The Managed Funds Association (MFA) has urged the European Commission (EC) to refrain from applying a one-size-fits-all macro-prudential regulatory framework to nonbank financial intermediaries (NBFIs) in a comment letter submitted this week.
The letter, from the representative body for the alternative investment sector, is in response to the EC’s targeted consultation on macro-prudential policies for NBFIs.
The letter emphasises that the NBFI sector is diverse and encompasses a wide range of financial institutions with varying risk profiles, operational structures, and regulatory oversight.
MFA contends that alternative investment funds (AIFs) and their managers are important and well-regulated, and do not pose a systemic risk to the economy and that considering the diverse nature of the NBFI sector, it would be unsuitable to impose uniform macro-prudential regulations across all NBFIs.
“Alternative investment funds are an important, well-regulated part of Europe’s economy and are not a systemic risk. Imposing a one-size-fits-all regulatory framework on alternative asset managers would restrict their ability to provide capital to European companies, create jobs, and enhance capital markets,” said Bryan Corbett, MFA President and CEO. “Europe should seek to foster investments from alternative investment funds in order to best achieve the Savings and Investments Union objectives, and not burden it with ill-fitting regulations that fail to recognise their distinct characteristics and risk management controls.”
The MFA’s letter outlines the reasons why AIFs should not be subject to macro-prudential regulations similar to those applied to depository institutions, highlighting that appropriate and dynamic risk management is a cornerstone of the alternative investment funds industry.
According to MFA, AIFs are not a systemic risk because they are funded by sophisticated institutional investors who fully understand investment risks. They are not funded by depositors nor backstopped by the government.
In addition, AIFs’ redemption limitations are calibrated to the liquidity of underlying assets, preventing “run risk”, while AIFs also employ limited leverage and maintain detailed, robust margin and risk management practices with their dealer counterparties.
The letter also encourages regulators to harmonise reporting requirements across global markets, which it says would improve the effectiveness of oversight without imposing unnecessary or duplicative reporting burdens on market participants.
