Global policymakers' recent decision that large asset managers don't pose systemic risks may help clear the way for the new Cooperative Capital Markets Regulator (CCMR), the Investment Industry Association of Canada (IIAC) says.
In his latest letter to the industry, IIAC president and CEO, Ian Russell, suggests that the Canadian government and securities regulators will likely follow the recent decision by the Financial Stability Board (FSB) and the International Organization of Securities Commissions (IOSCO) in concluding that large asset managers are not systemically important. This conclusion "will be welcome relief for these institutions, enabling them to avoid the onerous institution-specific regulations governing capital, liquidity and leverage," he notes.
Russell says that this would free the federal government to "exempt the largest asset managers, including the largest pension funds, from the Capital Markets Stability Act—the legislation that grants the federal government authority to oversee and impose regulations to address systemic risk in national capital markets."
That legislation has yet to be finalized. A draft version was issued last year for comment as part of the process to create the new CCMR. Policymakers have promised to publish a revised version for further comment later this summer. One of the concerns with the draft proposed last year is that it could result in added regulation for large pension funds and other asset managers.
However, if the Canadian authorities conclude that they can exempt these firms from the proposed new legislation, Russell says this could eliminate one significant hurdle to the creation of the CCMR. "This move would avoid a confrontational and divisive battle that could upset momentum for the Cooperative Capital Markets Regulatory System," he says.
Nonetheless, Russell also notes that: "it is important that regulators impose appropriate rules across these financial institutions in the marketplace to ensure asset exposure or potential constraints on liquidity of the large asset managers will not jeopardize the viability of these institutions and destabilize domestic markets."