Some of the rules being proposed, on the regulatory front, don’t fully consider all the parties in the chain, according to Jody Jonsson, Vice Chair of Capital Group and President of Capital Research Management Company.
Speaking at the SIFMA’s Annual Meeting: the Intersection of Public Policy and Finance, on November 7, she said when you really think what would have to happen through all the different parties, whether that’s the record keeper or broker dealers or plan sponsors, “it’s not quite as simple as it might appear”.
“We’re trying to focus on process when you’re really getting down to the operational details,” she said.
According to Jonsson, their big concern is that good regulation is good, but when you start to layer on too much costs and complexity, “you create operational risk”.
She added that the thing nobody’s talking about is how “the regulation could actually create the thing it’s trying to avoid”.
“If you bring on too much complexity, you will probably create accidents. Helping those regulators and legislators to understand what it involves to implement this stuff is part of what we’re trying to focus on,” Jonsson commented.
When Kenneth E. Bentsen, Jr., President and CEO, SIFMA, asked how the fund sector performed through the pandemic, she said that the fund sector did extremely well.
“I think there’s a little bit of urban legend around what was said and what was asked of the Fed and other regulators during that time. People were not generally calling the Fed asking for help. There were many conversations going on about market conditions. But I think Chair Gensler maybe has misinterpreted some of the intent of those conversations,” she said.
“My concern around some of this regulation, like some pricing and liquidity risk management is taking a very large hammer to pretty small nails,” she added.
There were some problems in the tail of the distribution, but does that mean we should put in all sorts of mandatory features and implement a whole new system as when pricing that, again, has many, many second and third order effects to it in terms of the operational complexity, she questioned.
Jonsson further said: “We have very healthy well functioning markets generally.”
“Some of what’s being proposed and I’m not as familiar with regulation around the banking sector, but some of the capital requirements and such create less well functioning markets, there’s less liquidity for players like us,” she added.
“It all sounds good, but you’ve got to think through the second and third order effects of how this is going to be implemented and what the impact will be on all the players in the industry,” she stressed.
According to Jonsson, it all works well when the investment industry and regulators are on the same page.
She thinks that Congress hasn’t been functioning “as well as it should”.
“A lot of what Congress might decide is actually being delegated to regulatory agencies and then that is coming through in some of what we’re seeing,” Jonsson said.
It’s questionable, whether that is really about benefiting the end investor through better investment results, she said.
“We’re kind of jamming all this other stuff in there, and it makes our jobs harder as a global firm, because the rules are different in different places,” she commented.
“It makes it more challenging to be a globally diversified firm and to be consistent in how we operate around the world, when there are so many different requirements from different jurisdictions,” she added.
