and use of derivatives to boost returns.
Industry executives say the study was deeply flawed, and
fear it could be used by the U.S. Financial Stability Oversight
Council to impose tougher rules on asset managers.
That body of regulators has the power to designate large
firms as "systemic," and it plans to hold a public meeting next
Monday to further explore whether asset managers may pose
threats to financial stability.
Reuters previously reported that the SEC privately agreed
the study was flawed, and put it out for public comment so that
critics could vent their frustrations.
Documents obtained by the House of Representatives'
oversight committee, which Issa chairs, confirmed that the SEC
and the OFR had disagreements, and that the agency pushed for
sweeping changes prior to the study's release.
Issa and Congressman Jim Jordan of Ohio wrote to Treasury
Secretary Jack Lew last month demanding answers from the
department as to why the OFR "paid lip service" to the SEC
staff's suggestions on the report. However, in the letter back
to Issa this week, Treasury insisted that the OFR worked well
with the SEC and incorporated many of the agency's suggestions.
"In addition to written comments, there were at least 13
telephonic and in-person meetings," wrote Alastair Fitzpayne, an
assistant secretary for legislative affairs at Treasury.
"Throughout this collaborative, eight-month process, the study
was refined, resulting in a stronger, clearer, more concise
In addition to insisting that the OFR and SEC worked closely
together on the report, the Treasury's May 13 letter pushed back
against criticism that the asset management study was drafted to
justify imposing additional regulation on firms.
"Your letter suggests that there may have been a
predetermined outcome to the OFR's research," the letter says.
"We respectfully disagree."
(Reporting by Sarah N. Lynch; Editing by Tom Brown)