As the European Commission evaluates the adequacy of macroprudential policies for non-bank financial intermediation (NBFI), the European Fund and Asset Management Association (Efama) has called for tailored solutions, enhanced supervisory collaboration and targeted capital market reforms. In May 2024, the commission a consultation to determine whether existing microprudential instruments should be repurposed or if new macroprudential requirements are needed. This review is particularly significant as the EU seeks to expand its capital markets and address structural challenges such as pension shortfalls and climate finance gaps.
In response to the consultation, Efama in a press release on Monday 25 November 2024, the importance of comprehensive and robust analyses to identify systemic financial stability risks. “The consultation is officially about NBFI, however, the main focus is unfortunately on asset management”--a sector Efama described as “proven resilient thanks to a robust existing regulatory framework.”
Efama pointed out that investment funds demonstrated strong resilience during recent market disruptions, a strength further reinforced by the updated undertakings for collective investment in transferable securities (Ucits) and alternative investment fund managers directive (AIFMD) framework, which came into force in April 2024. The revised framework introduced mandatory liquidity management tools, leverage limits for private credit funds and enhanced reporting requirements, solidifying the sector’s regulatory robustness.
Recommendations
Efama presented a series of recommendations to address the European Commission’s concerns regarding potential risks in capital markets. Key suggestions included:
- Redirecting the policy focus to capital markets rather than the broad and undefined NBFI category.
- Developing a rigorous analytical framework to pinpoint specific areas of risk requiring attention.
- Strengthening macroprudential supervisory capabilities through improved data sharing among banking, insurance and securities regulators. Efama identified insufficient data exchange as a significant obstacle to effective financial stability assessments.
- Introducing targeted reforms, such as creating a consolidated tape for fixed-income securities and equities, expanding acceptable collateral types for margin calls in centrally cleared markets and easing balance sheet constraints for dealers during stress periods.
- Avoiding the implementation of macroprudential measures designed to enforce counter-cyclicality, such as adjustments to liquidity buffers, which could undermine market efficiency.
Tanguy van de Werve, Efama’s director general, underscored the critical role of asset management in addressing Europe’s financial challenges. “Whether it is the growing pension gap or the environmental transition, Europe faces many unprecedented challenges. Asset management is part of the solution,” he stated in the trade group’s paper. He emphasised “macroprudential authorities must accept that capital markets are different from, and inherently more volatile than, the banking market and avoid applying bank-like regulation to our industry. Their policies need to be fit for purpose and not redundant.”
Marin Capelle, Efama’s regulatory policy advisor, echoed these sentiments, criticising the narrow scope of some authorities’ approaches to financial stability. “Recent market disruptions have demonstrated that we need to apply a holistic lens when assessing financial stability. Unfortunately, many authorities continue to approach the topic with pre-determined and narrowly focused outcomes in mind, which prevents them from asking the right questions,” Capelle commented.
The 50-page position paper is available .