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MFA reaffirms support for strengthening regulatory oversight

The Managed Funds Association has reaffirmed its support for action by federal policy makers intended to reform, strengthen and modernize America’s system of financial regulatory oversi

The Managed Funds Association has reaffirmed its support for action by federal policy makers intended to reform, strengthen and modernize America’s system of financial regulatory oversight.

In testimony before the House Financial Services Committee hearing, "Industry Perspectives on the Obama Administration’s Financial Regulatory Reform Proposals’, MFA outlined its positions on specific issues impacting the alternative investment industry, including mandatory registration of unregistered investment advisers, the establishment of a systemic risk regulator, and proposed reforms to the OTC derivatives market.

Richard H. Baker, MFA president and chief executive, said: "Our industry has a shared interest with other financial market participants and policy makers to restore investor confidence and a safe, stable and transparent financial system. These important objectives can, in part, be accomplished through a careful, thoughtful approach toward the goal of a ‘smart’ financial regulatory system. We believe that regulatory reform objectives generally fall into three key categories. Those categories are: investor protection, market integrity and prudential regulation, including registration of advisers to private pools of capital; systemic risk regulation; and regulation of market-wide issues, such as short selling.

"MFA and its members recognise that mandatory SEC registration for advisers of private pools of capital is one of the key regulatory reform proposals being considered by policy makers. MFA is supportive of the general approach taken in the Administration Proposal – a comprehensive registration regime under the Advisers Act designed to ensure that there is appropriate regulatory oversight over investment advisers to private pools of capital. It is critical that this objective be done in a way that creates a ‘smart; regulatory framework, and we believe the removal of the so-called ‘private adviser’ exemption currently in the Advisers Act achieves that objective with respect to investment adviser registration.’

Baker said ensuring that the registration framework is comprehensive is an important component of a "smart" regulatory framework. However, he said it is equally as important to ensure that any new regulatory framework does not impose unnecessary, duplicative and costly requirements on advisers to private pools of capital.

‘In that regard, we believe that, as drafted, the Administration’s proposed legislation would impose overlapping registration requirements for a number of commodity trading advisors that are already registered with, and well regulated by, the Commodity Futures Trading Commission.’

He said the MFA is supportive of the proposal’s approach of creating a central systemic risk regulator, while creating a mechanism designed to foster greater communication and coordination among financial regulators. It also supports risk reporting to the systemic risk regulator, though it is critical that such reporting be done on a confidential basis. It also generally supports the proposal’s approach to systemic risk regulation, which calls for stronger regulation of systemically relevant firms; though it encourages policy makers to consider what type of heightened regulation is appropriate for different types of systemically relevant firms.

"Short selling and other techniques, including listed and over-the-counter derivatives trading, are important risk management tools for institutional investors, including MFA members, and essential components of a wide range of cash and derivatives hedging strategies that enable investors to provide liquidity to the financial markets. We are supportive of providing proprietary nonpublic information to regulatory authorities on a nonpublic, confidential basis,’ said Baker.

"MFA and its members appreciate that smart regulation helps to ensure stable and orderly markets, which are necessary for hedge funds to conduct their businesses. We also believe that active, constructive dialogue between policy makers and market participants is an important part of the process to develop smart regulation. We are committed to being constructive participants in the regulatory reform discussions and working with policy makers to re-establish a sound financial system and restore stable and orderly markets."

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