The Investment Association has rejected suggestions that asset managers are a source of systemic risk to the global economy.
The lobbying body was responding to the Financial Stability Board’s CP2 consultation which asked organisations about the best way to assess non-bank and non-insurer SIFIs (systemically important financial institutions).
In its response, the IA said both consultation documents released by the FSB have, so far, failed to provide enough evidence of the ‘moral hazard’ that exists from the asset management industry.
The IA response said: “We fail to see how moral hazard considerations justify this policy making concerning our industry.”
The SIFI framework was drawn up after the credit crisis of 2008 where certain banks such as Bear Stearns, Bradford & Bingley, Northern Rock and Lehman Brothers collapsed.
Numerous other organisations such as the UK’s Royal Bank of Scotland were deemed ‘too big to fail’ and were bailed out by governments.
The IA argues that asset management is an ‘agency business’ and therefore assets are not on the manager’s balance sheet but owned by an investor.
It said: “Even if a manager, as an entity were to fail, the assets remain segregated and can be transferred elsewhere.
“Assets in collective funds are typically in the custody of a third party, the custodian or depositary, which is legally and functionally independent of the manager.”
The IA argued that consideration should also be given to the implications of designating asset managers as ‘systemic’.
It said: “In the case of banking, potential policy tools were well understood – including, for example additional capital requirements. This is not the case for asset managers and funds. It is far from clear what the appropriate policy measures should be.”
The Investment Association represents UK investment managers with assets of more than £5 trillion under management.