Thursday, March 26, 2009

ICI Issues Regulatory Recommendations

On March 3, 2009, the Investment Company Institute (ICI) issued a report entitled Financial Services Regulatory Reform: Discussion and Recommendations. The report recommends that Congress create a new Systemic Risk Regulator with “responsibility for:
  1. Monitoring the financial markets broadly;

  2. Analyzing chancing conditions in domestic and overseas markets;

  3. Evaluating the risks of practices as they evolve and identifying those that are of such nature and extent that they implicate the health of the financial system at large; and

  4. Acting to mitigate such risks in coordination with other responsible regulators.”
The report also recommends that the authority of the Systemic Risk Regulator should be limited to avoid merely adding another layer of bureaucracy, and that legislation establishing the new regulator should define specific situations where the regulator should work together with other relevant regulators.

The report also suggests that the SEC and CFTC be merged into a new independent agency, a "Capital Markets Regulator" that would have rule making and enforcement powers. Of particular interest to investment companies, the report recommends that this Capital Markets Regulator:
  1. Regulate all registered investments companies, including money market funds;

  2. Regulate certain areas that current lack regulation, including hedge funds and other unregulated funds, over-the-counter derivatives, and municipal securities; and

  3. Harmonize regulation of investment advisers and broker-dealers where they provide similar services to investors.
The report stresses that the mission of the Capital Markets Regulator should “focus on investor protection, supported by a comprehensive enforcement program.” In addition, according to the report, the new regulator should be subject to the National Securities Markets Improvement Act of 1996 requirement that a “proposed regulation is consistent with the public interest, both the protection of investors and whether the regulation would promote efficiency, competition, and capital formation.” Further, the report recommends that the Capital Markets Regulator should have some responsibility for “monitoring and addressing risks across the markets as a whole.”

The full text of the ICI's "Financial Services Regulatory Reform: Discussion and Recommendations" is available at: