Large scale asset managers are unlikely to be the cause of financial instability in the global economy and comparisons to the banking and insurance sectors are inappropriate according to the chair of the International Organization of Securities Commissions.
In a speech delivered overnight in Washington, Greg Medcraft, who chairs IOSCO as well as the Australian Securities and Investments Commission (ASIC), 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,” Medcraft said in the speech titled ‘Global Regulators Were Wrong’, given to the National Press Club.
“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.”
However, Medcraft said IOSCO would examine risks in other areas but would not rely on theoretical or academic research from the past but “on what we are currently seeing and what we think might be happening in the markets we regulate”.
He said IOSCO was cautious about jumping to conclusions about the nature and extent of risks in the asset management space and “we should only progress thinking about solutions once we are satisfied there is strong evidence that there is a problem”.
“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.
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 IOSCO should not look for new solutions before understanding what was in use and how they may be refined.
