September 2024
The Swiss Finance Council has a strong interest in the targeted consultation on the effectiveness of the macroprudential framework for the Non-Bank Financial Intermediation (NBFI) sector. Swiss asset managers manufacture both Money Market Funds (MMFs) and Open-Ended Funds (OEFs) within the EU and manage and distribute them both within the EU and on a cross-border basis. Therefore, any changes to the EU macroprudential framework for MMFs and OEFs would have a direct impact on Swiss asset managers. More broadly, given the interconnectedness of EU and Swiss markets, there is need for continued international cooperation on the NBFI agenda.
Our initial views and recommendations include that:
- The EU fund sector is already highly regulated: There are already a number of micro- and macro-prudential provisions in the investment fund sector that guard against investment funds contributing to the build-up of systemic risks.
- The fund sector as a whole is not systemically important: The starting point should be to establish the extent to which systemic risks exist, and if they do, precisely define what they are. Targeted policy measures can then be proposed if necessary.
- The investment fund sector is inherently diverse: Many funds follow long-term investment strategies aligned with appropriate risk management practices that make them unlikely to contribute to the build-up of systemic risks. Though certain cohorts of open-ended funds invest in less liquid assets (e.g., real estate funds and corporate debt funds), it does not necessarily mean that these funds exhibit a liquidity mismatch.
- There is a significant NBFI agenda outside the regulated fund sector: Given that the investment fund sector is already highly regulated, it is also appropriate to assess the systemic risks that may arise from other less and non-regulated NBFI sectors such as pension funds, family offices and hedge funds. We also support ongoing international work to increase the liquidity preparedness among market participants as well as transparency and predictability of margin calls. Being able to put highly liquid assets, alongside cash, as collateral for margin calls would limit the contagion during stress market conditions and contribute to financial stability.
- Use existing micro-and macro-prudential tools to manage risks: Investment funds do not need to ensure a perfect match between the liquidity of their assets and liability and can rely on liquidity management tools (LMTs) to manage unexpected redemptions. The uniform use of LMTs, as adopted under the AIFM/UCITS Directives’ review, will contribute to macroeconomic stability. Enhanced supervisory stress testing frameworks may help inform the selection and use of specific LMTs by management companies.
- Make better use of existing supervisory data: Much of the information that regulators need to analyse macroeconomic risk already exists. In the EU, even richer data will exist after the introduction of the enhanced reporting regime under the AIFMD review. However, ESMA could support greater sharing of supervisory data between national authorities. International supervisory collaboration for the purpose of macroeconomic systemic risk assessment would also be helpful. At the same time, it should be considered how data can be shared with firms, as for example data that is relevant for banks’ counterparty risk assessment.
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