G20 regulators aim to rein in asset managers with new rules

Wed Jun 22, 2016 1:04pm EDT
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By Huw Jones

LONDON (Reuters) - Global regulators have proposed a raft of measures to curb contagion risks from the world's $76 trillion asset management sector, though stopping short of imposing tougher capital requirements.

As banks shrink balance sheets in the face of tougher capital rules since the financial crisis, asset managers have filled the gap by growing from $50 trillion in 2004 to $76 trillion in 2014, or 40 percent of assets in the global financial system.

The Financial Stability Board (FSB), which coordinates regulation for the Group of 20 Economies (G20), said a core concern was the promise open-ended funds make to give investors their money back straight away, even in stressed markets when liquidity is tight.

Asset managers have also moved into "shadow-banking" or market financing activities like lending securities or offering loans to companies as traditional banks retreat.

The FSB's 14 proposed measures, put out for public consultation, are to be implemented over two years from the end of 2017.

They call on national regulators to gather more data on the sector, monitor leverage, and ensure that funds have the right set of tools to use in stressed markets, such as slapping fees and "gates" and other restrictions to discourage redemptions.

Stress-testing, now common in banking, should also be applied to funds.

"Given its increased importance, a resilient asset management sector is vital to finance strong, sustainable and balanced growth," said Mark Carney, the Bank of England governor, who chairs the FSB.   Continued...

Mark Carney, the chairman of the Financial Stability Board (FSB), speaks during a news conference after FSB plenary session in Tokyo, Japan, March 31, 2016. REUTERS/Yuya Shino