Mutual fund managers are facing stricter rules on cash calls from investors
The funds were unable to raise money quickly enough, although the industry has argued that many parts of the market were under severe pressure at the time.
Global regulators on Wednesday published stricter rules for open-ended investment fund managers to ensure they can meet investors' cash calls during a crisis without needing emergency liquidity from central banks.
Regulators have scrutinized the assets of open-ended funds, a sector worth more than $40 trillion globally, after central banks had to intervene to prevent money market and other types of funds from freezing in the face of a 'dash for cash' when the economies entered the crisis. -19 lockdowns in March 2020.
The funds were unable to raise money quickly enough, although the industry has argued that many parts of the market were under severe pressure at the time.
Reforms by the G20 Financial Stability Board and IOSCO, a global umbrella group for securities watchdogs, aim to end the so-called first mover advantage, where investors who leave a fund are less worse off than those who remain.
The rules, which have been put out for public consultation, with some adjustments in the final recommendations, say redemption terms should reflect how long it would take to sell assets in a fund to avoid a 'liquidity mismatch'.
For example, real estate funds offered daily redemptions and some had to suspend them because it was difficult to sell properties quickly.
The FSB has set up 'buckets' to categorize whether funds can offer daily redemptions.
“In response to the public consultation, the FSB has sought to clarify the categorization approach and provide authorities with greater flexibility in implementing the framework in their respective jurisdictions,” the FSB said in a statement.
The FSB said the liquidity management tools (LMTs) required by asset managers will increasingly be used by funds that invest primarily in less liquid assets that typically take longer to sell.
IOSCO said it has provided more flexibility in the use of LMTs, specifying that the aim is to impose “fair and reasonable transaction fees” deducted from repayments.
The FSB and IOSCO, whose members commit to applying agreed rules in the national manuals, said they will assess by 2028 whether the changes have sufficiently addressed risks to financial stability.
First print: December 21, 2023 | 12:08 pm IST