Fund Managers Win Reprieve as Too-Big-to-Fail Plan Shelved

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The world’s biggest investment managers have won a reprieve from plans to label them as systemically important, staving off tougher regulation, as global authorities reassess the move.

The International Organization of Securities Commissions, one of two global standard-setters working on the measure, said priority would now be given to a “broader” study of “asset management activities,” in a statement on Wednesday.

“This review should take precedence over further work on methodologies for the identification of systemically important asset management entities,” Iosco said in the statement. “After the review is completed, work on methodologies for the identification of such entities should be reassessed.”

The move marks a victory for the asset management industry, which had lobbied against the plans. Firms from BlackRock Inc. to Vanguard Group Inc. argued that creating a list of too-big-to-fail asset managers was misconceived, because they don’t take risks on their own balance sheets in the same way as banks, or face the same liquidity shocks. They also said that size isn’t an accurate measure of the amount of risk they pose to the global financial system.

‘Problems Arising’

The Iosco proposal, made jointly with the Financial Stability Board, has “problems arising from the imposition of a framework originally designed for the banking industry on the investment-fund industry,” the International Capital Market Association, which represents buyers and sellers in the debt market, said in response to the most recent consultation on the plans.

Fidelity Management & Research Co. last month urged Iosco and the FSB to drop the “irredeemably flawed” plan and called on U.S. firms to reject the proposal.

The “destructive” proposal “would fail to reduce systemic risk, but it would harm funds, managers, investors and markets,” it said in a consultation response.

Martin Wheatley, chief executive officer of the U.K. Financial Conduct Authority, an Iosco member, said at Wednesday’s press conference that the course change had been influenced by industry responses.

“We’ve been through two rounds of consultation, and the purpose of consultation is not a rubber-stamping exercise, it’s genuinely to listen,” he said. “What’s become clear is that there’s actually some questions that we still have to answer before we go through that designation process,” he said.

The FSB and Iosco said in March that the failure of an asset manager could “cause or amplify significant disruption to the global financial system,” putting the world’s largest fund managers in line for tougher, so far undefined, rules.

Iosco, which is holding it’s annual conference in London, also announced plans to set up a taskforce on financial conduct, and to examine the impact of reduced liquidity on bond markets.

Iosco brings together market regulators from more than 100 nations to coordinate its rule-making.

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