The reforms introduced to the global banking system in recent years have been credited with reducing systemic risk. But are there other sources of systemic risk that need to be addressed?
That’s the question IIAC president and CEO Ian Russell addresses in his latest industry letter. The key issue is whether large, non-bank asset managers are so systemically important as to warrant institution-specific regulation.
Two international bodies, the Financial Stability Board and IOSCO, say they aren’t. “[T]his decision and its underlying rationale would enable the Canadian 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,” explains Russell. “This move would avoid a confrontational and divisive battle that could upset momentum for the Cooperative Capital Markets Regulatory System.”
But caution’s still in order, he adds. “Even if there is a consensus that systemic risk is now well contained across the financial sector, regulators, governments and designated ‘overseers’ need to review the adequacy of existing rule frameworks for the largest asset managers to ensure prudent management of liquidity, portfolio exposure, and leverage.”
Read more here.