The financial market authorities of Spain, Austria, France, and Italy request stress tests in asset management.

While the European Commission is about to launch its public consultation on the macroprudential treatment of risk in asset management, four authorities from large European markets, the National Securities Market Commission (CNMV) of Spain, the Financial Market Authority (FMA) of Austria, the Autorité des Marchés Financiers (AMF) of France, and the National Commission for Companies and the Stock Exchange (CONSOB) of Italy, have made public their opinion on the priorities in this area, as reported by the CNMV.

The risks arising from non-bank financial intermediation (NBFI) have been scrutinized by regulators around the world in recent years, particularly due to their growing role in the international financial system. Likewise, concerns have arisen about the possible relevant negative effects that shocks, whether propagated by or originated in the NBFI sector, could have on the real economy.

These debates are important and legitimate.

Asset Management Industry

When developing regulations to address the risks of asset management, its specific characteristics must be taken into account. The asset management ecosystem is different from that of banks and is as diverse as the vulnerabilities recorded so far. Therefore, the nature of the risks that regulators intend to address must be precisely defined and should focus primarily on those cases where the characteristics of asset management generate excessive price volatility and liquidity tensions. Capital requirements and liquidity buffers are not the most suitable solutions to mitigate these risks in terms of financial stability.

In relation to these considerations, focused on the asset management sector, the Spanish, Austrian, French and Italian authorities have identified five priorities. The first three refer to short and medium term measures, and the other two should be explored in the long term:

• Ensure a wide availability and greater use of liquidity management tools (LMT) in all types of open-ended investment funds (OEF): the current review of the Alternative Investment Fund Managers Directive will result in a significant advance in the implementation of liquidity management tools, although its development rules are pending elaboration.

• Prohibition of amortized cost accounting for money market funds: amortized cost accounting is intrinsically harmful to financial stability, it implies giving misleading information to investors, making them believe that they have a stable net asset value (NAV), which generates incentives for investors who make the first moves.

• Stress tests on the entire system for a better understanding of the vulnerabilities of each asset management group and their interconnections with other participants in the financial system.

• Implement a truly consolidated supervisory approach for large cross-border asset management groups: given that their teams and funds are currently supervised by different national competent authorities (NCA) around the world, the establishment of a supervisory college for these groups would bring significant benefits in times of tension and under normal market conditions.

• Create a shared integrated data center for market supervisors and central banks, that meets their respective needs, both for daily supervision and when conducting stress tests.