LONDON: Britain set out plans on Monday for a post-Brexit review of its rules for the 11 trillion pound ($13.2 trillion) asset management sector, with a focus on bolstering liquidity after a near meltdown in funds used by pension schemes last September.
Until Britain’s departure from the European Union, rules for the UK funds sector were written in Brussels.
Brexit means UK regulators can write their own regulations.
The sector has fallen short in dealing with stresses in recent years due to inadequate liquidity.
Property funds were suspended in the immediate aftermath of Britain’s 2016 vote to leave the EU and when the economy went into lockdown to fight COVID-19 in March 2020 as investors sought to pull out their money.
So-called liability-driven investment (LDI) funds, used by pension schemes to ensure long term payouts to pensioners, struggled to meet cash calls last September when UK government bond prices tumbled.
“The regulatory framework contains rules around liquidity management. Many of these rules are designed to protect consumers,” the FCA said in a discussion paper on reforming the sector.
“But the growth of the fund industry means that liquidity management in funds is also relevant to the good functioning of markets,” the discussion paper said.
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Although Britain has left the EU, many of the money market funds, LDI funds and mutual funds offered in the UK are listed in EU centres like Dublin and Luxembourg.
The FCA said it wants to see fund managers carrying out effective liquidity management by complying with stress testing guidelines issued by the EU’s securities watchdog ESMA. “We plan to convert these into rules and guidance in our Handbook.
We are also considering removing or significantly restricting the limitation around liquidity stress testing… so that the qualification ‘where appropriate’ does not give fund managers a reason not to carry out stress tests.“
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