Policy recommendations to address structural vulnerabilities from asset management activities
This FSB report sets out 14 policy recommendations to address the following structural vulnerabilities from asset management activities that could potentially present financial stability risks:
liquidity mismatch between fund investments and redemption terms and conditions for open-ended fund units;
leverage within investment funds;
operational risk and challenges at asset managers in stressed conditions; and
securities lending activities of asset managers and funds.
In the area of liquidity mismatch, the recommendations are designed to increase information and transparency to both authorities and investors with respect to open-ended funds as well as to strengthen liquidity risk management frameworks and practices of those funds. They also address the potential use of system-wide stress testing by authorities. Leverage recommendations focus on the measurement and monitoring of leverage within investment funds. The recommendation on operational risk would help ensure risk management frameworks and practices are commensurate with the level of risks that an asset manager’s activities pose to the financial system. The securities lending recommendation focuses on situations where indemnifications are provided by asset managers to their clients in relation to securities lending activities.