MFA Submits Comments to the FSB/IOSCO on Assessment Methodologies for Non-Bank Non-Insurer Global SIFIs

MFA submitted a comment letter to the Financial Stability Board and the International Organization of Securities Commissions in response to the FSB/IOSCO consultation paper on assessment methodologies for non-bank non-insurer globally systemically important financial institutions.  In the comment letter, MFA encouraged the FSB and national systemic risk regulators to analyze hedge fund information using quantitative-based metrics, which we believe will demonstrate that hedge funds do not pose systemic risks.  MFA also responded to the specific proposals in the consultation paper, encouraging the FSB to adopt final recommendations consistent with the following key points:  (1) 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; (2) 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; (3) 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 (4) the FSB and IOSCO should only recommend indicators well designed to measure systemic risk and not recommend indicators that are likely to measure other types of non-systemic risks.