LONDON (Reuters) - The Financial Stability Board (FSB), which coordinates financial sector rules for the Group of 20 Economies (G20), set out 14 policy measures on Wednesday (June 22) to stop asset management activities from destabilising the financial system.
The measures stop short of requiring asset managers to hold more capital, a step they and some market regulators have said were not needed.
The measures have been put out for public consultation and will be finalised by year-end.
They will be implemented from the end of 2017 by IOSCO, the global umbrella body for securities regulators from G20 and other countries.
The key risks they identified were:
- A "mismatch" between the ability of open-ended funds to make redemptions or pay back investors at all times;
- The level of leverage within all types of funds;
- The challenge of transferring investment mandates of large, complex funds in rocky markets;
- Risks from securities lending activities, in particular the provision of indemnities to clients.
Their proposed policy measures:
- Regulators to review the adequacy of data collected on liquidity at open-ended funds;
- Regulators should review existing disclosures by funds to investors on their ability to meet redemptions;
- Regulators to put in place requirements for funds' assets and investment strategies to be consistent with redemption promises being made;
- Regulators should widen the range of "tools" funds can use to deal with waves of redemptions in stressed markets, such as fees on redemptions;
- Regulators should require stress-testing of individual funds to check on their ability to manage heavy demands on liquidity;
- IOSCO to develop a "simple and consistent" measure of leverage in funds by end of 2018 to help monitor leverage;
- From end 2019, regulators should collect cross-border data on leverage in funds and take action where appropriate;
- Regulators should put in place requirements for big, complex asset managers to have business continuity and transition plans to allow for orderly transfer of accounts to another fund in stressed markets;
- Regulators should monitor the indemnifications provided by asset managers to clients in relation to their securities lending activities.
The 14 measures proposed don't apply to money market funds, which have been addressed separately, or to pension funds and sovereign wealth funds, which will be looked at later.
Once the measures have been finalised, the FSB and IOSCO will jointly revisit earlier plans for assessing whether some asset managers should be deemed "globally systemic" and subject to tougher measures.
This assessment will focus on any "residual" risks from distress or disorderly failure that cannot be addressed by the 14 measures that focus on activities.