The City’s asset managers have left “gaps” in their liquidity management and could be exposed in the event of a run from investors, the Financial Conduct Authority (FCA) has warned.
In a statement today, the FCA said it had reviewed the liquidity management of money managers and found that firms need to ramp up their focus on liquidity management or risk “investor harm”.
A deep dive into the sector revealed a “wide disparity in the quality of compliance with regulatory standards and depth of liquidity risk management expertise”. A minority of firms in the review had “inadequate frameworks to manage liquidity risk”, the regulator said.
Camille Blackburn, director of wholesale buy-side at the FCA, said there have already been “examples in the market where liquidity risk has crystallised and the impact this can have on investors.”
“This review should serve as a warning to all asset managers that they need to get this right,” she added.
“We expect boards to discuss our findings and assure themselves that their firms are not amongst the minority with serious gaps in managing liquidity risk.
“It’s vital the outliers take quick action. They risk regulatory intervention if they don’t take this opportunity to address weaknesses.” The warnings come after a year in which skittish investors have run on open-ended funds and sparked a slew of liquidity crises.
The International Monetary Fund warned in October last year that open-end funds investing in less liquid assets pose a major risk to global financial stability.