UK regulators 'meeting asset managers'

Andrew Bailey speaks during the Bank of England's financial stability report news conference in London.
Andrew Bailey speaks during the Bank of England's financial stability report news conference in London.PHOTO: BLOOMBERG

Move comes as Standard Life, Aviva suspend trading of their funds after Brexit

LONDON • •Britain's financial regulators are to meet the country's largest asset managers to discuss the effects of Brexit on the industry, said a person familiar with the matter.

The meeting comes as the Financial Conduct Authority weighs a review of real estate funds after Standard Life Investments suspended trading in its £2.9 billion (S$5.2 billion) fund, according to Mr Andrew Bailey, the UK regulator's new chief executive officer.

The Aviva Investors Property Trust fund was frozen yesterday because of a lack of liquidity caused by "extraordinary market circumstances", Aviva said by e-mail.

"I think it does point to issues, that we will need to look at the design of these things," Mr Bailey said at a press briefing with Bank of England governor Mark Carney.

However, he said that suspending a fund is "not a panic measure, it's designed into these structures to deal with precisely that situation where there has been some shock to the market".

The meeting with asset managers was arranged before Standard Life froze its UK Property Fund on Monday, said the person, who declined to be identified because the meeting is private.

The Edinburgh-based company halted trading in the fund, which invests in a mix of prime commercial real estate assets, after Britain's vote on June 23 to leave the European Union sparked redemptions.

Mr Bailey, who started his new job just two days ago, said the regulator was in close touch with relevant fund managers. "We will have to come back and look at it both from the point of view as an issue of conduct and as an issue of systemic stability," he said.

Investors are pulling money as industry commentators warn that office values in the British capital London could fall by as much as 20 per cent within three years of the country leaving the EU.

During the financial crisis of 2007 and 2008, real estate funds were forced to freeze operations after withdrawals surged, contributing to a slump that saw property values drop more than 40 per cent from their peak in Britain.

Standard Life on Monday said its fund, which held a cash position of more than 13 per cent as of May 31, still offers a stable and secure income return and that the selling process had to be controlled to protect investors.

Meanwhile, the Bank of England (BOE) has taken steps to ensure British banks can keep lending and insurers do not dump corporate bonds in the "challenging" period that is likely to follow the country's shock Brexit vote.

The central bank said it would lower the amount of capital banks are required to hold in reserve, freeing up an extra £150 billion for lending in a reversal of a decision it took earlier this year, when it started tightening the screws on lenders because Britain's economy appeared on course for more growth.

BOE's Mr Carney said the move represented a "major change" that would help the economy to weather the Brexit hit.

The pound dropped to US$1.3069, reaching lows against the US dollar last seen in 1985 and surpassing lows reached in the aftermath of the vote to leave the European Union.

BLOOMBERG, REUTERS

A version of this article appeared in the print edition of The Straits Times on July 06, 2016, with the headline 'UK regulators 'meeting asset managers''. Print Edition | Subscribe