Brussels, 20th January 2017 

EFAMA preliminary view on FSB Policy Recommendations to Address Structural Vulnerabilities from Asset Management Activities

EFAMA welcomes the FSB Policy Recommendations to Address Structural Vulnerabilities from Asset Management Activities on 12 January 2017. These come as the result of an extended consultation process in which EFAMA has participated very actively.
Peter De Proft, EFAMA Director General, commented: “EFAMA particularly welcomes the fact that the FSB recommendations reflect a more balanced view of the asset management industry, and acknowledge the risk mitigants already in place under the current EU regulatory framework and in market-based best practices. We also welcome the mandate given to IOSCO to lead the work in the identified fields and look forward to continue engaging with IOSCO in the months ahead”.
The document sets out 14 final policy recommendations to address four “alleged” structural vulnerabilities from asset management activities that could potentially present financial stability risks:
1. Liquidity mismatch between fund investments and redemption terms and conditions for open-ended fund units;
2. Leverage within investment funds;
3. Operational risks and challenges for asset managers in stressed conditions, particularly with regard to the transfer of client mandates;
4. Securities lending activities and related indemnification programmes offered by certain asset managers.
From a preliminary assessment, we believe that the final recommendations go in the right direction, in the sense that they do not identify a need for any substantial regulatory reviews of existing standards, and recommend that IOSCO develops additional and more detailed guidance to be carried out by end-2017 and end-2018.
Additionally, below are some general remarks on issues raised in the FSB Report:
• Despite the fact that some of the speculative narrative around potential risks stemming from liquidity mismatches in open-end funds has been retained in the final report, we welcome that fact that several of the risk-mitigants highlighted by EFAMA in our responses have been acknowledged by the FSB in its final Report.
• EFAMA views it as positive that the first nine liquidity management-related recommendations call on IOSCO to review/enhance its existing guidance by end-2017, as well as develop a set of harmonised data points for authorities to monitor the build-up to liquidity risks in funds.
• Also positive is that certain recommendations introduce sufficient flexibility for national authorities to take action only "where appropriate" or "where relevant", including the possible consideration of system-wide stress-testing judging on the relative systemic importance of actors in each jurisdiction and once better data become available;
• Regarding leverage, EFAMA welcomes that the FSB recommendations on data on leverage in funds be aggregated and made consistent across the global jurisdictions. We support the work to be undertaken by IOSCO in collaboration with national authorities by the end of 2018.
• As to operational risks, EFAMA believes that these remain overstated. In this regard, EFAMA stresses that the current EU regulatory framework as well as industry best practices largely already address the FSB’s concerns.
• Finally, EFAMA believes that the potential risks with regard to securities lending as a potential source of systemic risks, via the indemnification of clients where asset managers are also agent-lenders, are overstated.
Notes to editors:
About the European Fund and Asset Management Association (EFAMA):

EFAMA is the representative association for the European investment management industry. EFAMA represents through its 28 member associations and 61 corporate members EUR 21 trillion in assets under management of which EUR 12.6 trillion managed by 56,000 investment funds at end 2015. Just over 30,000 of these funds were UCITS (Undertakings for Collective Investments in Transferable Securities) funds, with the remaining 25,900 funds composed of AIFs (Alternative Investment Funds). For more information about EFAMA, please visit