Systemic Risk Council Comments on the Financial Stability Board's Consultative Document on Asset Management Activities
WASHINGTON, Oct. 19, 2016 /PRNewswire/ -- On October 15, 2016, the Systemic Risk Council submitted a comment letter to the Financial Stability Board (FSB) on its recent Consultative Document, in which the FSB proposed policy recommendations intended to address structural vulnerabilities in the asset management industry.
"The Council is encouraged by the Financial Stability Board's focus on the asset management industry," said Sir Paul Tucker, Chairman of the Systemic Risk Council. He stated: "It is important that any risk arising from the structures and practices of asset management firms be identified and understood." "Most important," explained Sir Paul, "where those risks are material, they must be mitigated in a proportionate way before such vulnerabilities are demonstrated by a new financial crisis."
In its letter, the Council expressed its support for the FSB's work on potential risks to financial stability arising from asset management structures and practices. The Council offered broad comments and recommendations under the four categories identified in the Consultative Document: (1) liquidity mismatch; (2) leverage within funds; (3) operational risk and challenges in transferring investment mandates or client accounts; and (4) securities lending activities of asset managers and funds. Specifically, the Council recommended that the FSB consider:
- Minimum Levels of Liquid Assets. Open-end funds invested in illiquid and opaque assets to hold a minimum level of liquid assets, the calibration of the requirement depending in part on whether "swing pricing" applies.
- Notice Periods for Redemption. Open-end funds invested in illiquid assets to be subject to a notice period for redemption, again taking account of any "swing pricing."
- Leverage Limits. Irrespective of whether they offer daily liquidity, funds invested in illiquid assets to be subject to leverage limits that become stricter as a fund gets larger, with calibration depending on whether a liquid-assets requirement applies.
- Stress Testing. Stress testing to be at the level of individual funds and, where relevant, system wide.
- Equity Requirements for Indemnities. Common equity to be held against indemnities provided by asset managers to funds they manage or to third parties.
- Disclosure of Asset-Manager Indemnities. Individual asset managers to disclose their aggregate contingent liabilities.
In addition, the Council identified and discussed a possible area for further work by the FSB relating to unlevered funds that do not offer frequent redemption opportunities as well as provided an observation on issues that it believes should be covered in the FSB's planned future work on pension funds.
The full text of the letter is available here.
| Systemic Risk Council Membership |
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| Chair: |
Sir Paul Tucker, Fellow, Harvard Kennedy School and Former Deputy Governor of the Bank of England |
| Chair Emeritus: |
Sheila Bair, President of Washington College and Former Chair of the FDIC |
| Senior Advisor: |
Jean-Claude Trichet, Former President of the European Central Bank |
| Senior Advisor: |
Paul Volcker, Former Chair of the Federal Reserve Board |
| Members: |
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| Brooksley Born, Former Chair of the Commodity Futures Trading Commission |
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| Baroness Sharon Bowles, Former Member of European Parliament and Former Chair of the Parliament's Economic and Monetary Affairs Committee |
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| Bill Bradley, Former U.S. Senator |
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| William Donaldson, Former Chair of the Securities and Exchange Commission |
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| Jeremy Grantham, Co-Founder and Chief Investment Strategist, Grantham May Van Otterloo |
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| Richard Herring, The Wharton School, University of Pennsylvania |
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| Simon Johnson, Massachusetts Institute of Technology, Sloan School of Management |
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| Hugh F. Johnston, Vice Chairman and Chief Financial Officer, PepsiCo |
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| Jan Pieter Krahnen, Chair of Corporate Finance at Goethe-Universität in Frankfurt and Director of the Centre for Financial Studies |
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| Sallie Krawcheck, Chair, Ellevate, Former Senior Executive, Citi and Bank of America Wealth Management |
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| Lord John McFall, Former Chair, UK House of Commons Treasury Committee |
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| Ira Millstein, Senior Partner, Weil Gotshal & Manges LLP |
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| Maureen O'Hara, Cornell University, Johnson School of Management |
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| Paul O'Neill, Former Chief Executive Officer, Alcoa, Former U.S. Secretary of the Treasury |
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| John Reed, Former Chairman and CEO, Citicorp and Citibank |
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| Alice Rivlin, Brookings Institution, Former Vice-Chair of the Federal Reserve Board |
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| Kurt Schacht, Managing Director, Standards and Advocacy Division, CFA Institute |
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| Chester Spatt, Tepper School of Business, Carnegie Mellon University, Former Chief Economist, Securities and Exchange Commission |
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| Lord Adair Turner, Former Chair of the UK Financial Services Authority and Former Chair of the Financial Stability Board's Standing Committee on Supervisory and Regulatory Cooperation |
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| Nout Wellink, Former President of the Netherlands Central Bank and Former Chair of the Basel Committee on Banking Supervision |
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| * Affiliations are for identification purposes only. Council members participate as individuals and this letter reflects their own views and not those of the organizations with which they are affiliated. |
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Notes for Editors:
The independent, non-partisan Systemic Risk Council (www.systemicriskcouncil.org) was formed to monitor and encourage regulatory reform of U.S. and global capital markets, with a focus on systemic risk. The Council is funded by the CFA Institute, a global association of more than 125,000 investment professionals who put investors' interests first and set the standard for professional excellence in finance. The statements, documents and recommendations of the private sector, volunteer Council do not necessarily represent the views of the CFA Institute. The Council works collaboratively to seek agreement on each of its recommendations.
For further information please contact David R. Evanson at devanson@comcast.net or 215.460.8149 or Bristol Voss bristol.voss@cfainstitute.org or 212.705.1738
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