EFAMA response to IOSCO Consultation on Leverage

IOSCO 2-step approach is welcome and should build upon the comprehensive and advanced EU regulatory framework

Brussels, 12 February 2019 - EFAMA submitted its response to IOSCO’s consultation on the use of leverage in investment funds.

In its response, EFAMA highlights the low levels of leverage in the European fund sector, evidenced by existing data and emphasizes that the comprehensive EU regulatory framework for measuring leverage has proven, through diverse markets events, its value and risk resilience. Therefore, EFAMA firmly points out that the majority of investment funds in Europe do not pose financial stability risks with respect to their use of leverage.
EFAMA welcomes IOSCO’s two-step approach to develop a globally consistent framework for the assessment of leverage in funds, with regulators first identifying which funds may pose financial stability risks due to their employed level of leverage and then carrying out more detailed and risk-based assessments of the latter.

 At the same time, EFAMA calls on IOSCO regulators to build upon existing regulatory frameworks with well-proven record of efficient measurement and monitoring of leverage, particularly the existing EU regulatory framework. The main leverage metrics in the AIFMD and UCITS Directives (the gross and commitment methods) should serve as a point of reference for developing a matrix of consistent measures at international level.

In addition, EFAMA understands the need for consistent data as a key tool for regulators across all jurisdictions to monitor potential financial stability risks, but warns against adding overlapping and burdensome reporting layers. Regulators already have at their disposal detailed data reported by asset managers that is sufficient to meet their monitoring objectives.

EFAMA’s Director General Tanguy van de Werve comments: "In view of the wide range of investment strategies and other fund characteristics, IOSCO is to be commended for proposing this 2-step approach. It is a pragmatic way to filter out the majority of funds that are not substantially leveraged and focus on those fewer ones with potential relevance from a financial stability perspective. We encourage IOSCO regulators to build upon the existing EU regulatory framework that entails robust leverage measures and sound and effective risk management policies.”

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Read the full response