Key Takeaways
- • The Managed Funds Association (MFA) submitted a formal comment letter to FSOC urging finalization of proposed guidance that shifts nonbank oversight from firm-specific designations to an activities-based regulatory approach addressing systemic risk at its source.
- • FSOC's new proposal reverses the 2023 framework adopted under the prior Administration, which MFA argues wrongly prioritized individual firm designations over activity-level risk assessment, creating competitive distortions and regulatory uncertainty.
- • An activities-based approach is positioned as more effective for identifying genuine financial stability threats while reducing regulatory uncertainty for nonbank financial companies and improving predictability for capital markets participants.
- • MFA simultaneously urged Congress to pass the pending FSOC Improvement Act, framing legislative action as essential to create durable long-term certainty compared to regulatory guidance that can be reversed between administrations.
- • Bryan Corbett, MFA President and CEO, characterized the proposal as restoring a "common sense, transparent, and disciplined approach" to systemic risk assessment while ensuring entity-specific designations remain a last resort rather than a primary tool.
Summary
The Managed Funds Association has formally endorsed FSOC's proposed shift toward activities-based oversight of nonbank financial companies, marking a significant regulatory repositioning in systemic risk management. In a comment letter submitted to the Financial Stability Oversight Council, MFA urged the agency to finalize guidance that prioritizes identifying and addressing risky financial activities at their source rather than applying heightened oversight to individual firms deemed systemically important.
The proposal represents a direct reversal of FSOC's 2023 framework, which MFA characterizes as having wrongly emphasized firm-specific designations. According to MFA leadership, the previous approach created competitive disadvantages and failed to deliver transparent, disciplined systemic risk assessment. The activities-based methodology is designed to address this gap by focusing regulatory attention on the financial activities themselves that pose stability concerns, regardless of which entity conducts them. This approach theoretically reduces competitive distortions that arise when individual firms face designation-based scrutiny while similarly situated competitors remain undesignated.
Concurrently, MFA is backing congressional action on the FSOC Improvement Act, currently pending in the Senate. MFA argues that while regulatory guidance provides near-term flexibility, it remains vulnerable to reversal as administrations change. Legislative action, by contrast, would embed a durable framework into statute, providing long-term certainty for regulators, financial institutions, and investors. Bryan Corbett, MFA President and CEO, framed the dual strategy as essential to "stable and predictable regulatory framework" needed for capital markets function and economic growth, emphasizing that entity-specific designations should truly become a last resort rather than a primary regulatory tool.
The shift reflects broader debate among financial regulators, policymakers, and market participants over optimal systemic risk governance. Activities-based frameworks typically emphasize transparency and proportionality, whereas designation-based models concentrate supervisory intensity on identified entities. MFA's advocacy signals support within the alternative investment management industry for regulatory approaches that address systemic vulnerabilities without singling out specific firms for competitive disadvantage.
The proposal represents a direct reversal of FSOC's 2023 framework, which MFA characterizes as having wrongly emphasized firm-specific designations. According to MFA leadership, the previous approach created competitive disadvantages and failed to deliver transparent, disciplined systemic risk assessment. The activities-based methodology is designed to address this gap by focusing regulatory attention on the financial activities themselves that pose stability concerns, regardless of which entity conducts them. This approach theoretically reduces competitive distortions that arise when individual firms face designation-based scrutiny while similarly situated competitors remain undesignated.
Concurrently, MFA is backing congressional action on the FSOC Improvement Act, currently pending in the Senate. MFA argues that while regulatory guidance provides near-term flexibility, it remains vulnerable to reversal as administrations change. Legislative action, by contrast, would embed a durable framework into statute, providing long-term certainty for regulators, financial institutions, and investors. Bryan Corbett, MFA President and CEO, framed the dual strategy as essential to "stable and predictable regulatory framework" needed for capital markets function and economic growth, emphasizing that entity-specific designations should truly become a last resort rather than a primary regulatory tool.
The shift reflects broader debate among financial regulators, policymakers, and market participants over optimal systemic risk governance. Activities-based frameworks typically emphasize transparency and proportionality, whereas designation-based models concentrate supervisory intensity on identified entities. MFA's advocacy signals support within the alternative investment management industry for regulatory approaches that address systemic vulnerabilities without singling out specific firms for competitive disadvantage.
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