(Bloomberg) -- Global regulators are set to renew a push to tackle too-big-to-fail risks in the investment-fund industry as standard setters expand their focus beyond banks and insurers.
The International Organization of Securities Commissions said that it will publish a second batch of draft plans on Feb. 20 for identifying funds or particular investing practices that could present systemic risks, Greg Medcraft, the group’s chairman, told reporters in Seoul on Feb. 13.
“There’s a lot of work going on in terms of transmission mechanisms for systemic risks,” Medcraft said. The consultation paper is going to look at “the type of fund, their activities” working in consultation with the Financial Stability Board, a group bringing together central bankers and regulators from the Group of 20 nations.
Assets of the global fund-management industry grew by 13 percent in 2013 to $146 trillion, according to data from TheCityUK. Bank of England Governor Mark Carney, the FSB’s chairman, has said that the industry is one of several non-bank parts of the financial system that are in regulators crosshairs.
“Progress must be made toward addressing the too-big-to- fail problem in financial institutions other than banks, including insurers, finance companies, market intermediaries, investment funds and critical market infrastructure,” Carney said in a Feb. 4 letter to G-20 finance ministers.
COMMON STANDARDS
The FSB was set up in 2009 to drive forward the implementation of financial regulations agreed on by the G-20. IOSCO brings together financial market overseers to develop common standards.
Medcraft didn’t give details on how far the revised proposals will differ from a first plan published last year, which firms such as Pacific Investment Management Co., Fidelity Investments and BlackRockInc. said was flawed.
Pimco said last year’s plan “does not accurately reflect the risks associated with investment funds or the asset management industry as a whole, nor does it provide a fair basis upon which the public can meaningfully provide comment.”
Under last year’s proposals, investment funds with over $100 billion in net assets under management would have been “assessed in detail” against other criteria including leverage, substitutability and complexity to establish the systemic risks they posed, and whether they should be subject to tougher rules.
The document also presented possible alternative approaches that would target groups of funds managed by the same asset manager, or asset managers themselves.
SYSTEMIC RISK
The FSB and IOSCO said that they would seek to settle the identification rules and then look at a later stage at what measures funds should face.
Specific responses fund managers made to last year’s proposals included that size is not an appropriate criterion for measuring systemic risk, with leverage a more accurate gauge. They also said that authorities should focus on regulating particular activities that are of concern rather than targeting individual firms or funds.
“The good news here is that, unlike in banking, history is not littered with examples of failing funds wreaking havoc in financial markets,” Andy Haldane, chief economist at the Bank of England, said in a speech in London last April.
“The historical examples we have tend to be confined to small and isolated corners of the financial system,” he said. “But, as any self-respecting asset manager would tell us, past performance is no guide to the future.”
