22 April 2018
visit www.nextgenbanking.co.uk

Systemic Risk Council weighs in on asset management vulnerabilities

19 October 2016  |  1654 views  |  0 Source: Systemic Risk Council

On October 15, 2016, the Systemic Risk Council submitted a comment letter to the Financial Stability Board (FSB) on its recent Consultative Document, in which the FSB proposed policy recommendations intended to address structural vulnerabilities in the asset management industry.

"The Council is encouraged by the Financial Stability Board's focus on the asset management industry," said Sir Paul Tucker, Chairman of the Systemic Risk Council. He stated: "It is important that any risk arising from the structures and practices of asset management firms be identified and understood." "Most important," explained Sir Paul, "where those risks are material, they must be mitigated in a proportionate way before such vulnerabilities are demonstrated by a new financial crisis."

In its letter, the Council expressed its support for the FSB's work on potential risks to financial stability arising from asset management structures and practices. The Council offered broad comments and recommendations under the four categories identified in the Consultative Document: (1) liquidity mismatch; (2) leverage within funds; (3) operational risk and challenges in transferring investment mandates or client accounts; and (4) securities lending activities of asset managers and funds.

Specifically, the Council recommended that the FSB consider:
1. Minimum Levels of Liquid Assets. Open-end funds invested in illiquid and opaque assets to hold a minimum level of liquid assets, the calibration of the requirement depending in part on whether "swing pricing" applies.
2. Notice Periods for Redemption. Open-end funds invested in illiquid assets to be subject to a notice period for redemption, again taking account of any "swing pricing."
3. Leverage Limits. Irrespective of whether they offer daily liquidity, funds invested in illiquid assets to be subject to leverage limits that become stricter as a fund gets larger, with calibration depending on whether a liquid-assets requirement applies.
4. Stress Testing. Stress testing to be at the level of individual funds and, where relevant, system wide.
5. Equity Requirements for Indemnities. Common equity to be held against indemnities provided by asset managers to funds they manage or to third parties.
6. Disclosure of Asset-Manager Indemnities. Individual asset managers to disclose their aggregate contingent liabilities.

In addition, the Council identified and discussed a possible area for further work by the FSB relating to unlevered funds that do not offer frequent redemption opportunities as well as provided an observation on issues that it believes should be covered in the FSB's planned future work on pension funds.

Comments: (0)

Comment on this story (membership required)

Related blogs

Create a blog about this story (membership required)
visit www.ebaday.comVisit http://go.jumio.com/finextraAdVisit www.nextgenbanking.co.uk

Top topics

Most viewed Most shared
Top tier banks pass first transactions on trade finance blockchainTop tier banks pass first transactions on...
11213 views comments | 19 tweets | 26 linkedin
TransferWise becomes first non-bank to open settlement account with BofE RTGSTransferWise becomes first non-bank to ope...
9974 views comments | 18 tweets | 32 linkedin
Revolut launches spare change savings toolRevolut launches spare change savings tool
9871 views comments | 14 tweets | 19 linkedin
Barclays Bank sets up tech venture unitBarclays Bank sets up tech venture unit
9052 views comments | 16 tweets | 22 linkedin
Goldman Sachs acquires PFM startup Clarity MoneyGoldman Sachs acquires PFM startup Clarity...
8465 views comments | 9 tweets | 10 linkedin

Featured job

Find your next job