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imageWASHINGTON: The US Treasury Department is staunchly refuting claims by Republican lawmakers that a research report highlighting risks in the asset management industry failed to incorporate feedback from the sector's primary regulator.

In a terse 11-page letter to Congressman Darrell Issa, which was reviewed by Reuters, the Treasury Department insisted this week that its independent research office "engaged extensively" with the Securities and Exchange Commission before publishing the September 2013 study.

The study by the Treasury's Office of Financial Research (OFR) sent shockwaves through the industry because it concluded that certain activities by large asset managers could pose systemic risks. It raised concerns, among other issues, about a reliance on borrowing and use of derivatives to boost returns.

Industry executives say the study was deeply flawed, and fear it could be used by the US Financial Stability Oversight Council to impose tougher rules on asset managers.

That body of regulators has the power to designate large firms as "systemic," and it plans to hold a public meeting next Monday to further explore whether asset managers may pose threats to financial stability. Reuters previously reported that the SEC privately agreed the study was flawed, and put it out for public comment so that critics could vent their frustrations.

Documents obtained by the House of Representatives' oversight committee, which Issa chairs, confirmed that the SEC and the OFR had disagreements, and that the agency pushed for sweeping changes prior to the study's release.

Issa and Congressman Jim Jordan of Ohio wrote to Treasury Secretary Jack Lew last month demanding answers from the department as to why the OFR "paid lip service" to the SEC staff's suggestions on the report.

However, in the letter back to Issa this week, Treasury insisted that the OFR worked well with the SEC and incorporated many of the agency's suggestions. "In addition to written comments, there were at least 13 telephonic and in-person meetings," wrote Alastair Fitzpayne, an assistant secretary for legislative affairs at Treasury. "Throughout this collaborative, eight-month process, the study was refined, resulting in a stronger, clearer, more concise draft."

In addition to insisting that the OFR and SEC worked closely together on the report, the Treasury's May 13 letter pushed back against criticism that the asset management study was drafted to justify imposing additional regulation on firms.

"Your letter suggests that there may have been a predetermined outcome to the OFR's research," the letter says. "We respectfully disagree."

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