SIFMA bangs the drum for securities lending
23 September 2016 Washington DC
Image: Shutterstock
The securities lending market is not a systemic risk and therefore should not be constrained by regulation, according to the Securities Industry and Financial Markets Authority (SIFMA).
In a recent response letter, dated 21 September, to the Financial Stability Board’s (FSB) proposals for addressing “structural vulnerabilities” in asset management activities, SIFMA asserted that “securities lending is helpful to the financial markets in a number of respects and regulators should not take measures that would tend to limit securities lending activity”.
SIFMA added that the volume of regulation already in place “adequately address any risks that may be associated with the practice”.
The association also noted argued that the indemnifications covered by the FSB’s are “well regulated and the potential liability is self-contained and limited to the difference between the replacement cost of the security and the value of the collateral pledged”.
SIFMA’s response letter focused on addressing what the FSB described in its policy recommendations published on 22 June as “structural vulnerabilities” in the activities of asset managers and investment funds.
As well as securities lending, SIFMA also responded to FSB’s proposals on tackling leverage, operational risk and liquidity risk management.
On the liquidity risk management proposals SIFMA urged the FSB to ensure any additional reviews were strictly necessary and take existing regulation and market practices into account.
SIFMA also warned the FSB not to lose sight of the low risk that open-end funds pose when constructing future regulation.
“The FSB’s call for additional liquidity tools is not commensurate with the risks posed by open-end funds. Therefore, we urge the FSB to refrain from pursuing these recommendations or, at minimum, delay consideration of these recommendations pending further action by national securities regulators.”
On leverage, SIFMA endorsed the FSB’s view that the use of leverage is not widespread, and therefore it is not “a source of systemic risk”.
In assessing the FSB’s overall approach to promoting financial stability in its comment letter SIFMA stated: “We are encouraged by the FSB’s shift in focus to asset management products and activities and away from its past initiative of establishing methodologies for identifying individual funds or asset managers as systemically important.”
“We believe that this revised approach better reflects the fundamental nature of the asset management business, recognises the differences between asset management and other financial services firms, and better informs the FSB’s approach to regulatory frameworks in US and non-US jurisdictions.”
In a recent response letter, dated 21 September, to the Financial Stability Board’s (FSB) proposals for addressing “structural vulnerabilities” in asset management activities, SIFMA asserted that “securities lending is helpful to the financial markets in a number of respects and regulators should not take measures that would tend to limit securities lending activity”.
SIFMA added that the volume of regulation already in place “adequately address any risks that may be associated with the practice”.
The association also noted argued that the indemnifications covered by the FSB’s are “well regulated and the potential liability is self-contained and limited to the difference between the replacement cost of the security and the value of the collateral pledged”.
SIFMA’s response letter focused on addressing what the FSB described in its policy recommendations published on 22 June as “structural vulnerabilities” in the activities of asset managers and investment funds.
As well as securities lending, SIFMA also responded to FSB’s proposals on tackling leverage, operational risk and liquidity risk management.
On the liquidity risk management proposals SIFMA urged the FSB to ensure any additional reviews were strictly necessary and take existing regulation and market practices into account.
SIFMA also warned the FSB not to lose sight of the low risk that open-end funds pose when constructing future regulation.
“The FSB’s call for additional liquidity tools is not commensurate with the risks posed by open-end funds. Therefore, we urge the FSB to refrain from pursuing these recommendations or, at minimum, delay consideration of these recommendations pending further action by national securities regulators.”
On leverage, SIFMA endorsed the FSB’s view that the use of leverage is not widespread, and therefore it is not “a source of systemic risk”.
In assessing the FSB’s overall approach to promoting financial stability in its comment letter SIFMA stated: “We are encouraged by the FSB’s shift in focus to asset management products and activities and away from its past initiative of establishing methodologies for identifying individual funds or asset managers as systemically important.”
“We believe that this revised approach better reflects the fundamental nature of the asset management business, recognises the differences between asset management and other financial services firms, and better informs the FSB’s approach to regulatory frameworks in US and non-US jurisdictions.”
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