FCA backs asset managers’ calls for ‘systemic risk’ rethink

The FCA says “big questions” need to be asked before asset managers can be branded as systemically important, following a consultation paper on the designation from the FSB.

Martin Wheatley, chief executive of the UK regulator, said that asset managers should not be singled out and more thought needs to be put into the system, reports the Financial Times.

The consultation paper from the FSB seeks responses on the revised proposal to extend regulation beyond banks and insurance companies to other financial institutions and deem asset managers systemically important. 

Instead, regulators should look to the markets in which asset managers operate and the liquidity flow within them, said Wheatley.

“I’d find it perverse if we ended up putting handcuffs on a set of players in markets — the asset managers — just because they’re regulated and we know them, and yet allow people on the lakeside in Switzerland and sovereign wealth funds in the Far East and central banks to play with free rein in those markets,” he added.

Asset managers, such as Fidelity and BlackRock, and industry body the Investment Association have already protested against the proposals from the FSB.

The premise of asset managers being systemically important partly hangs on whether investors operate with a herd mentality, pulling their money en masse from managers in times of stress. Both the IA and BlackRock argue this is not the case.

BlackRock also said more work needed to be done to determine whether asset managers were in fact systemically risky, and the sources of such risk. 

The IA has already released its response to the consultation, and claimed that judging an asset manager’s systemic risk by looking at the firm or fund size is a “useless” approach.