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IOSCO Backs Off Systemically Important Designation Path

The International Organization of Securities Commissions (IOSCO) indicated last week that it would adopt an “activities and products” approach to considering systemic risk in the asset management industry. The organization “works intensively with the G20 and the Financial Stability Board (FSB) on the global regulatory reform agenda.”

The announcement came in the form of a statement released after IOSCO’s Annual Conference last week which included a meeting of the organizations board. Both SEC Chair Mary Jo White and CFTC Chair Tim Massad are members of IOSCO’s board. The announcement stated that “[o]n asset management, the Board concluded that a full review of asset management activities and products in the broader global financial context should be the immediate focus of international efforts to identify potential systemic risks and vulnerabilities.” As a result, such a review will be conducted before IOSCO reassesses whether it should further pursue its work on developing methodologies to identify systemically-important asset management entities.

The change in focus represents a departure for IOSCO which, with the (FSB), released a second consultative paper on methodologies for identifying non-bank non-insurer global systemically important financial institutions in March. The Forum, along with many other industry participants, responded to the consultative paper urging the FSB and IOSCO to rethink the strategy of attempting to address systemic risk by designating individual asset management entities.

Greg Medcraft, chair of IOSCO, noted the organization’s members’ unanimous view that large funds should not be regulated in a similar manner to banks, according to the Wall Street Journal. Should crises arise, Medcraft argued that regulators and fund managers have tools available to respond. The FSB declined to comment for the WSJ piece, and it is unclear whether it will continue to push for an individual-designation approach.