The Financial Stability Board (FSB) on Friday pledged to propose recommendations by mid-year to deal with the systemic risks posed by asset management activities.
Following its latest meeting in Tokyo, the FSB announced that the group discussed the progress being made on its priorities for this year, which includes adopting post-crisis reforms, and addressing emerging risks, including potential risks associated with market-based finance, misconduct, reduction in correspondent banking and climate risk.
“Continued economic uncertainties and recent episodes of market volatility have re-emphasised the importance of continued progress to implement fully the agreed reforms and to identify and address new vulnerabilities as they arise,” the FSB says in the announcement.
The FSB also said it intends to launch a public consultation in mid-2016 on policy recommendations to address structural vulnerabilities from asset management activities and make the financial system more resilient.
These proposals will include measures to deal with: risks posed by funds’ liquidity mismatch; funds’ leverage; transferring investment mandates when markets are stressed; and securities lending.
The FSB also calls for stress testing to assess the ability of investment funds to meet their redemption demands under market stress.
“Increased information on liquidity and leverage risk across asset managers will be an essential tool for understanding the financial stability risks posed to the financial system,” the FSB announcement says. The FSB aims to publish final policies in this area by the end of the year.
The FSB will also publish a report in May examining the progress on implementing reforms to enhance the oversight and regulation of shadow banking entities; and, a final report on climate risk, including recommendations for voluntary corporate disclosures, is due by the end of 2016.