As the European Commission prepares to launch its consultation on the macro-prudential treatment of risk in asset management, four major European market authorities, have set out their views on the priorities in the debate on a macro-prudential approach to asset management.
The authorities – Austrian Finanzmarktaufsicht (FMA), Italian Commissione Nazionale per le Società e la Borsa (CONSOB), Spanish Comisión Nacional del Mercado de Valores (CNMV) and French Autorité des marchés financiers (AMF) – said the risks stemming from non-bank financial intermediation have been subject to scrutiny from regulators worldwide over the past years, especially as its share in the global financial system has been increasing since.
In addition, concerns have been raised about potential significant negative effects that shocks, either spreading through or originating from non-bank financial intermediation, may have on the real economy, the quartet added.
“These debates are important and legitimate”, they said, noting that when designing regulations to address asset management risks, its specific features should be considered.
“The asset management ecosystem is different from that of banks and as diverse as the vulnerabilities evidenced so far. Therefore, the nature of the risks that regulators aim to address needs to be precisely defined: regulators should target as a matter of priority those features of asset management generating excessive price volatility and liquidity stress,” the authorities stated.
“Capital requirements and liquidity buffers are not the best suited solutions to mitigate those risks in terms of financial stability,” they added.
The authorities have launched a report highlighting five key priorities. The first three relate to short- and medium-term measures while the others should be explored in the longer term.
Firstly, regulators need to ensure a wide availability and greater use of liquidity management tools in all kinds of open-ended funds. The recent Alternative Investment Fund Manager Directive review will allow for a significant progress in this adoption of such tools, although level two measures are still in the making.
Secondly, regulators should ban amortised cost accounting for money market funds. Thirdly, system-wide stress tests should also be envisaged to better understand the vulnerabilities of each asset management group and its interconnections with other participants in the financial system.
Fourthly, there should be the introduction of a truly consolidated supervisory approach for large cross-border asset management groups.
Finally, an integrated data hub should be created and shared by market supervisors and central banks, serving their respective needs, both for day-to-day supervision and stress-testing exercises.
