LONDON (Web Desk) – Britain announced plans on Monday for a post-Brexit review of its regulations for the 11 trillion pound ($13.2 trillion) asset management industry, with a focus on improving liquidity after a near-meltdown in funds used by pension schemes last September.
Before Britain left the European Union, laws for the UK financial industry were developed in Brussels.
After Brexit, UK authorities will be able to establish their own rules.
Due to a lack of liquidity, the industry has struggled to cope with stress in recent years.
Property funds were halted in the early wake of Britain’s 2016 referendum to leave the EU, as well as when the economy went into lockdown to battle COVID-19 in March 2020, when investors tried to withdraw their cash.
In September, when UK government bond prices fell, so-called liability-driven investment (LDI) funds, which are employed by pension systems to secure long-term payments to retirees, failed to satisfy cash demands.
“The regulatory framework includes regulations for liquidity management. Several of these laws are intended to safeguard consumers,” the FCA said in a discussion paper on sector reform.
“Yet, the rise of the fund business implies that liquidity management in funds is likewise crucial to the proper functioning of markets,” the discussion paper said.
Despite the fact that Britain has left the EU, many of the money market funds, LDI funds, and mutual funds available in the UK are listed in EU hubs such as Dublin and Luxembourg.
The FCA said that it wants to see fund managers practise good liquidity management by adhering to stress testing rules set by the EU’s securities watchdog, ESMA. “We want to translate them into guidelines and recommendations in our Handbook.
We are also contemplating eliminating or drastically limiting the constraint on liquidity stress testing… so that the condition ‘when appropriate’ does not offer fund managers an excuse not to conduct stress tests.”