FSB targets asset management vulnerabilities

The Financial Stability Board (FSB) has published its policy recommendations to address structural vulnerabilities in the global asset management industry.

The asset management industry grew to $76.7 trillion in 2015, or 40% of global financial system assets, according to Reuters data.

The FSB is an international body that monitors and makes recommendations about the global financial system.

The FSB document sets out 14 final policy recommendations to address structural vulnerabilities from asset management activities that could potentially present financial stability risks.

The potential vulnerabilities include:

  • liquidity mismatch between fund investments and redemption terms and conditions for open-ended fund units
  • leverage within investment funds
  • operational risk and challenges at asset managers in stressed conditions
  • securities lending activities of asset managers and funds

FSB chairman Mark Carney said: “The growth in asset management activities provides new sources of credit and investment, and adds diversity to our financial system.

“The policy recommendations published today will enhance the resilience of asset management activities so that this form of market-based finance can help underpin strong, sustainable and balanced economic growth.

“This will be of lasting benefit to our collective economies.”

Daniel Tarullo, chair of the FSB Standing Committee on Supervisory and Regulatory Cooperation, said: “The policy recommendations will better prepare asset managers and funds for future stress events.

“The recommendations should also significantly enhance the information available to authorities for understanding potential risks from the asset management sector within and across jurisdictions.”