Today, we excerpt from our latest Money Fund Intelligence "profile," "Interview w/ICI's Karrie McMillan: In the Trenches." The article says: This month, we interview Karrie McMillan, General Counsel of the Investment Company Institute. The ICI, which is the trade association for the mutual fund industry, and McMillan have been in the forefront of the money market fund regulatory reform debate, both in the U.S. and globally. Below, we discuss recent developments here and abroad, and we talk about what's next for money markets and mutual funds."
MFI: Could you briefly tell us a little about your history and about ICI's history? McMillan: I first really ran across mutual funds while I was at the SEC in the '90s when I worked in the Division of Investment Management and the Chief Counsel's office. My goal was to avoid doing anything having to do with money market funds. I kept my head down and worked on everything else. We see where that has gotten me now! ICI has been working on money market fund issues since they first came into existence in the 1970s. Of course, there have been ebbs and flows, depending upon what is going on in the money market space. [We sometimes went] through decades without really having much happening. But whenever there has been activity in the area, we've been there ... with rulemaking, data, comments, etc. We've been more active on money market funds of course since 2007 and 2008. But, in general, we've been engaged on these issues here for quite a while.
MFI: On regulatory reform: is it over? McMillan: It is by no means over.... I think for right now it sounds like the SEC Chairman Mary Schapiro is not interested in pursuing further money market fund reform herself. The other Commissioners, Luis Aguilar, Troy Parades, and Dan Gallagher put out statements, as you know, that talked about areas where the Commission could provide value and learning. Then there is the handoff that the Chairman seems to have invited to the FSOC [Financial Stability Oversight Council]. And then there is Europe. We were pleased that [the SEC] pulled the proposals that were so troublesome.
MFI: What's next in the regulatory reform debate? McMillan: One thing that we've all learned about money market funds is that you think the debate is headed one way and the next hour it has totally changed. At this moment, I feel like the next action is more likely to be in Europe. They are the ones now with the active ideas on the table or are in the development stage, whereas FSOC has been playing a more behind-the-scenes role in encouraging the SEC and Chairman Mary Schapiro. While I don't think this is going away, I do think that there may be, I hope, a little bit of time to stop and reflect.
In Europe, we are looking at IOSCO, which is meeting in early October to talk about the proposal that was put out in April. We, of course, commented on those. They are supposed to be turning over recommendations, I believe in November, to the FSB, so that is really coming up pretty quickly. ICI and several other fund associations are also having a summit in Brussels on October 4th where we will have a lot of thought leaders doing a one day seminar to try to engage in the money market fund debate over in Europe. [Note: Crane Data is also involved in European Money Fund Summit, a conference in Frankfurt, Germany, Nov. 19-20, 2012. See http://www.moneyfundsummit.com.]
In some ways, I feel like Europe is where we were maybe two years ago in terms of understanding the importance of money market funds, the role they play in the economy, who the users are, their importance, etc. We are trying to provide the same education for policy makers over there that we did here in the United States. So this would be an important first start on that. On the top of that, there is the European Parliament and the work that they are doing on shadow banking that could also play into what happens with money market funds. So I think, for a while at least, our eyes will be looking over there.
MFI: What is your biggest challenge? McMillan: In terms of the policy challenge, there is this view of what happened during the crisis that seems unshakable. The rhetoric has ratcheted up and gone from, "the money market funds were a contributing factor, an accelerant," to the latest FSOC report, which is we were "the cause." It is very hard to get air space to confront this "given" with facts, and have people understand what actually happened.
We will be publishing a paper in the near future that will walk through what we believe is a more accurate narrative that shows that the markets started moving, people were leaving the short-term money markets, before Reserve announced its problems and before you saw outflows from money market funds. The hope is that this can provide more intellectual capital to the discussion. If you have a better sense of what actually occurred during the crisis, then you have a better sense of what should be done. [Look for Part II of our MFI Interview in coming days.]