AUM size does not equate with systemic risk, says BlackRock

DominosBlackRock, the world’s largest investment manager, has told regulators that the asset management industry is not a source of systemic risk and that many regulatory changes put in place since the financial crisis have made the system much safer.

The European Fund and Asset Management Association (Efama) has taken a similar stance. Both bodies were responding to the Financial Stability Board (FSB) second consultation on the systemic risk of asset managers and certain other financial institutions.

BlackRock, which had $4.77 trillion (€4.33 trillion) of assets under management (AUM) at March 31, also says that AUM should not be used as a metric to designate risky systemic institutions, as this would create “false negatives” and “false positives”. The company adds: “If the FSB must move forward with a designation approach, leverage should be used as the basis for deciding which funds warrant further analysis – not AUM.”

BlackRock says it “finds that none of the transmission mechanisms or impact factors outlined in the second consultation are applicable to asset managers”. However, it does say that certain investment funds should be subject to enhanced regulation, but not designated as ‘non-bank non-insurer global systemically important financial institutions’, known as NBNI G-SIFIs, and therefore subject to measures.

Broadly, BlackRock and Efama say products and activities are a better focus of action for the FSB.

BlackRock emphasises that asset managers act as agents for clients and do not act as counterparties.

Counterparty chains, particularly in the derivatives market, were chief transmission lines for financial risk in the financial crisis of 2007 and 2008.

Both BlackRock and Efama highlight that regulation brought in since then should be considered as the FSB moves towards finalising its plans over NBNI G-SIFIs.

The FSB action on systemic risk dates back to November 2011 when leaders of the G20 nations asked the FSB, in consultation with the International Organization of Securities Commissions, to prepare methodologies to identify NBNI G-SIFIs.

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