Money manager ‘deeply disappointed’ by proposal for stricter regulations on largest fund managers
Vanguard, the second-largest money manager in the world, has joined peers BlackRock, Fidelity and others in sharply criticizing the Financial Stability Board’s (FSB) proposal to classify certain funds as ‘too big to fail’, calling the plan ‘deeply flawed’.
The FSB proposal, which was open to public comment until the end of May, plans to identify funds that could pose a ‘systemic risk’ and may oblige them to increase the amount of capital they hold, introduce stricter reporting requirements and take other measures to ensure the security of the global financial system.
Last year, the FSB, which is headed by Bank of England governor Mark Carney, said fund managers with more than $100 bn in assets should be assessed to determine whether they would pose systemic risk.
Vanguard says in a letter to the FSB that it is ‘deeply disappointed’ by the proposal, describing it as ‘inconsistent’ and ‘deeply flawed because its reasoning relies heavily on broad hypothetical and academic statements that are not supported by complete empirical datasets.’
‘We are disappointed that systemic risk regulators would base their systemic risk concerns on this insufficient empirical record, and consequently appear willing to impose unnecessary and ineffective prudential regulations,’ Vanguard continues. ‘Rather than rely on incomplete or inaccurate data, we believe systemic risk regulators would be wise to focus their efforts on efficient and effective ways to gather comprehensive and accurate information.’
Fidelity earlier told the FSB the plan would damage the funds and the market while failing to ensure security of the global financial system. It called the plan ‘out of step with other regulators, academics and industry experts’.
Greg Medcraft, chairman of the International Organization of Securities Commissions, told Reuters in an interview last month that he was ‘not convinced’ of the need to classify certain fund managers as too big to fail.
‘My personal view is that while fund management has grown significantly, I think the jury is still out in terms of whether it is a systemic risk or not,’ he said. ‘I think an area we’ve certainly got to work on is identifying where fund managers could cause systemic risk, but I don’t think at this stage the case has been proven.’
