Legislative News

House Advances Bill to Exempt Mutual Fund Companies From Stress Testing Requirements

The Alleviating Stress Test Burdens to Help Investors Act (H.R. 4566)

Written and posted 22MAR2018 by Dave Kovaleski, writing for Financial Regulation News (FRN).Reprinted with permission. Visit here.

The U.S. House advanced legislation this week that exempts non-banks, such as mutual fund companies, from taking financial stress tests.

The Alleviating Stress Test Burdens to Help Investors Act (H.R. 4566), introduced by Rep. Bruce Poliquin (R-ME), says nonbank financial institutions that are not under supervision by the Federal Reserve, and are regulated by the Securities and Exchange Commission or Commodity Futures Trading Commission, do not have to comply with Dodd-Frank Act’s stress testing requirements.

“The ‘stress-test’ regulation is a well-intentioned idea, but it must be applied in the right way for each institution and not in a ‘one-size-fits-all’ approach so that it can work as it was originally envisioned. My bill is an important and bipartisan fix that will make sure our regulations are applied properly and fairly,” Poliquin said.

The bill passed 395-19 in the House

avoid inappropriate application of bank-oriented stress testing requirements to mutual funds, other registered investment companies, and their investment advisers

“ICI welcomes House passage of the Alleviating Stress Test Burdens to Help Investors Act (H.R. 4566). This critical legislation provides a modest but important update to the Dodd-Frank Act that would avoid inappropriate application of bank-oriented stress testing requirements to mutual funds, other registered investment companies, and their investment advisers,” Paul Schott Stevens, president and CEO of the Investment Company Institute, said.

While testing a bank’s ability to maintain sufficient capital in stressed conditions is appropriate, Stevens said such testing is ill-suited to mutual funds, which do not guarantee investment returns to their investors. Applying these requirements would likely raise costs for fund shareholders, he added.

“In passing H.R. 4566, the House has taken the first step toward tailoring the Dodd-Frank Act so that its stress testing requirements achieve their intended purpose. This legislation also preserves the Securities and Exchange Commission’s ability to use existing authority to require more appropriate tests of how funds and their advisers would fare in turbulent markets,” Stevens said.

The bill now advances to the Senate floor for further consideration.