30 Pages Posted: 20 Nov 2015
Date Written: November 12, 2015
Financial regulation has recently focused on “too big to fail” institutions such as banks and insurance companies by assigning to some of them the designation of “systemically important”, which brings additional regulatory requirements on top of the traditional requirements. In 2015 various international regulatory bodies (FSB and IOSCO) proposed a similar regulation for other large financial institutions, such as asset managers and investment funds. This new regulatory methodology was a real disappointment for the investment industry. The two elements that attracted the most criticism were the entity-based designation of individual funds and asset managers, and the proposed materiality thresholds for systemic importance designation. Additionally, the proposed methodologies failed to grasp the uniqueness of the investment management industry, and if applied, could potentially enhance systemic risk instead of diminishing it. In this paper, we propose a critical review of the consultative responses of the main industry players to the new regulatory proposal, and highlight the main areas in which the regulation could be revised.
Keywords: asset managers, commitment approach, credit risk, derivatives, FSB, exchange traded funds, gross notional exposure, hedge funds, interconnectedness, investment funds, IOSCO, liquidity risk, market risk, notional value, SIFI, substitutability, systemic risk
JEL Classification: G01, G18, G23
Suggested Citation: Suggested Citation
Laurent, Gustave and Neri, Massimiliano, Assessing the Systemic Importance of Asset Managers and Investment Funds (November 12, 2015). Available at SSRN: https://ssrn.com/abstract=2691642 or http://dx.doi.org/10.2139/ssrn.2691642