U.S. Securities Industry and Financial Markets Association’s Asset Management Group (SIFMA AMG) on Thursday submitted comments to the Financial Stability Board (FSB) regarding the FSB’s efforts to guard against systemic risk stemming from asset management.
Overall, SIFMA AMG is “generally supportive” of many of the FSB’s recommendations, the group says in a news release.
However, the group also argues that the existing regulatory framework, which governs the day-to-day operations of asset managers and investment funds, already deals with many of the concerns expressed by the FSB.
On the use of leverage for example, SIFMA AMG says that funds use of leverage is already subject to extensive regulation and disclosure requirements. “Leverage serves many important, beneficial functions and should not be subject to undue restriction,” the group says, warning against additional leverage restrictions.
Existing, and forthcoming, regulation ensures that asset managers have robust risk management processes, the group notes. “There is a misconception that financial stress and market volatility are correlated and cause operational issues in the asset management industry. In fact, the record demonstrates that asset managers and their funds routinely enter and exit the market without creating systemic disruptions,” SIFMA AMG says.
Additionally, securities lending “is not a source of systemic risk”, the group says, and it “is already subject to a range of existing and pending regulations that… adequately address any risks that may be associated with the practice.”
On the issue of liquidity, the group says that securities regulators are best positioned to lead any efforts to address any issues in this area; and, that the International Organization of Securities Commissions should co-ordinate these efforts at the global level.
“We appreciate the FSB’s efforts to recognize the differences between asset management and other financial services firms, and support the FSB’s acknowledgement of the role of securities regulators,” adds Timothy Cameron, managing director and head of SIFMA AMG.
“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,” he says.