The scale of asset managers bears little relationship to instability in the global economy, with scant evidence available that they cause problems, and thus the need for immediate action is not pressing, according to the chair of the International Organization of Securities Commissions (IOSCO).
Greg Medcraft, who chairs IOSCO as well as the Australian Securities and Investments Commission (ASIC), made the comments in a speech delivered overnight in Washington where he also claimed comparisons to the regulation of banking and insurance sectors was inappropriate and considered different risks.
Medcraft stated that he was not convinced “there is evidence that asset managers put financial stability at risk simply because they are large”.
“As yet, we do not have concrete evidence that this has been or might be the case. Even during the depths of the financial crisis net outflows from funds were small and certainly not of a scale to impact the broader market.”
“This reflects the fact that investors in mutual funds are – by nature and definition – in it for the long haul and take short term fluctuations in their stride. They do not rush to redeem. In the rare instance where they might, managers have tools in place to manage the flow of redemptions,” Medcraft said.
He said the IOSCO would examine any risks in the sector but would only consider “what we are currently seeing and what we think might be happening in the markets we regulate” and would avoid theoretical or academic research based on past issues or history.
According to Medcraft, regulators and asset managers already had tools based on conduct supervision and enforcement which have been effective in managing disruptions across many jurisdictions and the IOSCO should not look for new solutions before understanding what was in use and how they may be refined.
“We should not use tools developed in the banking and insurance space as our starting point. Those tools were developed to deal with firms which have different risk profiles to asset managers. It is like creating a square peg for a round hole,” Medcraft said.
