The failure or “disorderly wind-down” of one or several large asset managers could pose a financial stability risk to the UK’s system, the Financial Conduct Authority (FCA) has warned.
Outlining its views of various sectors of the UK financial system as part of its annual mission statement and business plan, the FCA said: “Market stability could be affected by the failure or disorderly wind-down of a very large asset manager or several asset management firms as end-investors attempt to redeem their holdings on demand, creating a downward selling spiral.”
In its business plan for 2017/18, the FCA said: “Following stakeholder feedback, we will review our policy options and the available tools that asset managers have to manage liquidity when facing redemptions and valuation issues, and assess how adequate they are in managing conduct risks and addressing financial stability concerns. This work should ensure that liquidity management in funds allows for a fair treatment of all customers, including those who remain invested, and does not amplify disruptions to the financial system in stressed market conditions.”
International regulators such as the International Organisation of Securities Commissions and the Financial Stability Board have previously suggested treating large asset managers as systemically important, putting them at a similar regulatory priority level as the world’s biggest banks and insurers.
The FCA’s comments echoed those made by the Bank of England – of which the FCA is a part – in 2014, when then-executive director for financial stability Andrew Haldane said it was viable to consider the risks to the wider economy of the collapse of an asset management company.
The FCA also confirmed its plan to publish the final report into its asset management market study in the second quarter of 2017. As well as reiterating its findings from the market study, the regulator also highlighted other areas of concern, including asset managers overpaying for services and custody banks’ reluctance to invest in IT systems.
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