Asset managers are not a source of systemic risk and should not be regulated as such, says fund giant BlackRock in response to the FSB’s consultation on new regulations.
BlackRock says asset managers “are fundamentally different from banks and other financial institutions” and therefore should not be subject to the same measures to control systemic risk. It also argues that no controls should be put in place until specific risks are identified by the FSB.
The ‘Assessment Methodologies for Identifying Non-Bank Non-Insurer Global Systemically Important Financial Institutions’ consultation paper from the FSB seeks views on the revised proposal to extend regulation beyond banks and insurance companies to other financial institutions and deem asset managers systemically important.
“Until policymakers identify systemic risks that need to be addressed, designation metrics are premature. Developing metrics without first identifying risks will likely fail at achieving the overarching goal of reducing systemic risk,” says the BlackRock response.
Instead, BlackRock argues products and investments should be regulated to reduce their risk, regardless of the entity behind them.
The FSB has proposed that it will look at the largest funds and the largest firms by assets, but BlackRock says the use of leverage within products would instead be a better metric.
The asset manager also argues that products have become safer since the financial crisis. “Many of the reforms implemented since the financial crisis have made the system in 2015 much safer than it was in 2008. Any additional reform measures should factor in the reforms that have already been taken or are in process.”
Fidelity has also responded to the proposal, branding it “irredeemably flawed” and saying such regulation “would be counterproductive and destructive”, according to the Financial Times.
The Investment Association has already released its response to the consultation, and claims judging an asset manager’s systemic risk by looking at the firm or fund size is a “useless” approach.