* Regulators to flesh out 14 recommendations over 2 years
* Include modest changes to original proposals
* Prepare asset managers, funds for future stress events
By Huw Jones
LONDON, Jan 12 Global regulators flagged on
Thursday they would revisit plans on whether to designate big
asset managers such as BlackRock or Vanguard as being globally
systemic and requiring tougher scrutiny, despite fierce
resistance from the sector.
The Financial Stability Board (FSB), which coordinates
financial regulation across the Group of 20 economies (G20),
published final recommendations on Thursday for addressing
actual and potential risks from "structural vulnerabilities" in
the asset management sector.
The 14 recommendations will be fleshed out by regulators
over the coming two years for implementation. They include
several modest changes to the original proposals published by
the FSB in June last year.
"The policy recommendations will better prepare asset
managers and funds for future stress events," said Daniel
Tarullo, who chairs an FSB committee on supervisory and
An initial attempt by the FSB to single out which funds are
globally systemically important and needing tougher rules was
derailed by IOSCO, the global securities market regulators body
after opposition from big funds.
This resulted in a switch of focus to the sector's
IOSCO will flesh out many of the FSB's 14 recommendations in
2017 and 2018 to put into practice.
The FSB indicated on Thursday that after the end of 2018 it
would revisit its initial proposals on whether to designate
funds as being globally systemically important. Some funds had
hoped the proposals were dead and buried.
Regulators have become concerned about the promise
open-ended funds make to give investors their money back on a
daily basis, even in stressed markets when liquidity is tight.
The fear is that such a "liquidity mismatch" can encourage
cash raising through fire sales of assets such as bonds at the
risk of undermining wider financial stability through contagion.
As many banks have shrunk under the weight of tougher
regulation and changes in markets, asset management has grown
from $53.6 trillion in 2005 to $76.7 trillion in 2015, or 40
percent of global financial system assets.
The recommendations also address the move by asset managers
into "shadow-banking" or market financing activities such as
lending securities or offering loans to companies as traditional
The FSB stopped short of saying how redemptions could be
curbed in stressed markets, saying there should be a range of
tools such as "gates" and redemption fees.
The FSB also recommended on Thursday that regulators should
provide guidance on stress testing of individual open-ended
funds on their ability to pay back investors quickly in stressed
Stress testing, which checks resilience to extreme market
shocks, is common in banking since the financial crisis and is
burdensome and time-consuming.
Some asset managers already do their own stress-testing of
individual funds, but this is patchy across the sector.
(Reporting by Huw Jones; editing by Susan Thomas)