Financial Stability

FSOC Moves Toward More Tailored Systemic Risk Framework

Dinesh Khanna — Wed, 25 Mar 2026 23:22:28 +0000

FSOC Moves Toward More Tailored Systemic Risk Framework Dinesh Khanna March 25, 2026

Public

Wed, 03/25/2026 - 19:22

Washington, DC; March 25, 2026—The Investment Company Institute (ICI) released the following statement after the Financial Stability Oversight Council (FSOC) unanimously voted to publish its proposed interpretive guidance on nonbank financial company determinations:

“ICI applauds FSOC’s proposed interpretive guidance released today, reassessing how the Council designates nonbank financial companies as systemically important. This is a welcome and much needed step toward a more transparent and tailored regulatory framework, and we thank President Trump, Secretary Bessent, and the members of the Council for their leadership. FSOC’s proposed guidance and Senate action to pass the FSOC Improvement Act will strike the right balance of systemic risk regulation and providing opportunities for investors.

“We have long advocated for an activities-based approach to identifying and addressing potential systemic risk. FSOC’s enhanced analytical rigor, including greater use of cost-benefit analysis, along with the inclusion of a pre-designation off-ramp, is consistent with recommendations ICI has put forward for many years.”

“ICI looks forward to working alongside the members of FSOC to promote more robust cost-benefit analysis and increased engagement between companies, primary regulators, and the Council.”

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Financial Stability

News Release

The Repo Market Has Vulnerabilities. Mutual Funds Aren’t One of Them

Dinesh Khanna — Fri, 27 Feb 2026 18:28:07 +0000

The Repo Market Has Vulnerabilities. Mutual Funds Aren’t One of Them Dinesh Khanna February 27, 2026

Public

Authors:

Shane Worner

Lei Li

Fri, 02/27/2026 - 13:28

The repo market is essential to government bond markets and the broader financial system. It also finances leveraged trading strategies that are overwhelmingly undertaken by hedge funds, not regulated mutual funds. Yet recent concerns expressed by policymakers, including the Financial Stability Board and the European Central Bank[1], increasingly draw regulated funds into the scope of the debate simply because they appear as counterparties in repo transactions. Acting as a counterparty does not make a mutual fund the source of leverage or the driver of repo‑financed strategies. What matters is not who participates in repo transactions, but how vulnerabilities are generated.

The real vulnerabilities lie in structural leverage, heavy reliance on short-term funding, and concentrated intermediation. The latest report on government bond-backed repo markets, covering roughly $16 trillion in activity, illustrates exactly how those vulnerabilities arise. It points to dependence on overnight funding, concentrated clearing and dealer capacity, and leverage embedded in financing channels as key amplifiers of stress. About half of repo transactions are financed overnight, meaning that funding can disappear precisely when markets come under strain. These are structural vulnerabilities. They are not created by the presence of regulated mutual funds on the other side of a trade.

When repo markets seize up, stress spreads quickly, but misdirecting scrutiny toward regulated funds will not address these mechanisms. Instead, it risks weakening market liquidity while leaving the true vulnerabilities intact.

The Risk Is Structural Leverage, Not Regulated Funds

Regulated mutual funds are not drivers of repo-induced leverage. Their balance sheets operate under strict leverage limits, liquidity requirements, and diversification rules that sharply constrain maturity transformation and balance sheet expansion. They do not rely on unstable short-term funding in the way highly leveraged trading strategies do.

In repo markets, regulated funds typically act as counterparties and liquidity providers, not as sources of fragility. Conflating constrained, regulated fund activity with leveraged financing strategies risks obscuring the real problem and targeting the wrong mechanisms altogether.

Relative-Value Trading Is Not the Vulnerability

That same misplaced focus is often applied to relative-value trades, including cash-futures arbitrage. These trades are sometimes cited as evidence of speculative excess. In practice, they serve an important market function by aligning prices between cash and derivatives markets and supporting liquidity in government bond markets.

The risk does not arise from price-alignment strategies themselves. It arises from how those strategies are financed—through significant leverage, short-term funding, and reliance on concentrated intermediaries. Targeting regulated funds does nothing to address those financing mechanics.

Focus on Activities, Not Labels

Effective policy should target the activities that create systemic risk, including excessive leverage, fragile short-term funding, and concentrated clearing and intermediation, not institutions that are already tightly regulated and structurally constrained.

Misdiagnosis carries consequences. Broad or misdirected measures could reduce liquidity in government bond markets, impair price discovery, and weaken resilience while leaving the true drivers of instability intact. If policymakers misidentify how systemic risk is transmitted, they risk directing regulatory tools at the wrong targets and constraining sovereign market liquidity without addressing the mechanisms that generate instability. The priority should be better data, sharper monitoring of leverage and funding pressures, and targeted responses to structural weaknesses.

Getting this right strengthens market resilience. Getting it wrong risks undermining one of the most critical funding markets in the global financial system without solving the problem.

Notes

[1] See ECB (2024): “Financial stability risks from basis trades in the US Treasury and euro area government bond markets”, Financial Stability Review, May 2024;
BIS (2025): “Sizing up hedge funds' relative value trades in US Treasuries and interest rate swaps”, BIS Quarterly Review, December 2025;
FSB (2025): “FSB Workplan to Address Nonbank Data Challenges”, which announces work on leveraged trading strategies in core financial markets.

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ICI Welcomes Passage of Bipartisan FSOC Reform Bill

Dinesh Khanna — Mon, 09 Feb 2026 22:09:00 +0000

ICI Welcomes Passage of Bipartisan FSOC Reform Bill Dinesh Khanna February 9, 2026

Public

Mon, 02/09/2026 - 17:09

Washington, DC; February 9, 2026—The Investment Company Institute released the following statement today after the US House of Representatives unanimously passed H.R. 3682, the Financial Stability Oversight Council (FSOC) Improvement Act of 2025. Representatives Bill Foster (IL-11) and Bill Huizenga (MI-04) sponsored the bill.

“Passage of the FSOC Improvement Act by the House is a win for investors. This bill enhances the position of the primary regulators, creates due process for affected firms, and leaves the blunt instrument of designation as a last resort. This is a bipartisan, balanced approach, and ICI thanks Representatives Foster and Huizenga for sponsoring the bill. We urge swift passage of this legislation by the Senate,” said ICI President and CEO Eric Pan.

Background

ICI recently joined a letter from a coalition of business associations calling on the House of Representatives to pass the FSOC Improvement Act.
The FSOC Improvement Act brings greater predictability and transparency to how FSOC considers designating nonbank financial companies as Systemically Important Financial Institutions (SIFIs).
The bill ensures that, prior to voting on a proposed SIFI designation, FSOC determines whether the potential threat posed by a nonbank financial company could be mitigated through other means, including a different action by the company’s primary regulator or action by the company itself.
The legislation passed the House Financial Services Committee in a 47-4 vote on September 16, 2025.

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Financial Stability

News Release

ICI Letter Supporting the FSOC Improvement Act of 2025

Dinesh Khanna — Mon, 09 Feb 2026 18:30:20 +0000

ICI Letter Supporting the FSOC Improvement Act of 2025 Dinesh Khanna February 9, 2026

Public

Mon, 02/09/2026 - 13:30

The Investment Company Institute (ICI) submitted a letter to House Speaker Mike Johnson and House Minority Leader Hakeem Jeffries in support of H.R. 3682, the Financial Stability Oversight Council Improvement Act of 2025, sponsored by Reps. Bill Foster (D‑IL) and Bill Huizenga (R‑MI).

ICI Quarterly Update, January 2026

Dinesh Khanna — Tue, 27 Jan 2026 18:31:39 +0000

ICI Quarterly Update, January 2026

From the largest cities to the smallest towns, and across all 50 states, American investors are participating in the success of the US economy through regulated funds. As the nation celebrates its 250th anniversary throughout 2026, ICI is highlighting how regulated funds have helped build America’s economy—and how our industry remains deeply invested in its future.

Dinesh Khanna January 27, 2026

Public

Fri, 01/30/2026 - 09:42

America at 250: Investing in Our Economic Future

As the United States approaches its 250th anniversary, the milestone offers an opportunity to reflect on the institutions and ideas that have shaped the nation’s economic success. ICI is proud to be a supporting partner of America250—a nonpartisan initiative commemorating the 250th anniversary of the United States—as part of its own efforts to mark this historic moment and highlight the role regulated funds play in supporting investors, communities, and the broader US economy.

For millions of Americans, regulated funds are essential tools for pursuing the milestones that define the American dream. Households rely on them to save for a first home, pay for education, and build long-term retirement security through diversified, professionally managed investments. With more than half of US households owning regulated funds, these vehicles remain one of the most effective ways for working families to participate in capital markets.

Beyond individual investors, regulated funds provide critical support to communities across the country. By investing in municipal securities and other public finance instruments, funds help states and local governments finance schools, hospitals, transportation networks, and other infrastructure.

Regulated funds also play a central role in driving economic growth. They provide reliable capital to businesses of all sizes, including innovative private companies that are shaping the future of the economy.

Together, these contributions underscore why regulated funds remain essential to a strong economy—and why policy reforms that strengthen this framework matter for investors and the country alike.

Worth a Click

Andrew Schlossberg elected Chair of ICI Board of Governors

See You There

ICI Innovate
Houston, TX
February 3–5

Investment Management Conference
Palm Desert, CA
March 22–25

Leadership Summit
Washington, DC
April 29–May 1

ETF Conference
Nashville, TN
June 8–10

Advocating for Investment Funds

The INVEST Act Advances in Congress

In December, the House passed the INVEST Act, a bipartisan measure to strengthen investment opportunities and support long-term capital formation. The bill advances a set of targeted reforms affecting how regulated funds operate and communicate with investors.

The INVEST Act includes provisions to strengthen closed-end funds by limiting the ability of activist investors to pursue short-term strategies that can come at the expense of long-term shareholders. It also codifies recent SEC actions that make it easier for regulated funds, including closed-end funds and business development companies, to invest in private funds and private companies—helping extend these investment opportunities to everyday investors.

In addition, the legislation promotes more efficient and modern investor communications by supporting the use of electronic delivery as the default option for shareholder materials. The bill also takes an important step toward retirement-plan parity by allowing collective investment trusts (CITs) to be offered in 403(b) plans, giving millions of educators, healthcare workers, and nonprofit employees access to the same cost-efficient investment options long available to 401(k) participants. Together, these reforms are intended to reduce unnecessary costs, improve access to information, and support a more inclusive investment framework for long-term investors.

The Need for Cross-Trading Reform

According to ICI’s estimates, in 2020, fixed-income cross-trading saved funds and their investors nearly $330 million. Following that year, the SEC disrupted the framework by which funds cross-trade, resulting in increased costs and a less efficient regulatory approach. However, the SEC has recently signaled an openness to revise the rule on cross-trading. In a recent ICI Viewpoints blog post, ICI laid out five elements that we believe the SEC should focus on to restore the benefits of cross-trading while not compromising strong investor protections. ICI stands ready to work closely with the SEC to achieve those goals.

The Cost Savings of E-Delivery

ICI shared with the SEC new estimates on the potential annual savings of electronic delivery, ranging from $589 million to $797 million per year for funds and their shareholders, with projected cumulative savings of $3 billion to $4 billion over five years. ICI data also found that fund investors overwhelmingly prefer to receive electronic delivery and support e-delivery, with 88% of fund investors agreeing that “as long as people can still request paper at no cost, it’s a good idea to make e-delivery the default.”

Strengthening Trump Accounts

ICI has been engaging with the Treasury Department and the IRS to encourage them to protect competition in how they administer Trump Accounts, the new tax-deferred savings tool created under the One Big Beautiful Bill to give children born between 2025 and 2028 a head start on investing. Treasury’s implementation decisions will determine whether families have genuine choice in how they save for their children’s future. To demonstrate ICI’s confidence in the long-term success of these accounts, ICI recently announced a $1,000 matching contribution for Trump Accounts for employees’ children.

Important Considerations for FSOC Reform

Congress is continuing to examine bipartisan legislation to improve the nation’s financial stability framework by strengthening the process used by the Financial Stability Oversight Council (FSOC) to designate nonbank financial companies as systemically important. This legislation would add an important procedural safeguard to FSOC’s most consequential authority. These reforms matter for fund investors.

State-Level Advocacy

In conversations with state attorneys general, governors, senior executive-branch officials, and key state legislators during policy convenings and one-on-one discussions, we elevated ICI’s perspective on fiduciary standards, capital-markets issues, and investor outcomes, while strengthening relationships in priority states ahead of the 2026 legislative cycle.

ICI worked with the California Air Resources Board (CARB) as it developed guidance for the implementation of climate disclosure laws SB 253 and SB 261. Through sustained engagement with agency staff and external partners, ICI helped ensure mutual funds and other regulated funds were not treated as “covered entities” under CARB’s emerging disclosure framework—avoiding significant compliance challenges and misalignment with federal reporting regimes.

Across Florida, Maine, and California, ICI continued targeted outreach to state officials on unclaimed property reforms affecting securities accounts, reinforcing the risks of premature escheatment for investors. We encourage balanced policy approaches that prioritize investor protection and operational workability for firms and account holders.

Global Regulatory Affairs

Globally, ICI continued to advance a coordinated regulatory agenda focused on expanding retail participation, supporting market integration, and promoting regulatory frameworks that enable innovation while maintaining strong investor protections.

European Union

Market Integration and Supervision

In December, the European Commission proposed the Market Integration and Supervision Package, incorporating several ICI Action Plan recommendations such as aligning UCITS and AIFMD marketing rules and reducing gold-plating to enable cross-border activity. While the package represents progress, ICI continues to call for a credible mechanism to drive supervisory convergence without weakening national supervisory links.

Retail Investment Strategy (RIS)

ICI welcomed the recent development to drop rigid UCITS cost and performance benchmarks and support default e-delivery of disclosures, which are both positive steps for retail investors. However, the RIS remains overly complex, falling short of the structural reforms needed to promote long-term retail participation. ICI will remain engaged with EU policymakers and national authorities as negotiations on the final legislative text continue.

Securitisation Regulation

As the EU revisits its Securitisation Regulation, ICI is advocating for an investor-focused approach that revitalizes Europe’s securitisation market. Key priorities include streamlining regulation and restoring market confidence to support capital markets growth.

United Kingdom

Fund Tokenization

ICI responded to the FCA’s consultation on fund tokenization, supporting its phased, collaborative model, particularly “Model 1,” while urging technological neutrality and global alignment to avoid fragmentation and support cross-border scalability.

Senior Managers & Certification Regime (SM&CR)

In its submission to HM Treasury, ICI supported the regime’s objectives but called for targeted changes clarifying the scope for overseas managers, reducing duplication for dual-regulated firms, and better aligning with global frameworks.

Asia-Pacific

Japan – NISA Reform

In December, the Japanese government proposed reforms to the Nippon Individual Savings Account (NISA) program aligned with ICI advocacy, including expanded eligibility for minors and broader fund access. The reforms aim to deepen household engagement with capital markets and are expected to be reviewed by the Diet in Q1 2026.

Hong Kong – Regulator Dialogue

ICI facilitated senior-level engagement between members and Hong Kong regulators, including policy discussions with the CEO of the Securities and Futures Commission and the Deputy CEO of the Hong Kong Monetary Authority. Topics included regulatory modernization, digital innovation, and liquidity risk management, reinforcing ICI’s standing as a trusted voice in the region.

Singapore – Long-Term Investment Fund (LIF)

ICI continues to engage the Monetary Authority of Singapore on its proposed LIF framework. ICI has stressed the need for proportionate requirements, operational clarity, and design features that support global sponsors and broaden retail access to private markets.

Supporting Members

Navigating ETF as a Share Class

ICI’s push for ETF share class relief reflected a sustained, strategic effort that culminated in the SEC issuing an order on ETF share class applications. After numerous asset managers filed exemptive applications, ICI convened an ETF share class working group in 2024 to educate members on the relevant issues and develop strategies for moving relief forward.

Additionally, ICI published a white paper, ETF Share Class Operational Considerations, laying out practical considerations for asset managers evaluating and implementing the dual share class structures. The white paper was complemented by a webinar series exploring ETF developments and potential missteps when bringing a product to market, including operational, asset management, and intermediary considerations.

Promoting Greater Access to Investing and Driving Better Retirement Outcomes

Expanding Access to Investment Options

ICI has been a leader in advocating for policy changes that recognize the built-in protections provided by funds subject to the Investment Company Act of 1940 ('40 Act) as a way to expand retail investor access to private markets. ICI examined how best to implement President Trump’s executive order democratizing access to alternative assets for 401(k) investors and identified the remaining hurdles to facilitating greater private markets access for retail investors. Our work has centered on one such challenge, promoting greater retail investor education on private markets, to lay the groundwork so that individual investors can better take advantage of the opportunities afforded by this asset class.

More People Are Investing

We also published survey research showing how regulated funds have democratized investing in the US. ICI economists wrote in a recent Viewpoints blog that regulated funds have broadened participation in American capital markets, with the number of households owning regulated funds increasing from 50.6 million to 76 million over the past two decades. The ICI survey highlighted how this growth is most pronounced among middle- and lower-income households, where fund ownership has risen significantly.

Staying the Course

ICI economists examined the behaviors that contribute to 401(k) participants’ wealth-building success. Chief among these behaviors is a steady, long-term perspective and a propensity to continue making regular contributions through market ups and downs. ICI research finds that defined contribution (DC) plan participants appreciate the features of their plans and tend to stay the course.

Figure 1
Changes in 401(k) Plan Account Balances Among Consistent 401(k) Participants
Average 401(k) plan account balance and percent change compound annual average growth rate, 2019–2023

Note: The sample is 2.7 million consistent participants in the EBRI/ICI 401(k) database over the four-year period from year-end 2019 to year-end 2023. Age group is based on participant age at year-end 2023. Account balances are participant account balances held in 401(k) plans at the participants' current employers and are net of plan loans. Retirement savings held in plans at previous employers or rolled over into IRAs are not included.

Source: Tabulations from EBRI/ICI Participant-Directed Retirement Plan Data Collection Project

Cybersecurity Resiliency for Members and Investors

ICI released the 2025 ICI Operational Resiliency Tabletop Exercise After-Action Report, summarizing key takeaways from a three-day, member-led simulation designed to strengthen preparedness for major operational disruptions. The exercise convened more than 40 member firms to test response strategies for a simulated outage at a critical service provider, reflecting the growing risk posed by fourth-party dependencies in an interconnected financial system.

Participants identified gaps in resiliency planning, evaluated cross-functional coordination, and benchmarked their approaches against peers. By convening firms of all sizes in a trusted setting, ICI facilitated practical insights and information sharing to help members strengthen operational resilience and protect fund investors.

In the News

	The [approval to launch ETF share classes of existing mutual funds] will "deliver meaningful benefits to mutual fund shareholders," said Eric Pan, president and chairman of the Investment Company Institute, an industry group. [link to article]
	The Investment Company Institute, a trade organization for brokerage firms and similar entities, has asked that the Treasury Department allow for competition, as opposed to designating one firm as the sole place where people can open [Trump] accounts. [link to article]
	“This is a much-needed improvement from past administrations when FSOC has sought to empower itself to impose its views over those of member agencies and without considering the full economic costs of its actions,” said the Investment Company Institute, a trade association for the asset management industry. [link to article]
	ICI Chief Economist Shelly Antoniewicz appeared on Schwab Network to talk economic forecasts and the state of the American consumer. [link to video]

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Exchange-Traded Funds (ETFs)

ICI Quarterly Update

Congress Takes Up FSOC Reform—Why it Matters for Millions of Fund Investors

Dinesh Khanna — Thu, 08 Jan 2026 21:24:41 +0000

Congress Takes Up FSOC Reform—Why it Matters for Millions of Fund Investors Dinesh Khanna January 8, 2026

Public

Authors:

Erica Richardson

Fri, 01/09/2026 - 16:24

More than fifteen years after the passage of the Dodd-Frank Act, Congress is now moving to enhance due process in the financial stability framework. As the House of Representatives prepares to vote on the Financial Stability Oversight Council Improvement Act of 2025, ICI welcomes these developments and supports this bipartisan legislation aimed at improving the procedural framework for financial-stability oversight.

Under Dodd-Frank, the Financial Stability Oversight Council (FSOC) may designate a US nonbank financial company as a systemically important financial institution (SIFI) if it determines that material financial distress at the company, or the nature of the company’s activities, could pose a threat to US financial stability. A designated company could then be subject to prudential supervision by the Federal Reserve Board and subject to enhanced capital standards typically reserved for banks.

Recent statements from Treasury Secretary Scott Bessent reflect a growing recognition that financial stability oversight must be more targeted, disciplined, and grounded in the expertise of primary regulators.

The current designation protocol lacks due process, may sideline a firm’s primary regulator and can create a regulatory mismatch with the firm's business model. Guidance on this designation process has flipped-flopped between Administrations and consistency and certainty is welcomed through Congressional action.

A Targeted Reform

The FSOC Improvement Act adds a straightforward but important safeguard to the council’s authority: before FSOC may vote on a proposed designation, it must consult with the company and its primary regulator to determine what other actions could be taken to address the potential risk. FSOC may move to designation only if it determines those alternatives would not be adequate, ensuring that designation is a last resort and reinforcing FSOC’s role as a coordinator of expert regulators without usurping the role of the primary regulator.

This guardrail helps ensure that bank-style regulatory tools are applied only where appropriate and not needlessly imposed on a company that is already subject to a comprehensive and well-tailored oversight regime. ICI has long advocated for a disciplined and transparent SIFI designation process, and the House bill represents meaningful progress toward that goal.

Why These Improvements Matter for Markets and Investors

FSOC’s designation authority is one of its most consequential tools. Once designated, a nonbank financial company is subject to capital, liquidity and operational requirements that are appropriate for deposit-taking institutions but may not align with the activities and risk profile of companies like asset managers.

As ICI has consistently emphasized, registered funds and their advisers do not warrant SIFI designation. Thanks to their structure and regulation, these entities do not pose risks to financial stability. If FSOC were to designate a registered fund or its adviser as a SIFI, it could saddle those entities with higher costs, resulting in lower returns for individuals saving for retirement, education, and other life goals.

A designated fund could even be assessed a monetary charge to help cover the resolution of a distressed, “too big to fail” financial institution—an outcome directly at odds with Congress’s intent that Main Street investors should never be asked to bail out Wall Street. Even though registered funds and their advisers do not present the kinds of risks that warrant SIFI designation, it remains important that FSOC’s processes be well-calibrated to avoid misapplication of bank-style oversight to this area of finance.

What Comes Next

Experience has shown that FSOC’s approach can shift significantly across administrations, underscoring the importance of clear statutory standards that endure beyond a single leadership team. By requiring that FSOC fully evaluates alternative approaches before invoking its designation authority, Congress can institute more effective oversight and reduce the likelihood of costly and misapplied regulation.

The bipartisan nature of the House bill reflects a growing recognition that FSOC’s designation process benefits from clear guardrails that ensure accountability and respect for primary-regulator expertise. ICI urges Congress to pass this legislation promptly and continue the work of strengthening the nation’s financial stability framework.

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Financial Stability

ICI Viewpoints

Establishing Certainty in Financial Regulations

Kevin Coroneos — Tue, 30 Sep 2025 19:36:08 +0000

Establishing Certainty in Financial Regulations Kevin Coroneos Tue, 09/30/2025 - 15:36

Public

ICI supports efforts to bolster financial stability that promote accountability and transparency without stifling innovation or harming investors.

Key Takeaways:

Congress gave the Financial Stability Oversight Council (FSOC) the authority to designate nonbank financial institutions as systemically important, commonly known as “too big to fail.”
The regulators that comprise FSOC should first look at less disruptive options that address activities they deem risky and use their designation authority only as a last resort.
FSOC should use its enforcement authority to punish wrongdoing and let the financial regulators with the relevant expertise enact rules that get to the heart of the problem.
The FSOC Improvement Act would require FSOC to take an activities-based approach to designating nonbank financial institutions as systemically important.

In the wake of the 2008 financial crisis, Congress created FSOC, a group of financial regulators that was given the broad-reaching ability to designate nonbanks as systemically important, meaning the failure of these companies could risk larger economic collapse. While this is an important goal, several issues with the Council need to be addressed, including transparency into how FSOC makes its decisions on whether or not to use designation authority and whether FSOC has conducted a proper cost-benefit analysis to determine whether the designation would inadvertently cause more harm than good.

If FSOC designates a nonbank financial institution systemically important, there can be broad-reaching consequences, including:

Increased regulatory scrutiny and additional costs that can fundamentally change the way nonbanks do business; and
Remedies that are designed to moderate bank-like risks (e.g. a run) and are therefore ill-suited to registered funds and their managers.

Instead of using its designation authority as a first step, ICI supports FSOC leveraging the expertise of its members by requiring them to engage in rulemaking to address the risky activities and use enforcement authority to punish misconduct. FSOC should seek a systemically important designation only after activities-based options have been exhausted. FSOC should also provide more transparency into its decision-making, including robust cost-benefit analysis.

ICI supports the current administration and US Treasury Secretary Scott Bessent’s efforts to overhaul FSOC and reorient the Council’s priorities. We applaud Bessent’s December 2025 announcement that FSOC will work with financial agencies to consider where regulations stifle economic growth and to assess the cumulative burdens of regulatory and supervisory regimes.

Reform Would Benefit Investors and the Economy

Legislation is needed to strengthen the checks and balances that underpin sound regulation.

The bipartisan Financial Stability Oversight Council Improvement Act, which passed the House in February 2026 and was introduced in the Senate, would revise the flawed risk assessment framework and designation guidance governing the systemically important financial institution (SIFI) designation process for nonbank financial institutions.

This legislation would limit FSOC’s potential for overreach and instead put more authority in the hands of expert primary financial regulators like the SEC and the CFTC.

ICI supports this bipartisan legislation to restore transparency and rigor to the SIFI designation process, ensuring FSOC remains focused on real risks to financial stability while protecting the millions of Americans who save and invest for their futures.

This reform would ultimately benefit:

Everyday investors: Establishing greater certainty for registered funds means continued access to cost-effective, well-regulated investment options
Fund managers and nonbank financial institutions, such as registered funds: Reducing the risk of unpredictable, costly designations that could hinder innovation and efficiency
The broader economy: Keeping capital flowing to productive uses while maintaining appropriate safeguards for financial stability

ICI supports this bipartisan legislation to restore transparency and rigor to the SIFI designation process, ensuring that FSOC remains focused on real risks to financial stability while leaving the blunt instrument of designation as a last resort.

Key Resources:

Fact Sheet

The FSOC Improvement Act

January 13, 2026

ICI Viewpoints

Congress Takes Up FSOC Reform—Why it Matters for Millions of Fund Investors

The House of Representatives is set to vote on the Financial Stability Oversight Council Improvement Act of 2025. This legislation aims to refine FSOC’s authority, ensuring more targeted and expert-driven regulation while protecting nonbank financial companies from undue regulatory burdens.

January 9, 2026

Financial Stability

ICI Applauds Introduction of House Bill to Reform FSOC

admin — Tue, 03 Jun 2025 20:55:56 +0000

ICI Applauds Introduction of House Bill to Reform FSOC admin June 3, 2025

Washington, DC, June 3, 2025—Today, Investment Company Institute (ICI) President and CEO Eric J. Pan released the following statement after the Financial Stability Oversight Council Improvement Act was introduced by Representatives Bill Foster (D-IL) and Bill Huizenga (R-MI). The bipartisan legislation would reform the Financial Stability Oversight Council’s (FSOC) ability to designate nonbank financial companies as systemically important financial institutions (SIFI).

“ICI applauds Representatives Foster and Huizenga for their leadership to enhance FSOC’s accountability and transparency. The Financial Stability Oversight Council Improvement Act will help American businesses succeed free from the fear of dramatic governmental overreach. SIFI designation for fund managers would have broad-reaching negative consequences and should only ever be used where it is supported by robust data and cost-benefit analysis. ICI encourages the House to move swiftly to pass this legislation to bring more transparency to government and give greater certainty to registered funds, their managers, and the more than 120 million investors they serve. We look forward to working with Congress on this important legislation.”

Background:

The Financial Stability Oversight Council Improvement Act will ensure that, prior to voting on a proposed SIFI designation, the FSOC determines whether the potential threat posed by a nonbank financial intermediary could be mitigated through other means, including a different action by the company’s primary regulator or action by the company itself.

Public

Tue, 06/03/2025 - 16:55

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Financial Stability

News Release

Domain Access Text

www_ici_org,

ICI Response to the FSB's Consultation on Leverage in Non-Bank Financial Intermediation

admin — Fri, 28 Feb 2025 14:30:50 +0000

ICI Response to the FSB's Consultation on Leverage in Non-Bank Financial Intermediation admin February 28, 2025

The Investment Company Institute submitted the attached letter expressing its views on the Financial Stability Board’s consultation on leverage in non-bank financial intermediation.

ICI Commentary: What the Bank of England’s System-Wide Exploratory Scenario Exercise (SWES) Tells Us

admin — Wed, 19 Feb 2025 15:10:15 +0000

ICI Commentary: What the Bank of England’s System-Wide Exploratory Scenario Exercise (SWES) Tells Us admin February 19, 2025

VIEW AS PDF

In late November 2024, the Bank of England published the results of its first system-wide exploratory scenario (SWES) exercise—a year-long effort to model how various financial entities, including non-bank financial intermediaries (NBFIs) and banks, would respond to a significant liquidity shock. While the findings are inherently tied to the specific stress scenario created for the exercise, the results showed that open-end funds (OEFs) and money market funds (MMFs) were neither the catalysts for, nor the primary drivers of, market-wide liquidity stress events. This key takeaway—derived from the SWES using the Bank of England’s assumptions—closely resembles conclusions of the real-world analysis ICI conducted on US bond mutual funds’ and MMFs’ impact on US fixed income markets during March 2020.[1]

Dispelling the Longstanding Narrative on OEFs

Following the COVID-19 market shock in March 2020, many US and international financial stability regulators fixated on bond OEFs and MMFs as the primary source of financial instability. The prevailing belief expressed in fora like the Financial Stability Board and the Financial Stability Oversight Council was that bond OEF and MMF redemptions triggered mass selloffs of assets that significantly distorted markets and exacerbated liquidity stress. ICI disagreed, presenting detailed analysis demonstrating that OEFs and MMFs were not the primary drivers of liquidity deterioration in comparison to much larger roles played by macroeconomic conditions and collective sales by other financial market participants. Despite ICI’s efforts, the financial stability community continued to repeat its narrative about the central role of bond OEFs and MMFs in liquidity events as if it was undisputed fact.

Hopefully, the SWES will succeed in changing some minds. The results of the exercise show that OEFs and MMFs demonstrated resilience in managing liquidity stress and are just one of many components in the financial ecosystem.

SWES Results: Liquidity Pressures Driven by Margin Calls, Not Fund Redemptions

An important finding from the SWES exercise is that OEFs and MMFs were not the primary source of liquidity stress. The drivers of liquidity needs under the SWES scenario were:

Variation margin calls: Representing 85% of liquidity pressures, reflecting heightened market volatility.
Initial margin calls: Making up 8% of liquidity demands.
Investor redemptions: Accounting for only 7% of liquidity needs, including from OEFs and MMFs.

These figures underscore that redemption activity—long theorized as a potential major destabilizing factor in market stress events—was marginal compared to the outsized impact of margin calls. This should be a wake-up call for those who have continued to disproportionately focus on funds as the primary risk to financial stability.

Resilience of OEFs and MMFs: Not Just a Quirk of This One Scenario

Yes, the SWES exercise was scenario-specific, but its findings provide valuable insight on the resiliency of OEFs and MMFs in the United Kingdom. OEFs and MMFs were able to meet redemption requests without significant difficulty. This is not just a lucky outcome of this particular scenario—it reflects that:

The pooled structure of OEFs did not inherently create systemic instability.
Indirect sales by OEFs were a minor part of total market stress—for example, indirect OEF-driven sales of sterling corporate bonds and asset-backed securities (ABS) in the exercise totaled just £4.5 billion, a negligible fraction of the overall market.
Liquidity pressures were concentrated elsewhere in the financial system—most notably, direct sales by insurance companies and pension funds, which made up 63% of sterling corporate bond sales.

Some key findings from the excise include the following:

1. Money Market Funds Demonstrated Resilience

The SWES exercise revealed that all participating MMFs experienced redemptions following an initial shock to asset prices as investors needed cash to cover margin calls. Despite these outflows, MMFs successfully met redemption requests using their liquid assets. Notably, MMFs representing about 50% of the sterling MMF sector did not face significant pressure due to their practice of maintaining liquidity levels above regulatory requirements. This outcome aligns with ICI data[2] showing that US MMFs tend to hold liquid assets beyond the mandated minimums as a prudent business practice.[3]

2. Open-End Funds Demonstrated Resilience

a. Liquidity Mismatch Risk

OEFs, which allow investors to redeem their holdings on demand, are often cited by policymakers as a potential source of liquidity strain during market stress. However, net redemptions from investors were relatively small—£7 billion from insurers—and OEFs had no issues meeting redemption requests during the SWES exercise.[4]

b. Correlated Behavior Across Funds

The SWES report raised concerns about theoretical correlated behavior among OEFs during market stress, which could amplify financial instability. This refers to the risk that multiple funds in similar asset classes may experience redemptions at the same time, potentially triggering a “fire sale” effect.

However, the SWES results did not support this theory. The specific examples cited—ABS funds and sterling corporate bond funds—showed negligible sales into their underlying markets (£2.5 billion and £2 billion, respectively) over the two-week timeframe, indicating limited impact on market stability.

c. Access to Liquidity and the Role of Banks

One notable finding was the disparity between fund managers’ expectations of accessing additional repo financing and the reality of banks’ willingness to provide it. More than half of fund managers viewed additional repo as an option for managing liquidity needs, yet over a third of them would not have been able to secure additional repo financing from the banks participating in the exercise. It is important to note, however, that repo markets are global. While UK-based “SWES” banks may have been reluctant to provide additional repo to OEFs, other banks (not participating in the exercise—for example, non-UK banks) may be willing to engage in repo transactions to satisfy liquidity needs.

3. Ineffectiveness of Liquidity Fees to Stem Redemptions by Insurance Companies and Pension Funds

The SWES report found that liquidity pressures stemmed primarily from the insurance and pension sectors, which were considered insensitive to deteriorating prices. Direct sales by these sectors accounted for 63% (£5 billion out of £8 billion) of total sales in sterling corporate bonds during the scenario. Indirect sales through OEFs accounted for only £1 billion. This raises questions about the effectiveness of swing pricing and redemption fees as tools to improve financial stability. The exercise showed that these mechanisms did not meaningfully reduce sales but instead shifted from indirect sales to direct asset sales by insurers and pension funds.

4. Regulators Have Created a System Where Buffers Are Not Effectively Utilized

The SWES report highlighted that NBFI firms sold assets to rapidly recapitalize their liquidity buffers, suggesting that regulatory frameworks have inadvertently created a system where liquidity buffers act as a “concrete pillow” rather than a shock absorber. Policymakers should consider the balance between setting adequate buffer levels to promote stability and avoiding levels that could incentivize destabilizing behavior.

ICI has previously pointed out this issue in the context of MMFs. During the market stress of March 2020, MMFs maintained 30% weekly liquid assets (WLA) in line with regulatory requirements. However, this buffer acted as a barrier rather than a tool to absorb shocks. ICI’s analysis found that MMFs could have met record-high redemption rates for several weeks without central bank assistance if they had been permitted to draw down on their WLA buffers.[5]

Implications for Other Jurisdictions Considering Similar Exercises

Regulators in other jurisdictions considering their own system-wide stress exercises should approach them without preconceived notions about OEFs as primary drivers of financial instability. The Bank of England’s findings highlight that while OEFs experience liquidity pressures, they were not the dominant force amplifying stress across financial markets. Instead, these exercises should be designed to evaluate how different market participants interact under stress holistically, rather than reinforcing a pre-determined regulatory narrative.

A Call for a More Nuanced and Objective Understanding of Financial Stability

The SWES exercise serves as an important reminder that financial stability is not about singular actors—it’s about the interplay between different market participants. Although the outcomes were a product of the specific scenario tested by the Bank of England, the fundamental market dynamics and interrelationships revealed by the exercise provide valuable insights on possible vulnerabilities that bear close watch in a stress event. Policymakers should acknowledge that financial instability is rarely caused by a single sector and instead focus on a broader, data-driven approach to assessing risk.

The SWES exercise reaffirms what ICI data has shown for years: OEFs and MMFs have not been the primary source of liquidity strains in stress events following the global financial crisis, and recent regulatory enhancements have further strengthened their resilience. While no stress test can predict every crisis, this exercise offers a valuable lesson for global regulators: understanding financial market stability requires looking beyond long-held assumptions and investigating where systemic vulnerabilities truly lie.

For policymakers and regulators who have spent years framing OEFs and MMFs as the current epicenter of market fragility, the SWES results should prompt reconsideration of policy priorities. A well-functioning financial system requires policies underpinned by clear-eyed and objective empirical analysis—not misplaced theoretical narratives.

Notes

[1] See, ICI Viewpoints, “On Closer Look, a Very Different Picture of Funds’ Role in the Commercial Paper Market,” April 21, 2021, at www.ici.org/viewpoints/21_view_mmf1 and a series of ICI Viewpoints on bond mutual funds’ role in the fixed income markets at https://www.ici.org/covid19.

[2] See, Monthly Money Market Fund Holdings January 2025, Investment Company Institute at www.ici.org/research/stats/mmfsummary/nmfp_01_25. In the United States, MMFs are required to hold a minimum of 25% in daily liquid assets and 50% in weekly liquid assets.

[3] The SWES exercise further revealed that MMFs faced less redemption pressure from insurance companies and pension funds than in previous crises. This outcome was not a fluke, but a result of concrete steps taken by the industry in the past few years to better prepare for stress events. Most notably, pension funds and insurance companies pledged more non-cash collateral to meet margin calls, thereby reducing their need to redeem MMF shares in the exercise.

[4] Although the SWES report noted that “fund managers struggled to predict the extent to which redemptions would be driven by fund investors’ liquidity needs,” the exercise did collect anticipated OEF redemptions from pension fund and insurance company participants based on their liquidity needs and waterfalls, providing an internal cross-check within the SWES on expected OEF redemptions.

[5] See, “Experiences of US Money Market Funds During the COVID-19 Crisis,” Investment Company Institute, November 2020, at pages 35-36.

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Authors:

Eric J. Pan

Wed, 02/19/2025 - 10:10

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