Financial stability
At the international level the FSB, together with IOSCO, are responsible for implementing policies that address structural vulnerabilities arising from asset management activities. Several regulatory actions have been taken to ensure the resilience of the asset management sector since the global financial crisis. The EU’s current risk management regime has recently been put to the test by the Covid-19-led market stress, proving its overall resilience.
Future regulation should be targeted, risk-based and reflect the differing risk profiles of Non-Bank Financial Institutions (NBFI) entities and activities. EFAMA and its members are committed to working closely with international and European regulators on the ongoing improvement of investment funds’ existing risk management framework, and to foster the development of best practices within the investment management industry.
FSB consultation on NBFI leverage
EFAMA welcomes the FSB recommendation that jurisdictions develop domestic frameworks to monitor and mitigate the build-up of leverage. These analytical frameworks should take a holistic approach and be empirically driven. The main systemic risk stemming from leverage is the imbalance between liquidity demand and supply during periods of stress, not the (collective) default of non-bank financial intermediaries.
IOSCO consultation on revised liquidity recommendations
In its response to IOSCO’s consultation on the revised recommendations for liquidity risk management for collective investment schemes, EFAMA welcomes the fact that IOSCO recognises aspects essential for proper risk management (e.g., asset managers’ primary responsibility and the absence of one-size-fits-all approaches).
EBA & ESMA discussion paper on the Commission’s call for advice on the prudential framework for investment firms
FSB consultation on liquidity preparedness for margin calls in non-bank financial intermediation
EFAMA agrees with the FSB that market participants should integrate the management of margin and collateral calls into their risk management, governance, and operational processes.
Don’t add complexity to fund liquidity management rules without clear added benefits, says EFAMA
Protecting long-term investors from material dilution is a legitimate objective, however, EFAMA doubts that the FSB draft proposals on structural vulnerabilities in the open-ended fund (OEF) sector and the IOSCO ones on anti-dilution liquidity management tools (LMTs) would increase the resilience of the OEF sector. In our view, this framework would add unnecessary complexity to liquidity risk management and, ultimately, result in higher costs for end-investors with little benefit.
Open-ended funds and resilient capital markets - the perspective of the European asset management industry
For the best part of this decade, macro-prudential supervisors have argued that investment funds contribute to the build-up of systemic risks. Today, EFAMA has published an ambitious report that provides a comprehensive overview of the contribution of the European investment fund sector to the diversity and resilience of capital markets.
Some key findings include:
EFAMA Market Insights | Issue #2 | MMFs in Europe | State of Play
The growth in MMF net assets occurred against the backdrop of resolute actions by governments and monetary authorities
across the world to mitigate the impact of the Covid-19 crisis.
AMIC EFAMA Report - Managing fund liquidity risk in Europe - 2020
In 2019, AMIC and EFAMA decided to update their 2016 report “Managing Fund Liquidity Risk in Europe” following important policy and regulatory developments at EU and international levels. The purpose of this updated report is to outline the practical liquidity risk management processes which fund management companies put in place when setting up a fund and implement throughout the life of the fund. Also, the report describes the existing European and international regulatory frameworks in the area of fund liquidity risk management.
