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MFA and AIMA Submit Joint Comments on FSB Consultation on Asset Management Activities

On September 21, MFA and AIMA submitted a joint letter to the Financial Stability Board in response to its consultation paper – Proposed Policy Recommendations to Address Structural Vulnerabilities from Asset Management Activities.  In our letter, we: (1) supported the FSB’s decision to focus on asset management activities rather than designation of asset managers with respect to its consideration of systemic risk regulation; (2) encouraged regulators to finalize pending regulatory projects and assess their impact before determining whether there are remaining gaps in regulatory oversight that require additional rulemaking; (3) encouraged the FSB to limit the scope of any proposed recommendations regarding liquidity risk management to open-ended investment funds with regulatory requirements regarding investor redemptions and to ensure that any recommendations provide the necessary flexibility for asset managers to tailor their liquidity risk management based on their portfolios; and (4) encouraged the FSB to analyze leverage within a broader risk framework, that also considers other risk factors, and existing risk mitigants, including market practices and regulations that reduce the likelihood that the use of leverage by a hedge fund might create systemic risk, and to avoid simple, single measures of leverage (such as gross notional exposure) that are misleading when attempting to analyze risk.