Global regulators face a backlash from some of the world's largest asset managers including Pacific Investment Management Co., Fidelity Investments, and BlackRock Inc. over plans that could single them out for tougher regulation.
Draft proposals for identifying financial institutions other than banks and insurers that are considered too big to fail are based on an incorrect analysis of the investment fund industry, the companies said in written responses to a consultation by international standard setters.
The blueprint “is fundamentally flawed and should be withdrawn,” Pimco said in its consultation response, published on the website of the International Organization of Securities Commissions. The plan “does not accurately reflect the risks associated with investment funds or the asset management industry as a whole.”
The too-big-to-fail proposals follow moves by global regulators in the Financial Stability Board to rank banks and insurers by their potential to cause a global meltdown and demand bigger financial cushions to avert a repeat of the turmoil that followed the collapse of Lehman Brothers Holdings Inc.
Industrial & Commercial Bank of China Ltd., was added to an FSB list of too-big-to-fail banks in November. Insurers such as American International Group Inc. and Allianz SE were deemed systemically important in July.
Global regulators have yet to say what kind of extra rules systemic funds could face.
In the case of banks and insurers, firms identified as too-big-to-fail face tougher capital requirements so that they can absorb losses, and more scrutiny by regulators to ensure that they can be safely wound down if they fail.
Bank of England Governor Mark Carney, the FSB's chairman, has said that the push to target other kinds of financial firms is “integral to solving the problem” of institutions whose collapse could threaten the financial system.
Under the plans published in January by the FSB and Iosco, investment funds with over $100 billion in assets could be labeled too big to fail.
The proposals also indicate a possible alternative approach where the asset managers in charge of large funds would be the focus for extra rules.
“The size of a fund is not indicative of systemic risk, and most of the largest funds today are unlikely to pose systemic risk issues,” BlackRock said in its consultation response.
Focusing on the asset managers themselves would also be “the wrong approach,” it said. They “are dramatically less susceptible to financial distress than banks, broker-dealers or insurers.”
BlackRock, Fidelity, and Pimco were among firms to say in their consultation responses that the international standard setters should scrap plans to focus on labeling specific funds, or possibly asset managers, as too big to fail, and to focus instead on identifying activities that could be systemically important.
Other types of firms covered by the draft rules include securities broker-dealers as well as finance companies that provide services such as business funding, personal loans, store credit and car loans.
The FSB and Iosco have said that they will come forward at a later stage with plans for what additional measures such firms should face.