ICI opposes new G-SIFI regulations

10 April 2014   Category: News, Asia, Global, Japan, USA, United Kingdom   By Hui Ching-hoo

Designation of regulated funds like US mutual funds as “global systemically important financial institutions” (G-SIFIs) is neither necessary nor appropriate, ICI Investment Company Institute (ICI) says in a comment letter to the Financial Stability Board. The consequences of designating such funds “would be highly adverse to the designated fund, its investors, the overall fund marketplace and fund investing at large,” ICI says.

The methodology proposed by the FSB for assessing investment funds, based on a per se threshold of US$100 billion in assets, would lead to 14 regulated US funds being ultimately put on the path for designation by the US Financial Stability Oversight Council (FSOC) as “systemically important financial institutions” (SIFIs). National authorities in other jurisdictions could set their own thresholds and sweep in more funds for enhanced regulation. 

“The FSB’s consultation seems to reflect an inclination on the part of some regulators to paint the entire canvas of the financial system with a single broad brush and to dramatically expand bank regulatory standards to other types of financial institutions, regardless of how they are structured, operated, and currently regulated,” said ICI President and CEO Paul Schott Stevens. “We urge the FSB, as well as the FSOC, to adopt procedures that assure greater transparency and that promote greater public and industry confidence.”

ICI suggests that a better way to protect investors and address regulators’ concerns about potential risks is through an activity-based approach to regulation. The approach that the US and European Union regulators currently are taking on money market funds is an example of an activity-based approach to risk-mitigating regulation.

Qiumei Sophie Yang, executive vice president, head of Asia Pacific at ICI Global, an affiliate of ICI, tells Asia Asset Management that even though the FSB’s decision will not have an immediate impact on the Asian market, the FSB will hold a meeting in October to finalise the rules at which the regulators in advanced markets such as the UK and Japan are expected to follow the suit.

“Fourteen funds are currently bound by the rules, but you never know how many funds will be affected if more jurisdictions embrace the measure going forward,” she adds.