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UK financial regulators are researching options to boost liquidity management in its £11tn asset management market. The research is a part of the post-Brexit review of the UK’s financial regulators' plan after a blow-up in the pensions industry. Meanwhile, the FCA (Financial Conduct Authority) announced on Monday a consultation approach to improve its existing regime for the 2,600 asset management firms. The regulator plans to protect investors, encourage innovation and boost competition.
In any case, the FCA maintains that future regulations for liquidity management must aim at protecting consumers, growth of the funds market, and a good functioning industry. Yet, the gilts market’s sell-off last autumn exposed the liquidity market. It also resulted in operational weaknesses in the liability-driven investing industry, calling for a strategy among UK pension funds to manage risks. Generally, the crunch threatened to mess up the entire financial system.
A bond yields spike after the mini-budget has prompted collateral calls on hedging contracts pension funds. Thus, it has lured investors to sell assets like gilts quickly to replenish collateral. In the meantime, the liquidity crisis impacted two other markets, including real estate. It prompted numerous asset managers to restrict property funds’ withdrawal since they could not manage heavy investors’ demand.
Overall, the current crisis has occurred while the country plans to redraw its financial regulations in the Brexit aftermath. The Prudential Regulation Authority and Financial Conduct Authority, which regulates the country’s insurers & banks, looks to transpose EU laws into new UK regulations. All in all, the UK regulators and government have vowed that the approach will prove more flexible to the volatile worldwide industry dynamics. They insist that the new reforms will not result in deregulation that might worsen the crisis.
But UK regulators are increasingly concerned about the market fragilities, such as the pension fund meltdown in September. The Financial Policy Committee of the BOE (Bank of England), which identifies risks in the financial system, has cited several challenging liquidity issues. Britain’s actions come during a broader global push to eradicate risks migrating from the regulated banking sector into other financial systems such as asset managers and hedge funds.
Above all, the FCA looks for areas where regulations might limit modern tech and innovation potential. The authority highlighted the potential of transformation where investors get digital tokens instead of traditional fund units and shares. Experts believe the UK must remain sensitive to the likely disruption and high costs resulting from overhauling the asset management framework. Regulators will submit the final response latest by May 22.