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As the fifth anniversary of Dodd-Frank approaches, regulators in the U.S. and around the world appear to be joining the financial industry in favoring an approach to shadow banking that focuses on risky activities, rather than entities.
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Just as U.S. regulators shy from labeling individual asset management firms as systemic, an international group of securities regulators is similarly abandoning a firm-by-firm approach.
June 23
WASHINGTON - The Financial Stability Board said that it is tabling its work to develop methodologies for identifying systemically risky asset management firms until after other work to develop an activities-based regulatory approach has completed.
The board, which is made up of regulators and central bankers from around the globe, including the U.S., said that its decision to put the methodology on hold "will allow further analysis of potential financial stability issues associated with asset management entities and activities to inform the revised assessment methodology."
Asset managers are already expressing their satisfaction with the move. The Investment Company Institute, a trade association for asset management firms, said in a statement that they welcomed the decision and would further push the FSB to increase the voices of asset managers in the decision-making process, since the FSB is made up primarily of bankers.
"Asset management is a diverse enterprise, and an effective review of potential risks to the global financial system in this area requires consideration of activities that are sector-wide," the ICI statement said. "Such a review must be led by regulators with deep expertise in capital markets, and we stand ready to assist in those efforts."
The FSB's decision comes as global regulators are increasingly viewing an activities-based approach to regulating the shadow banking sector as the most effective way of ensuring that risky activities don't migrate away from the regulated banking sector. The International Organization of Securities Commissions last month made an identical announcement that it was tabling its work on the systemic risk methodology in favor of an activities-based approach. And Federal Reserve Gov. Daniel Tarullo has said on several occasions that any regulation of the asset management industry in the U.S. will almost certainly be activities-based rather than firm-by-firm.
