Asset managers do not pose any significant risk to global financial stability, according to the SIFMA Asset Management Group (AMG).
The SIFMA AMG was responding to the Financial Stability Board’s proposed policy recommendations to address structural vulnerabilities from asset management activities.
SIFMA said that although it is generally supporting of the recommendations, asset managers already operate within a “deep and intricate regulatory framework that governs the everyday operations of asset managers and investment funds”, and that this already addresses many of the FSB’s concerns.
Addressing the FSB’s call for additional liquidity tools, the letter stressed that liquidity risk management is already a large part of daily operations for open-ended and mutual funds.
It also said there was no clear evidence that the asset management industry has ever struggled to meet investor redemption requests, nor that there is any connection between liquidity risk in open-ended funds and systemic risk to global financial markets.
The letter said: “Rather, the evidence demonstrates the asset management industry has
consistently been able to meet shareholder redemptions through periods of market stress.”
It went on to suggest that national securities regulators should take the lead and coordinate on enquiries into new liquidity challenges.
It said: “We encourage the FSB to focus on the harmonisation of data requirements across jurisdictions, especially where overlapping regulations create inefficiencies in the reporting and disclosure of liquidity profile information.”
SIFMA AMG also highlighted the FSB’s recommendations relating to operational risk, saying: “There is a misconception that financial stress and market volatility are correlated and cause operational issues in the asset management industry.”
Again, however, SIFMA said it is not aware of any operational challenges faced by funds and asset managers that could lead to global systemic risk.
“In fact, the record demonstrates that asset managers and their funds routinely enter and exit the market without creating systemic disruption,” it said.
The letter went on: “Regulatory considerations, client expectations, and reputational considerations compel asset managers to develop sophisticated and evolving risk management processes that are in the best interests of their clients and tailored to their business and operations.”
Commenting on the response letter, Timothy Cameron, managing director and head of SIFMA AMG, said: “We appreciate the FSB’s efforts to recognise the differences between asset management and other financial services firms, and support the FSB’s acknowledgement of the role of securities regulators.”
He added: “Our goal is to provide the FSB with information to further inform their approach to, and views of, asset management as unique and well-equipped to continue its track record for successfully meeting shareholder redemptions through normal and stress conditions without presenting a systemic risk to global financial stability.”
