A subgroup within the 'Occupy Wall Street' movement has called for greater regulation around banks’ relationships with the private equity industry.
'Occupy the SEC', a subdivision of Occupy Wall Street, submitted a detailed consultation response to the US Securities & Exchange Commission (SEC), arguing the agency should expand its definition of covered funds to include any vehicle suspected of being used to subvert the rules.
The Volcker rule limits banks’ investment in private equity and other covered funds to no more than 3 percent of their Tier 1 capital, with an additional restriction from acquiring no more than a 3 percent ownership stake in any fund.
The protest group said personal investments in covered funds made by bank employees should count towards those thresholds.
“Failure to attribute personal ownership interest by an investment advisor working for the banking entity leaves room for improper incentives to bail out the covered fund should it reach dire straits”, the group said.
The response letter also argued for including carried interest as an ownership interest, a feature not mentioned in or provided for by the Volcker statute, according to the group.
“The exemption of carried interest from the definition of ownership interest seems to have been added as a result of lobbying by the financial industry, and contradicts statutory intent,” the letter said.
In related news, a coalition of institutional investors called for the SEC to be more aggressive in its rulemaking around shareholder rights, international accounting standards and executive compensation reforms under Dodd-Frank.
In a letter dated 13 February to SEC chair Mary Schapiro, the group of investors, which includes the California Public Employees’ Retirement System, said “there is a growing movement to undercut the goals of market reform. If this movement is successful, there is the very real risk that investor confidence will erode”.