Assessing the Systemic Importance of Asset Managers and Investment Funds

30 Pages Posted: 20 Nov 2015  

Gustave Laurent

University of York

Massimiliano Neri

Moody's Analytics; Finance Research Center @ UFM

Date Written: November 12, 2015

Abstract

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

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

Gustave Laurent

University of York ( email )

Heslington
York, YO10 5DD
United Kingdom

Massimiliano Neri (Contact Author)

Moody's Analytics ( email )

1 Canada Square
London, E14 5FA
United Kingdom
630822653 (Phone)

HOME PAGE: http://www.moodysanalytics.com

Finance Research Center @ UFM ( email )

Academic Building, B-300
Calle Manuel F. Ayau (6 Calle final) zona 10
Guatemala, 01010
Guatemala

HOME PAGE: http://frc.ufm.edu

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