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 SEC Commissioner Luis Aguilar, a Democrat, on Wednesday became the
latest agency member to speak out against the way the Financial
Stability Oversight Council is run, saying the council's closed-door
approach to regulation threatens to undermine its mission.
The FSOC was created by the 2010 Dodd-Frank Wall Street reform law
to keep an eye on emerging systemic risks.
It comprises the heads of all the top regulatory agencies including
the chair of the Federal Reserve, and is chaired by Treasury
Secretary Jack Lew. The group can impose additional regulations on
large financial firms that could destabilize the economy if they
failed.
As chair of the SEC, Mary Jo White also serves as the member who
represents the interests of the SEC on the FSOC.
Each member regularly attends closed-door sessions to discuss
regulatory matters. Staffers from all of the FSOC-member regulatory
agencies who are tapped as "deputies" of the council also meet
separately.
But the law does not consider the SEC's other four commissioners to
be FSOC members, so they do not participate in FSOC's
decision-making.
"There needs to be a mechanism by which the full Commission, not
just the Chair and SEC staff, provide meaningful input and
coordinate with the leadership of FSOC," Aguilar said in a speech in
Washington at a conference hosted by the Mutual Fund Directors
Forum.
"The work of FSOC...to identify and mitigate systemic risk is
important. However, there is real danger in that work being
compromised if the full five-member Commission is cut out of the
process."
A Treasury spokesperson said the council defers to the agencies to
determine who attends top-level meetings, which generally include
the principal and one guest from each agency.
"For deputies meetings, we try to keep it to two attendees per
agency to allow for a more productive conversation," the
spokesperson said in an email.
Other FSOC member agencies, including the Commodity Futures Trading
Commission, also have multiple commissioners who do not attend FSOC
meetings.
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Aguilar is the third SEC commissioner to voice concerns about FSOC's
governance and structure. His Republican colleagues — Daniel
Gallagher and Michael Piwowar — have voiced similar complaints.
In a speech earlier this year, Piwowar complained that his requests
to attend FSOC meetings were denied. He said he was told that if the
SEC were allowed to bring more guests, then every other FSOC member
agency would ask to do the same.
He also lamented that the Federal Reserve gets special treatment
because its chair frequently attends council meetings along with two
other Fed officials — Fed Governor Daniel Tarullo and New York
Federal Reserve President William Dudley.
An SEC spokesman did not immediately respond to a request for
comment about the commissioners' concerns.
The SEC's interest in FSOC matters is particularly pressing now
because the council has been considering whether firms typically
overseen by securities regulators should face additional rules.
The FSOC already has prodded the SEC to consider additional reforms
for money market funds and is also mulling whether large asset
managers such as Blackrock or Fidelity should be designated as
"systemic" and face additional regulations.
Last year the U.S. Treasury released a controversial study, which
could lay the groundwork for possible designation of asset managers
but has since been panned by the industry and U.S. lawmakers who
claim it is riddled with errors.
In May, the FSOC plans to hold a public event featuring panel
discussions about the asset management industry to help inform its
next steps.
(Editing by Alden Bentley)
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