The Financial Stability Oversight Council issued an update on asset management products and activities that, it claimed, might pose threats to national financial stability, including liquidity, redemption and leverage risks. Although the FSOC report noted certain recent initiatives of the Securities and Exchange Commission to enhance liquidity risk management and disclosure at registered funds and to limit the amount of leverage that registered investment companies may obtain through the use of derivatives, FSOC still issued its own recommendations of steps that might be taken to reduce relevant risks. To help mitigate against liquidity and redemption risks, FSOC recommended among other things, that registered funds that invest in less-liquid assets should engage in “robust” risk management practices particularly in anticipating “stressed conditions;” that “clear regulatory guidelines” should be adopted addressing limits on the ability of mutual funds to hold illiquid assets that “might interfere with a fund’s ability to make orderly redemptions”; and that there be better reporting by mutual funds of their risk management practices and liquidity profiles. FSOC recommended further study of the use of leverage by hedge funds and “welcomed” the SEC’s proposal to limit the amount of leverage mutual funds and exchange-traded funds might obtain through the use of derivatives. FSOC also recommended further study on the potential risks to financial stability potentially caused by securities lending activities. In a statement issued in connection with the release of the FSOC report, SEC Chairperson Mary Jo White noted the “overlap” between FSOC’s update and certain of the SEC’s recent proposed reforms, but made clear that FSOC’s update “should not be read as an indication of the direction of the SEC’s final asset management rules may take.” Timothy Massad, chairman of the Commodity Futures Trading Commission, noted that, although FSOC in its report cited certain leverage metrics, “[w]e have not yet ‘connected the dots’ between [those metrics] and the amount of underlying risk it represents.” (Click here to access information on the SEC’s proposal related to the use of derivatives by registered investment companies in the article, “SEC Considers New Rule to Restrict Use of Derivatives by Investment Companies” in the December 13, 2015 edition of Bridging the Week.)