Sifma Urges Caution on SIFI Designations

Terry Flanagan

The Securities Industry and Financial Markets Association’s Asset Management Group has expressed concerns with the second public consultation published by the Financial Stability Board and the International Organization of Securities Commissions on identifying systemically important non-bank financial institutions.

Sifma AMG urged FSB/Iosco to drop their efforts to create a methodology to designate asset managers and funds as systemically important and instead focus on FSB’s recently announced workstream that is considering asset management products and activities.

Such a revised approach would better reflect the nature of the asset management business and its differences from other financial entities, and enable FSB/Iosco to better align with and leverage efforts currently underway by U.S. and other national regulators, including the U.S. Securities and Exchange Commission, according to Sifma AMG.

These national and international regulatory initiatives to assess asset manager products and activities should be evaluated in detail before FSB/Iosco can reasonably conclude that any additional regulation is warranted, according to Sifma AMG.

“This second consultation does not reflect the avalanche of empirical studies and substantive comments that highlight how asset managers and investment funds do not present systemic risk, making G-SIFI designation at the entity level ineffective at best,” said Timothy Cameron, managing director and head of Sifma AMG, in a release. “Sifma AMG is concerned that the second consultation could lead to increased costs and other negative consequences for investors and capital markets without actually addressing any systemic risk concerns.”

FSB/Iosco published in March a second consultative paper on methodologies to identify non-bank, non-insurer global systemically important institutions.

At the request of the G20 finance ministers, the FSB is working with Iosco and the Basel Committee on a coordinated work plan to promote CCP resilience, recovery planning and resolvability. Key elements include evaluating existing measures for CCP resilience, including loss absorption capacity, liquidity and stress testing, and analyzing the interconnections between CCPs and the banks that are their clearing members, and potential channels for transmission of risk.

Cameron said, “FSB and Iosco’s continued focus on entity size does not accurately reflect risk factors in the asset management industry. We respectfully encourage FSB/Iosco to focus on their review of products and activities, and we are encouraged by recent comments by FSB chairman Mark Carney that seem to suggest FSB/Iosco may be shifting their focus in this direction.”

The G-20 did not give FSB/Iosco a specific mandate to designate investment funds or asset managers as systemically important, Sifma AMG said in a comment letter. FSB/Iosco “seem to be putting the cart before the horse – a full review and analysis of data collected on products and activities would provide far more information on any potential risks in the industry, rather than a needless and harmful entity designation methodology.”

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