Written By The £11tn asset management sector in the UK is facing a period of significant change as regulators look to make improvements to liquidity rules. Recent moves by the Financial Conduct Authority (FCA) and the Bank of England (BoE) mean that asset managers will soon have to consider their liquidity risk more closely and face tighter restrictions on how they operate. In this blog post, we will delve into the regulator’s proposals and explain what they could mean for asset managers. We’ll also look at how technology can be used to help firms comply with the new regulations, while still allowing them to maintain a healthy level of liquidity.
The UK regulator is looking to improve liquidity rules in the £11tn asset management sector
The UK regulator, the Financial Conduct Authority (FCA), is looking to improve liquidity rules in the £11tn asset management sector. The FCA is concerned that some asset managers may not be able to meet customer redemptions in a timely manner during periods of market stress.
The proposed changes would require asset managers to hold more liquid assets, such as cash and government bonds, and to disclose more information about their liquidity risks. The FCA is also considering introducing new rules around the use of derivatives and other financial instruments.
The asset management industry has broadly welcomed the proposals, which are still at an early stage. However, some have warned that the proposed changes could lead to higher costs for investors and could limit the ability of asset managers to generate returns in a low-yield environment.
The problems with the current rules
- The problems with the current rules
The UK’s Financial Conduct Authority (FCA) is looking to improve liquidity rules in the £tn asset management sector, after finding that some managers are not properly prepared for a market downturn.
In particular, the FCA is concerned about the way that some managers are using derivatives and other financial instruments to increase returns in good times, without fully understanding the risks involved. This can leave them dangerously exposed when markets turn against them.
The regulator is also worried that some firms are too reliant on short-term funding, which could dry up in a crisis. And it wants to ensure that investors are clear about the risks they are taking on.
The FCA’s review comes as policymakers around the world are turning their attention to the asset management industry, amid concerns that it has become too big and complex to be effectively regulated.
The proposed changes to the rules
The UK regulator, the Financial Conduct Authority (FCA), is looking to improve liquidity rules in the £1tn asset management sector. The proposed changes come in response to the findings of the FCA’s review of the sector, which highlighted a number of areas where improvements could be made.
The main change that the FCA is proposing is to introduce a “liquidity buffer” for asset managers. This would require firms to hold a certain amount of highly liquid assets, such as cash or government bonds, in order to meet any unexpected outflows of cash from investors.
The FCA is also proposing a number of other changes, including:
- Introducing new requirements on firms to stress-test their portfolios and report on their findings
- Imposing new limits on how much of a portfolio can be invested in illiquid assets
- Making it easier for investors to redeem their investments if they need to do so
The regulator will consult on these proposals later this year and is seeking feedback from all interested parties.
The impact of the changes on asset managers
The UK’s Financial Conduct Authority (FCA) is looking to improve liquidity rules in the £tn asset management sector in order to protect investors and reduce the risk of a market crisis. The proposals, which are out for consultation until March 2019, would require asset managers to hold more liquid assets, have better plans for managing outflows of cash, and provide greater transparency to investors about the liquidity of their portfolios.
The changes would have a significant impact on asset managers, who would need to increase their holdings of liquid assets and put in place robust processes for managing outflows of cash. However, the FCA believes that the benefits of these changes would outweigh the costs, and that they would ultimately lead to a stronger and more resilient asset management sector.
Conclusion
The UK regulator is taking considerable steps to ensure the asset management sector remains safe and secure. By making changes to liquidity rules, it is looking to prevent some of the risks associated with poor liquidity and make sure that investors’ money is in the right hands. With this positive action being taken by regulators, investors can have greater confidence in their investments, knowing they are in a better position than ever before.
