Financial Stability Board Targets Fund Finance

February 23, 2017

In marked contrast to the emerging U.S. deregulatory climate, the G-20’s Financial Stability Board (FSB) has issued Policy Recommendations for the regulation of four “structural vulnerabilities” in the asset management industry:

  1. Liquidity mismatch between fund investments and redemption terms and conditions for open-end funds;
  2. Leverage utilized by investment funds;
  3. Operational risks and challenges faced by asset managers in stressed conditions; and
  4. Securities lending activities of asset managers and funds.

The FSB states that liquidity mismatch and fund leverage are its key concerns. This OnPoint reviews the FSB’s suggested regulation of fund leverage, discussing how the risks identified by the FSB with respect to fund finance may be overstated and why additional regulation may be unwarranted.

Read "Financial Stability Board Targets Fund Finance."