Regulators scrap asset manager ‘too big to fail’ plan

The International Organization of Securities Commissions has put on hold its plans to assess asset managers’ systemic risk under a ‘too big to fail’ maxim and instead will carry out a full review of asset management activities and products.

The move comes after global asset managers and regulators strongly reacted to the second consultation by the IOSCO and the Financial Stability Board, which called for views on the asset management industry being considered a risk to the global economy.

Firms such as BlackRock and Fidelity, as well as industry trade bodies, argued that the too-big-to-fail approach on assessing asset managers is “useless” because they don’t pose the same risks as banks.

IOSCO says instead a full review of asset management activities and products will be now carried out “in the broader global financial context”.

“This review should take precedence over further work on methodologies for the identification of systemically important asset management entities,” IOSCO says in a statement. “After the review is completed, work on methodologies for the identification of such entities should be reassessed.”

Brown Brothers Harriman head of regulatory intelligence Sean Tuffy says the IOSCO announcement will be welcomed by the industry.

“The second consultation was a little misdirected and you saw regulators like the FCA questioning the approach. So the pressure from both asset managers and the regulator has caused the IOSCO to change approach,” he says.

”As the industry has always argued, you can’t look at a specific fund or a specific asset manager as risky so what [IOSCO] is doing now is what the industry said it needed to be done. As opposed at looking at entities, they need to look at the industry with a holistic approach.”

However, Tuffy says “the issue is still not over” and it is just another step to continue to assess the industry’s risk potential, especially in the US.