Asset managers are to face tougher tests to assess whether they could become the centre point of systemic risk, according the head of Europe’s main markets regulator.
Steven Maijoor, chairman of the European Securities and Markets Authority (Esma), also called on the region's policymakers to rethink the way they share oversight of the world's clearing houses, another part of markets critical to market stability.
“Esma has already flagged that this year it will assess stress-testing in the fund industry,” he said. “Additionally, our focus in this area is on issues such as liquidity management tools, leverage and stability.”
Its increased scrutiny of the asset-management sector, which has boomed over the past decade, mirrors that of standard-setters and policymakers around the world.
There is a consensus that post-crisis banking sector reform is now largely in place or in train – and they are now thinking about how other parts of the financial system might be vulnerable.
Risk-reduction plan
The Financial Stability Board, which makes recommendations to the Group of 20 nations, laid out a 14-step plan this month to attempt to reduce risks from the sector to the rest of the financial system, such as encouraging stress tests.
The sector has grown from $53.6 trillion (€50 trillion) of assets under management globally in 2005 to $76.7trillion (€71.6 trillion) in 2015, according to FSB data.
Mr Maijoor also reiterated a call for the European Commission to rethink the way it monitors clearing houses, which manage the risk that a default can spread through the financial system.
The issue has renewed impetus since the Brexit vote. European politicians have called for euro derivatives clearing – largely done in London – to be moved into the EU so it can be overseen directly by regulators. Banks prefer to concentrate clearing in a handful of locations.
EU rules give European regulators joint oversight of London-based clearing houses but do not allow for supervision of clearing houses outside the EU, or so-called third countries. That means it cannot see the possible impact of overseas clearing houses in Europe. – (Copyright The Financial Times Limited 2017)
