Efforts by U.S. and global regulators to address financial stability in the asset management industry will continue, with possible adjustments, panelists at the Securities Industry and Financial Markets Association capital markets meeting in Washington said Tuesday.
“There's been a change in regulatory philosophy (since the crisis) to put greater protections in place. There's been a tremendous change in regulatory cooperation and coordination,” said Svein Andresen, Financial Stability Board secretary general. His organization represents regulators from 24 countries.
Jonah Crane, deputy assistant secretary of the U.S.' Financial Stability Oversight Council, said his group of 15 regulatory agency members is also starting to be concerned about activity “that doesn't have a direct correlation to the crisis, no matter who is doing the activity.”
Mr. Adresen said that reforms implemented to date “are paying off … The core of the financial system is a lot more resilient today,” he said, but his group has also “been very, very focused on assessing the impact of reforms. We need to make the adjustments.”
On June 22, the Financial Stability Board proposed further oversight of asset managers to protect against systemic risk, calling for more disclosure and internal controls, and possibly new rules on liquidity, leverage and securities lending.
Last week, SIFMA's asset management group and several large asset managers, including BlackRock, Vanguard Group and Fidelity Investments, submitted comments to the FSB on its proposed policy recommendations, called a consultation, to address structural vulnerabilities from asset management activities.
In BlackRock's letter, Vice Chairman Barbara Novick wrote that the money manager largely agrees with the majority of recommendations the board made. However, she added that while BlackRock supports the FSB's recommendation of expanding the availability of liquidity risk management tools for fund managers, she cautions that mandatory liquidity buffers could result in systemic risk.
Although the authors of Vanguard's letter — Tim Buckley, chief investment officer, and John Hollyer, head of risk management group — expressed support of the FSB's efforts to ensure appropriate checks and balances are in place within the asset management industry, they stated that they do “not agree with the FSB's claims that the asset management industry has structural vulnerabilities that could present systemic risk.”
Marc Bryant, senior vice president and chief legal officer of Fidelity Management & Research Co., wrote that Fidelity is pleased the FSB shifted its approach to focus on certain asset management products and activities rather than individual entities, and believes any future work by the FSB or International Organization of Securities Commissions should continue to follow this approach.
“(T)he consultative document makes good progress in many respects,” Mr. Bryant wrote. “However, if the FSB and IOSCO make policy recommendations in the future concerning the asset management industry, they should be based on sound data and economic analysis that is published for review and comment before policies are finalized.”
He added that executives at Fidelity also remain concerned that “several faulty premises persist concerning the asset management industry and the mutual fund business in particular.” For example, Fidelity said the FSB still has not presented data demonstrating that open-end funds or fund managers threaten the stability of the global financial system, and the proposal inappropriately transposes issues that may be experienced by a very small subset of open-end funds holding less liquid assets to the entire asset management industry.
