US regulators may review Fidelity, BlackRock

Boston-based Fidelity Investments may face scrutiny by US regulators reviewing whether asset managers pose a risk.
Charles Krupa/Associated Press
Boston-based Fidelity Investments may face scrutiny by US regulators reviewing whether asset managers pose a risk.

WASHINGTON — BlackRock and Fidelity Investments will be studied by US regulators who are in the early stages of reviewing whether asset managers pose a potential risk to the financial system, two people with knowledge of the matter said.

The Financial Stability Oversight Council’s discussion Oct. 31 and agreement to review New York-based BlackRock and Boston-based Fidelity do not necessarily mean the companies will be designated systemically important by the council, according to the people, who requested anonymity because the meeting was closed to the public. The panel did not take any formal action regarding the companies.

FSOC’s preliminary talks may presage months of wrangling between the industry and officials charged with trying to prevent a repeat of the 2008 financial crisis. Asset managers are among nonbank financial companies that the council is empowered by law to evaluate to determine whether their failure could threaten the entire system and thus require Federal Reserve oversight. BlackRock, Fidelity, and the mutual-fund industry’s trade group have said money managers are not a threat.


‘‘We continue to believe that the asset-management industry, and mutual funds in particular, do not present the types of risk that the FSOC was designed to address,’’ Vincent Loporchio, a Fidelity spokesman, said in an e-mail. BlackRock spokesman Brian Beades said the company ‘‘doesn’t comment on rumor or speculation.’’

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Treasury Secretary Jacob Lew is the council chairman. Treasury spokeswoman Suzanne Elio declined to comment. In a statement after last week’s meeting, Elio said the council ‘‘held an initial discussion on asset management,’’ and she did not identify any companies. The FSOC’s rules state that it doesn’t intend to disclose names of firms before ‘‘a final determination.’’

The oversight council is authorized under the Dodd-Frank Act of 2010 to identify companies that could threaten stability. The Fed can impose on those firms tighter capital, leverage and liquidity rules, and demand measures including stress testing for crisis scenarios and plans for winding them down should they start to fail. The council includes Fed chairman Ben Bernanke and Securities and Exchange Commission chairman Mary Jo White.

The council’s discussion follows a study by the Treasury Department’s Office of Financial Research on the asset-management industry. Money managers could endanger the financial system when reaching for higher returns, herding into popular asset classes, or amplifying price movements with leverage, the office said in its Sept. 30 report, which was conducted to help the FSOC analyze asset managers.

In the three years since its formation, FSOC has designated three nonbanks as systemically important financial institutions, or SIFIs: insurer American International Group, General Electric Co.’s finance unit, and Prudential Financial Inc. Analyzing asset managers could be even more complicated because the money they manage for clients is not on their own balance sheets.


Unlike large banks including Citigroup and Bank of America, no large asset manager required a taxpayer bailout in the aftermath of the financial crisis.

‘‘It is easily forgotten’’ that assets under management represent ‘‘client assets, not firm assets, obscuring the fact that at the firm level, asset managers have no impact on systemic risk,’’ Barbara Novick, BlackRock’s vice chairman, wrote in a comment letter about the OFR report submitted Nov. 1 to the SEC.

‘‘We believe that the OFR study did not establish that there is any evidence to link the size of the asset manager to the risks posed by those products and practices which we agree present potential risk,’’ Novick wrote.

BlackRock, the world’s largest money manager, had $3.8 trillion in assets under management at the end of last year, according to data compiled by Bloomberg. Fidelity, the fifth largest in the United States, had $1.7 trillion.

Some large firms are concerned that they may face new rules that would hurt their competitiveness, according to three executives who asked not to be named because they were not authorized to speak publicly. Managers want the SEC to address any systemic threats with regulation focused on certain activities, rather than impose company-specific restrictions, or obligations, the executives said last month.