Asset managers do not need new safeguards at this point to cope with a decline in liquidity that has contributed to sharp swings in bond markets, a senior European Union regulator said. Steven Maijoor, chairman of the European Union's European Securities and Markets Authority (ESMA), said the structure of bond markets had changed due to technology advances, lower levels of activity by banks and the increased presence of asset managers.
"Yes, liquidity has changed. To say this now requires another policy, that is too early to say," he told the Reuters Financial Regulation Summit on Wednesday.
His view contrasts with central bankers who want to bring in new rules for asset managers to safeguard financial stability.
A drop in liquidity in US Treasuries and German government bonds, for example, has made it harder for asset managers to sell bonds when they need to.
As a result, central bankers have called for new rules on liquidity management and leverage at asset managers.
The Financial Stability Board (FSB), which co-ordinates regulation for the Group of 20 economies (G20) and is headed by Bank of England Governor Mark Carney, will make global policy recommendations by September. FSB recommendations are not legally binding.
Markets regulators are less eager to jump in. Maijoor is just back from a meeting in Peru of IOSCO, the global umbrella body for securities regulators, which discussed bond market liquidity and asset managers.
Last year, IOSCO, an FSB member, scuppered FSB plans to deem asset managers "systemic" and therefore face tougher scrutiny, saying funds do not pose the same risks as banks.
"It's too early to say that we need to change redemption mechanisms or the liquidity management tools at investment funds," Maijoor said.
EU-regulated mutual funds have a good track record in managing liquidity, and it was too early to reform the EU's new regime for alternative investments like hedge funds, Maijoor said.
"What we should do is collect more data on asset managers in the EU ... to get a better understanding of what they are doing before (we take) the next step and say this should be regulated differently," Maijoor said.
He predicted that this sort of debate between central bankers and markets watchdogs over regulation policy will happen more often.
"Maybe the way you look at stability issues in banking is not the right template for looking into stability issues in the securities market," Maijoor said.
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