Global money managers and the associations that represent them have urged the Financial Stability Board and the International Organization of Securities Commissions to drop their efforts in creating a methodology to designate certain money managers and investment funds as systemically important.
In responses to the FSB and IOSCO's second public consultation on “Assessment Methodologies for Identifying Non-Bank Non-Insurer Global Systemically Important Financial Institutions,” which closes to comments Friday, the organizations are being encouraged to instead focus on the products and activities of money managers.
“We are suggesting that what (the FSB and IOSCO) want to be focusing on is (money management) products and activities,” said Timothy Cameron, managing director and head of the Securities Industry and Financial Markets Association, which represents money managers and other financial firms, in a telephone interview. Mr. Cameron said this focus ties in with the FSB's recently announced task force that considers these elements of money management.
“There is no proof that asset managers and funds present the same risk (as entities in the banking sector.) They do not have the same characteristics that could threaten the financial system.” Mr. Cameron said.
The whole point of a systemically important financial institution designation is “to reduce taxpayer exposure and moral hazard, none of which exist in the asset management space,” Mr. Cameron said.
By focusing on the “products and activities,” the FSB and IOSCO would be better aligned with efforts that are currently underway by U.S. and other national regulators, Mr. Cameron said.
Separately, the Investment Association, which represents U.K. money managers with more than £5 trillion ($7.9 trillion) in assets under management, agreed in its response that the FSB and IOSCO's focus should be on activities.
“Risks to financial stability concerning our industry will manifest themselves in financial markets, as threats to financial stability from market turbulence, malfunction or disorder,” the Investment Association wrote in its response. “Hence, the nexus between asset management and financial stability requires addressing the risks to finical stability in financial markets.”
This requires a focus on the entire market ecosystem and taking into account market structure — including products traded, market participants and their behavior, market liquidity, leverage, interlinkages, market practice, existing regulation and existing public policy, the Investment Association said.
The size of a money manager or of certain investment funds is “a useless tool for identifying systemic risks in investment management,” said a news release accompanying the response from Investment Association.