Funds face stress tests as FSB confirms proposals

Funds face stress tests as FSB confirms proposals

The Financial Stability Board (FSB) has reaffirmed measures first proposed in June to address structural vulnerabilities in asset management after a period of industry consultation.

In a list of policy recommendations, the international body reiterated its original 14 proposals around areas such as fund liquidity risk and stress testing.

Suggestions from the FSB, which is chaired by Bank of England governor Mark Carney (pictured), include the collection of information on the liquidity profile of open-ended funds and a review of existing disclosure requirements in relation to this.

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It added: "Authorities should require and/or provide guidance on stress testing at the level of individual open-ended funds to support liquidity risk management to mitigate financial stability risk. The requirements and/or guidance should address the need for stress testing and how it could be done."

Relevant authorities are also urged to, where appropriate, "widen the availability of liquidity risk management tools to open-ended funds and reduce barriers to the use of those tools" to increase the likelihood portfolio redemptions are met, even at times of market stress.

The confirmation of such proposals is likely to come as a relief to the funds industry, which had voiced concerns about the emergence of rules stricter than those originally suggested.

The FSB had previously stepped away from plans to designate the largest fund firms as "systemically important", a move which could have seen higher capital requirements imposed on those asset managers.