Investment funds will come under new regulatory focus: Carney

Sun Oct 12, 2014 2:23pm EDT
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WASHINGTON (Reuters) - Investment funds will come under increased focus from global financial regulators, the head of a worldwide push to prevent a repeat of the financial crisis said on Sunday.

Bank of England Governor Mark Carney, who is also head of the Financial Stability Board (FSB) group of regulators, said assets managed by investment funds were now equivalent to almost 90 percent of the global economy.

Carney said the growth of asset management brought welcome diversity to the financial system.

"However, there must also be a focus, as there has been with banks, on the systemic risks it could create," he said in a speech on the sidelines of meetings at the International Monetary Fund in Washington.

"The biggest risks arise from combining high levels of leverage with holdings of illiquid assets and commitments to provide liquidity at short notice," he said.

"In the current environment, those types of activities need careful monitoring, and possibly a deliberate policy response."

Carney's comments echoed those made by BoE Deputy Governor Jon Cunliffe earlier this year who said financial markets appeared to have underpriced the risk of investments proving illiquid.

Major asset managers include BlackRock, Legal & General, Prudential's M&G unit and State Street.

Reuters reported in August that asset managers may face tougher scrutiny after a draft FSB proposal to regulate the sector faced intense lobbying from the industry.   Continued...

Bank of England Governor Mark Carney participates in a panel discussion during the IMF-World Bank annual meetings in Washington October 12, 2014. REUTERS/Yuri Gripas