SEC May Finally Complete the “Most Important” Remaining Financial Reform

July 2nd, 2014

Representatives from the Securities and Exchange Commission (SEC) and the Financial Stability Oversight Council (FSOC), as well as industry stakeholders and the members of the media, have recently expressed concern with the sluggish pace of the SEC’s efforts to reform the money market mutual fund industry.  For example, Federal Reserve Governor Daniel Tarullo said the pending reforms were “the most important remaining task of the financial regulatory reform.”  The $2.6 trillion industry was identified as problematic in the wake of the 2008 financial crisis, however, the SEC has yet to publish finalized rules.


A year ago, in the summer of 2013, the SEC issued a proposed rulemaking with two alternative reform structures.  The first proposal would require a floating net asset value (NAV) for money market funds and the second proposal would require withdrawal fees.  The SEC has also considered, unofficially, combining the two approaches.  The Consumer Financial Protection Bureau (CFPB) adopted a similar rulemaking approach to other regulations required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).  For example, the CFPB originally proposed either a safe harbor or rebuttable presumption for its Ability to Repay/Qualified Mortgage (QM) rule, but combined the two concepts in its finalized rulemaking.  Notwithstanding, both alternatives proposed by the SEC have received considerable resistance from the banking lobby, industry commentators and some of the largest mutual funds, including Vanguard and Fidelity Investments.


When speaking at an investment conference last week, SEC Chairwoman Mary Jo White suggested that these important reforms may be closed to finished, saying that the final rules were “very near term.”  The finalized rules would be a critical step to completing the financial reforms laid out following the recent crisis; however, many of Dodd-Frank’s most significant regulations have been similarly held up in the volley between Congress, regulators and industry lobbyists, such as the Volcker Rule and the Risk Retention/Qualified Residential Mortgage (QRM) rule.  Now five years the crisis and three years after the passage of reform legislation, it is possible that many of the originally proposed rules will have lost their teeth from the years of intense lobbying efforts and internal staff changes.  The finalized money market fund reforms should shed some insight into the fate of the remaining financial reforms.


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