08.04.2015 IMF - THE ASSET MANAGEMENT INDUSTRY AND FINANCIAL STABILITY

The latest iteration of the International Monetary Fund’s Global Financial Stability Report includes a chapter on the potential financial stability risks posed by the asset management industry, having regard to its growth and the volume of investment products offered to the public.

The report notes that while risks from some segments of the industry, such as leveraged hedge funds and money market funds, are already widely recognised, opinions are divided about the nature and magnitude of risks posed by less leveraged, “plain-vanilla” investment products such as mutual funds and exchange-traded funds. The report mentions in particular incentive problems between end investors and portfolio managers, which can encourage destabilising behaviour and amplify shocks.

The analysis shows that larger funds and funds managed by larger asset management companies do not necessarily contribute more to systemic risk. Investment focus appears to be more important as regards contribution to systemic risk.

The report calls for oversight of the industry to be strengthened. Securities regulators should shift to a more hands-on supervisory model, supported by global standards on supervision and better data and risk indicators. The roles and adequacy of existing risk management tools, including liquidity requirements, fees, and fund share pricing rules, should be re-examined.

02.04.2015 FCA POLICY DEVELOPMENT UPDATE (ISSUE 21)

The FCA has published its newest Policy development update. In this update, the FCA lists the publications that it has distributed since the last issue and lists expected forthcoming FCA publications which include: Š

  • Policy Statement to Consultation Paper 15/14 on regulatory fees and levies: rates and proposals 2015/2016 (June 2015); Š
  • Consultation Paper on implementation of UCITS V (Q3 2015); 
  • Policy Statement to Consultation Paper 14/14 on strengthening the alignment of risk and reward: new remuneration rules; and
  • Consultation Paper on amendments to the FCA Handbook following the introduction of the Market Abuse Regulation (October 2015).

01.04.2015 FCA GAINS NEW COMPETITION POWERS

On 1 April 2015, the FCA acquired new powers enabling it to work alongside the Competition & Markets Authority (CMA) in enforcing competition law. The new powers will assist the FCA in complying with its statutory duty to promote effective competition. The consultation paper issued earlier this year sets out how it intends to implement and exercise these new powers in practice.

The FCA’s new powers will cover agreements and practices that distort, restrict or prevent competition (including cartels), as well as abuses of dominance by companies that have market power. In addition to this, the FCA will also have the power to refer markets to the CMA, even in the absence of anti-competitive practices in some cases.

Following the wholesale sector review where it met with around 70 organisations, the FCA has identified asset management as a potential area for market study in the future.