Four major European market authorities want regulators to be mindful of the money management industry’s “specific features” when designing regulations.
As such, Austria’s Finanzmarktaufsicht (FMA), France’s Autorite des marches financiers (AMF), Italy’s Commissione Nazionale per le Societa e la Borsa (CONSOB), and Spain’s Comision Nacional del Mercado de Valores (CNMV) have set out their key priorities on the debate around the macroprudential treatment of risk in asset management.
The four authorities said in a joint statement that they were setting out their views ahead of the European Commission’s launch of its consultation on the subject.
While the four said debates around nonbank financial intermediation and the potential significant effects that any related shocks might have on the real economy are “important and legitimate,” regulators need to remember that money managers are different than banks.
Here, Pensions & Investments outlines five things the authorities want regulators to keep in mind or prioritize when designing regulations for money managers.
1. Precisely define the nature of risks regulators aim to address
The overarching message from the four authorities is for regulators to make sure they’re looking at asset management specifically, and not confusing the industry with banks, for example. “Regulators should target as a matter of priority those features of asset management generating excessive price volatility and liquidity stress,” the authorities said. “Capital requirements and liquidity buffers are not the best-suited solutions to mitigate those risks in terms of financial stability.”
2. Check your tools and how things are measured
The authorities want regulators to ensure a wide availability and greater use of liquidity management tools in all kinds of open-end funds. It also wants regulators to ban amortized cost accounting for money market funds, as this method of accounting “is intrinsically detrimental to financial stability, amounts to making false claims to investors, making them believe that they enjoy a stable net asset value, and generates incentives for first movers,” the authorities said.
3. Bring in systemwide stress tests to check interconnectedness
Stress tests should be introduced to better understand the vulnerabilities of each money management group and its interconnections with others in the financial system.
4. Work out who’s in charge here
A “truly consolidated supervisory approach” for large, cross-border money managers should be introduced by regulators. The issue, the authorities said, is that it’s now common that the portfolio management teams, risk management teams, and the strategies are supervised by different National Competent Authorities — responsible for supervising and authorizing financial firms and offerings — in different countries. That creates coordination issues. The authorities said “creating a supervisory college for these groups would bring strong benefits both in times of stress and in normal market conditions.”
5. Create an integrated data hub
Market supervisors and central banks need somewhere they can access data, to be used to conduct systemwide and entity-specific stress tests, the authorities said. Furthermore, the stated goal should be to have a single data hub that would include both valuation and granular portfolio data fully available to the relevant national authorities, as well as the European Central Bank.
