REFILE-UPDATE 1-Bank of England to quiz fund managers over short-notice redemptions

Thu Mar 26, 2015 12:18pm EDT
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(Refiles to correct spelling of Bank of Canada's Poloz in advisory line)

By David Milliken and Huw Jones

LONDON, March 26 (Reuters) - The Bank of England said on Thursday that it planned to quiz British asset managers about whether they could cope with a flood of investors asking for their money back in times of market stress.

The central bank said it was concerned that some financial markets -- including those for fixed income assets -- may be less liquid than they looked, but that funds had promised they could return investors' money at short notice.

The BoE has warned about potential fragile liquidity for some time, but this marks the first time it has publicly asked investment funds how they could cope with sudden calls for cash from investors.

"The Committee remains concerned that investment allocations and pricing of some securities may presume that asset sales can be performed in an environment of continuous market liquidity, although liquidity in some markets may have become more fragile," the BoE said.

The call came in a quarterly statement from the BoE's Financial Policy Committee (FPC), chaired by Governor Mark Carney, which was set up two years ago to spot emerging risks to Britain's financial stability.

Risks now include a further slowdown in China's growth and Greece and its financing needs, the FPC said.

The central bank said it would work with the Financial Conduct Authority, another British regulator, to ask asset managers about their strategies for managing liquidity of their funds.   Continued...