Occupy the SEC (OSEC) has submitted a comment letter to the Financial Stability Oversight Council (FSOC) in response to that agency’s request for comment on the systemic risks posed by the asset management industry.
Asset managers have created, propagated and amplified systemic risk during past crises. While some past weaknesses have been addressed by the Dodd-Frank Act, many such weaknesses have not, and the markets have recently seen many developments that could create new risks.
Asset managers and investors are key components of a shadow banking system that plays an increasing role in the financial system, and poses significant systemic risks through money market funds and other segments of finance. Therefore, there is every reason to believe that asset managers still have the potential to create, transmit or amplify systemic risks.
In its comment letter, OSEC expresses its concern about these systemic risks, with a particular focus on the direct and indirect impact that those risks would have on the 99%. OSEC recommends that regulators impose periodic stress tests and gather real-time trade data to allow maximum visibility into a market that has been notoriously secretive. OSEC also warns that particular attention needs to be paid to derivatives and the burgeoning of so-called “liquid alternative” investments.