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New SEC Commissioner Takes Aim at FSOC on MMF Regulation

  • By Konstantine Kastens, AFP Public Policy Analyst
  • Published: 1/28/2014
While not structurally risk susceptible, money market funds continue to pose systemic vulnerabilities through the short-term liquidity they afford to banks, says recently-appointed SEC Commissioner Michael Piwowar.

In remarks delivered Monday, the Republican commissioner expressed his philosophical stance on how best the Securities and Exchange Commission (SEC) should approach its weighing priorities in 2014, holding little back about the ongoing debate of money market fund reform and efforts by the Financial Stability Oversight Council (FSOC) to subjugate regulatory authority of the matter.

Piwowar called money market fund reforms enacted in 2010 “much-needed investor protection improvements” that offered enhanced liquidity and disclosure. Even so, he cited protections as insufficient against potential runs.

Regulatory Jurisdiction

Rather than allowing bank regulators to “encroach” on securities regulation, the core domain of SEC authority, Piwowar suggested that FSOC “focus on fulfilling its own mission of identifying threats” to financial stability. That the SEC has “ceded ground to the FSOC and banking regulators” on money market funds, Piwowar regards as “threatening the independence of the SEC and the other independent financial services regulatory agencies.”

His statement refers to the FSOC’s interjection in 2012 to force action on money market fund rule-rewriting, after former SEC Chair Mary Schapiro was unable to garner enough support from the five-member panel.

Exercising its recommendation authority under the Dodd-Frank law, the FSOC unanimously passed three money market fund reform options and sent them back to SEC for official enactment. In September 2012, then-Secretary Tim Geithner—the FSOC chair designee—asserted that “in the event the SEC is unwilling to act in a timely and effective manner,” FSOC holds authority to “designate any nonbank financial company that could pose a threat to U.S. financial stability,” thereby putting money market funds or their sponsors under Federal Reserve discretion with bank-level capital requirements.

As of last September, the SEC submitted two-option rule proposal for public comment, which AFP responded to. Expectations on when the SEC plans to move on a final rule remain unknown. Still, Piwowar’s remarks shed new light on a regulatory debate that, for better part of over a year, has remained behind closed doors.

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