The Financial Stability Board (FSB) has published a report containing policy recommendations to address structural vulnerabilities from asset management activities. The recommendations follow an earlier consultation which was blogged here.

The FSB has identified 14 policy recommendations to address the following structural vulnerabilities:

  • liquidity mismatch between fund investments and redemption terms and conditions for open-ended fund units. These recommendations apply to all open-ended funds;
  • leverage within investment funds. These recommendations apply to all types of funds that may use leverage;
  • operational risk and challenges at asset managers in stressed conditions. These recommendations apply to all asset managers commensurate with the level of risks their activities pose to the financial system; and
  • securities lending activities of asset managers and funds. These recommendations apply to asset managers that provide indemnifications to clients.

The policy recommendations for liquidity mismatch focus on open-ended funds. Those for leverage are meant to apply to all types of funds that may use leverage. Meanwhile, the recommendation for operational risk applies to all asset managers, commensurate with the level of risks their activities pose to the financial system. The recommendation for securities lending activities focuses on asset managers that provide indemnifications to clients, but it may be appropriate for authorities to apply a similar approach in other areas where asset managers take on similar financial risk as principals.

View FSB recommendations to address structural vulnerabilities from asset management activities, 12 January 2017

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