The Federal Reserve has been granted greater authority over the asset management industry and is responsible for determining which asset management firms pose a threat to the U.S. financial industry.
“Dodd-Frank really upped the ante for asset management companies in terms of governance, compliance and risk management oversight efforts,” Managing Director of Promontory Financial Group David Thelander said in an interview with Money Management Executive, according to Bank Investment Consultant. “Not only do asset managers have to answer to their traditional regulators such as the [Securities and Exchange Commission]—they may now also face significant oversight from the Fed, which has much greater authority to examine asset management affiliates of banks under Dodd-Frank.”
The Financial Stability Oversight Council will work with the Fed in making SIFI determinations. The Fed has the authority to conduct “pre-designation” reviews for those asset management firms that the FSOC deems necessary to examine for systemic risk.
“Conducting those exams gives the Fed a great deal of latitude to sniff around any aspect of a company’s business activities, risk management or compliance program if they see a need,” Thelander said, Bank Investment Consultant reports.
Amy Friend, another managing director at Promontory Financial Group, said that there has been a change in governmental approach when it comes to regulation.
“What’s at play here is very much the result of a philosophical shift in the government’s approach to the regulation of funds and the protection of investors,” Friend said, according to Bank Investment Consultant. “Bank-like regulation is new to the majority of asset managers, and they are going to have to adjust their mindsets to get accustomed to the way the Fed approaches oversight. [It] is going to feel more intrusive than the enforcement-oriented regime they’re accustomed to.”