FSB delays due to asset managers’ concerns
07 August 2015 Basel
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The Financial Stability Board (FSB) has decided to delay finalising the assessment methodologies for non-bank, non-insurer global systemically important financial institutions (NBNI G-SIFIs).
The FSB wants to wait until its work on financial stability risks from asset management activities is completed.
The G20 body published its second consultative document on NBNI G-SIFI methodologies in March, setting a deadline of 29 May for industry feedback.
It received around 50 comments, largely on how the methodologies would treat asset management activities.
Many asset manager firms appeared to crticise the FSB, with Fidelity saying in its comment letter: “Investment funds and asset managers do not, and cannot, present the type and scale of risk required to justify a G-SIFI designation.”
“And even if a single fund or manager were capable of presenting that kind of risk to the global financial system, designation would not effectively address the risk.”
The FSB has taken particular issue with ‘shadow banking’ activities such as securities lending and repo, which asset managers engage in to boost returns.
“The significant number of funds available to investors, the intense competition in the industry and the high degree of substitution, mean that particular activities (eg, securities lending, repo, etc) are not limited to a small subset of the largest funds, but, rather, are conducted by a host of funds and other market participants.”
“If the goal is to reduce risk across the global financial system, then regulators must deal with the activities that create that risk consistently across the system. Regulators must restrict those activities not only across all funds, but across all market participants.”
Going on to defends its securities lending activities, Fidelity said that its mutual funds “engage in securities lending to a limited extent”, and its securities lending programmes “do not pose material investment risk to the funds, let alone the financial stability of the US”.
The FSB said more time will “allow further analysis of potential financial stability issues associated with asset management entities and activities to inform the revised assessment methodology”.
It will report on its work to the G20 countries later this year and plans to develop “activities-based policy recommendations” by the spring of 2016.
The FSB wants to wait until its work on financial stability risks from asset management activities is completed.
The G20 body published its second consultative document on NBNI G-SIFI methodologies in March, setting a deadline of 29 May for industry feedback.
It received around 50 comments, largely on how the methodologies would treat asset management activities.
Many asset manager firms appeared to crticise the FSB, with Fidelity saying in its comment letter: “Investment funds and asset managers do not, and cannot, present the type and scale of risk required to justify a G-SIFI designation.”
“And even if a single fund or manager were capable of presenting that kind of risk to the global financial system, designation would not effectively address the risk.”
The FSB has taken particular issue with ‘shadow banking’ activities such as securities lending and repo, which asset managers engage in to boost returns.
“The significant number of funds available to investors, the intense competition in the industry and the high degree of substitution, mean that particular activities (eg, securities lending, repo, etc) are not limited to a small subset of the largest funds, but, rather, are conducted by a host of funds and other market participants.”
“If the goal is to reduce risk across the global financial system, then regulators must deal with the activities that create that risk consistently across the system. Regulators must restrict those activities not only across all funds, but across all market participants.”
Going on to defends its securities lending activities, Fidelity said that its mutual funds “engage in securities lending to a limited extent”, and its securities lending programmes “do not pose material investment risk to the funds, let alone the financial stability of the US”.
The FSB said more time will “allow further analysis of potential financial stability issues associated with asset management entities and activities to inform the revised assessment methodology”.
It will report on its work to the G20 countries later this year and plans to develop “activities-based policy recommendations” by the spring of 2016.
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