FSB policy proposals to benefit global asset managers

Large asset managers are better positioned to absorb the added compliance costs, a new report from Moody’s finds

By: James Langton
January 16, 2017 December 19, 2017
12:00

Global asset managers will likely benefit from policy proposals the Financial Stability Board (FSB) put forth last week that aim to address possible systemic risk concerns in the asset-management sector, a new report from Moody’s Investors Service Inc. suggests.

The FSB published a series of policy recommendations on Jan. 12 intended to deal with potential systemic risks in the asset-management business, including leverage, liquidity mismatches and operational risks that may emerge under stressed market conditions. If regulators take up these recommendations, firms should benefit from the changes despite the associated costs of compliance, the credit-rating agency’s report says.

“The recommended policy changes will likely increase reporting and operational requirements for asset managers, enhancing risk-management capabilities, transparency and resilience in times of stress, a credit positive,” the Moody’s report says. “Over time, the benefits of implementing these type of policy changes should increase earnings stability and lower reputational risk.”

In particular, large asset managers are better positioned to absorb the added compliance costs. “We expect only a mild effect on large asset managers’ bottom lines, and some of these potential regulatory costs could be passed on to fund investors,” the report says.

“However, ultimately all players should benefit from a safer investment fund industry that continues to generate strong margins with less volatility,” the report notes.

In addition, recommendations that call for more stringent risk assessments and greater transparency would “increase investor confidence in the funds and benefit the long-term growth of the sector,” the report states.

The International Organization of Securities Commissions (IOSCO) will revise its guidance on liquidity rules and disclosures by the end of 2017 in response to the proposals, the Moody’s report says.

The FSB also calls on IOSCO to develop a simple and consistent measure to assess leverage-related risk in funds and across countries by the end of 2018.