MFA Submits Comments to IOSCO and FSB on Assessment Methodologies for Nonbank Non-Insurer SIFIs

The Managed Funds Association (“MFA”) submitted a comment letter to the Financial Stability Board (“FSB”) and IOSCO in response to the FSB-IOSCO consultation paper on assessment methodologies for nonbank and non-insurer globally and systemically important financial institutions (“SIFIs”).  

In the letter, MFA encouraged the FSB and national systemic risk regulators to analyze hedge fund information using a quantitative-based metric, which MFA believes will demonstrate that hedge funds do not pose systemic risk.  Additionally, MFA responded to specific proposals in the consultation paper, encouraging the FSB to adopt final recommendations consistent with the following key points: 

  • systemic risk regulators should conduct analysis at the individual fund level and not at the level of the family of funds, the asset manager, or the asset manager and its funds collectively;
  • the FSB and IOSCO should use a metric other than gross notional exposure (“GNE”) to measure an investment fund’s gross assets under management, since GNE does not a reflect a fund’s actual market risk or counterparty exposure and ignores material variations among positions by (i) asset class, (ii) tenor, (iii) netting terms, (iv) margining and collateral arrangements and (v) clearing status;
  • the FSB and IOSCO should only recommend indicators that are consistent with the statement in the consultation paper that investment funds may cause systemic risk via the counterparty channel and the market channel; and
  • the FSB and IOSCO should only recommend indicators that are well designed to measure systemic risk and not recommend indicators that are likely to measure other types of non-systemic risk.

See: MFA Comment Letter.
Related news: SIFMA AMG Submits Comments to the FSB and SEC in Response to OFR Study and with Regard to Separate Accounts (April 8, 2014); SIFMA AMG Submits Comments to the FSB on Assessment Methodologies for Identifying Non-Bank Non-Insurer G-SIFIs (April 7, 2014); IOSCO and FSB Publish Proposed Assessment Methodologies for Identifying Non-Bank Non-Insurer Global SIFIs (January 9, 2014).