With an eye to better monitoring financial stability risks in the asset management sector, global securities regulators are proposing a framework for assessing global leverage.
The board of the International Organization of Securities Commissions (IOSCO) is requesting feedback on a proposed framework to help measure used by investment funds which in some circumstances could pose financial stability risks, the organization announced Wednesday.
IOSCO has issued a consultation paper that sets out a proposed framework for measuring the leverage used by investment funds. The paper sets out a two-step process for “achieving a meaningful and consistent assessment of global leverage.”
The framework is designed to address a recommendation from the Financial Stability Board (FSB) as part of its work on systemic risks that may develop in the asset management sector. In particular, the FSB called on IOSCO to either identify, or develop more risk-based measures for assessing the leverage risks that funds may create.
The draft framework aims to balance the competing goals of precisely measuring leverage and devising simple, robust metrics that can be applied consistently across a wide range of funds in different jurisdictions. It doesn’t prescribe a particular set of metrics, allowing flexibility for jurisdictions to determine the most appropriate risk assessment to adopt for their markets.
Comments on the proposed framework are due by Feb. 1, 2019.