The Financial Stability Board (FSB) published a package of 14 policy recommendations on Thursday that are intended to combat potential financial stability risks in the asset-management business, including excessive leverage, liquidity mismatches, securities lending, operational risk, and the challenges asset managers face in stressed conditions.
In terms of liquidity mismatch, the recommendations are designed to increase transparency to both regulators and investors, along with potential system-wide stress testing, the FSB says.
The FSB’s recommendations also focus on the measurement and monitoring of leverage within investment funds. In addition, the recommendation dealing with operational risk aims to ensure that risk-management frameworks and practices match the level of risk that a firm’s activities pose to the financial system.
“The growth in asset-management activities provides new sources of credit and investment and adds diversity to our financial system. The policy recommendations published today will enhance the resilience of asset-management activities so that this form of market-based finance can help underpin strong, sustainable and balanced economic growth,” says Mark Carney, the FSB’s chairman, in a statement. “This will be of lasting benefit to our collective economies.”
“The policy recommendations are an important step toward addressing potential financial stability issues in the asset-management sector from a market-wide, activities-based perspective,” adds Ashley Alder, chairman of the International Organization of Securities Commissions (IOSCO), in a statement. “IOSCO will take forward the recommendations on liquidity mismatch and leverage so as to enhance the overall soundness of this important financial sector.”