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Former SEC Officials Differ on MMF Reforms

  • By Andrew Deichler
  • Published: 2013-02-26

Last week, former officials of the Securities and Exchange Commission (SEC) sent a letter to the Financial Stability Oversight Council (FSOC), urging it to stop pressuring the agency to enforce tighter regulations on money-market funds. However, a former SEC chairman believes that the FSOC has no choice but to intervene.

The bipartisan group, consisting of former SEC Chairmen Roderick Hills, David Ruder, Richard Breeden and Harvey Pitt among others, urged the FSOC to respect the independence of the SEC and let it make its own decision on further MMF reform, Reuters reported. “We believe strongly that there are compelling reasons the council should forbear from intervening in the SEC’s rulemaking process,” the former officials wrote. “This conclusion is based upon the superiority of the SEC to the council as an expert, bipartisan regulator and the long-term corrosive effect on the SEC of disregarding determinations by a majority of the commission‘s members.”

It should be noted that not all of the group oppose further reform; they are simply voicing their opposition to the FSOC pushing the SEC to take action.

But in a Bloomberg op-ed, former SEC Chairman Arthur Levitt argued that it is time for the FSOC to step in. Even though Levitt supports the independence of the agency, he believes that if the decision was left to the SEC, then no action would come. Levitt believes further reforms must be enacted to stave off further financial crises. “If the SEC won’t take action, it would be irresponsible for the FSOC not to,” he wrote.

Current SEC officials have voiced their opinions as well. In a speech last week, SEC Commissioner Daniel Gallagher acknowledged that regulation needed an overhaul after the financial crisis but indicated that FSOC was overstepping its boundaries. “With FSOC the threats to the commission’s independence move from the theoretical to the immediate, for already in its short existence, this new body has directly challenged the commission’s regulatory independence,” he said. “It is also where just one member of the commission, the chairman, can defend that independence.” Gallagher added that the SEC is close to moving forward on a MMF proposal of its own.

Corporate treasury’s perspective

AFP’s Government Relations Committee continues to provide insight from AFP’s membership on proposed MMF rule changes. Jim Gilligan, assistant treasurer with Great Plains Energy Inc. and chair of the GRC, believes the SEC’s "reasoned and measured approach to gathering input from market participants and other regulators is the appropriate path to reach agreement in MMF rule reform," he said. "Though we recognize the FSOC’s obvious interest in the process, we think the SEC is the appropriate regulatory body to determine MMF regulations and urge FSOC to allow the SEC to do its job without interference."

For its part, the FSOC is still reviewing public comments on a proposed regulatory framework. The FSOC cannot actually force the SEC to implement reform; it is determining whether it will formally present the agency with its recommended reforms. The FSOC’s proposal is very similar to the reforms introduced by former SEC Chairman Mary Schapiro.

In response to the FSOC’s request for comment, AFP sent a letter last month stating that that the recommended regulations on MMFs could have unintended harmful consequences on the industry and reduce investor interest. 

Copyright © 2014 Association for Financial Professionals, Inc.
All rights reserved.

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