EAMA says Basel accord could create systemic risk
EUROPE – Extending the capital requirement for operational risk to the asset management businesses of multinational banks could lead to an increase in systemic risk, according to the European Asset Management Association (EAMA) in its response to the Basel Committee’s consultative paper on regulatory capital.
The association has also responded to the European Commission’s review of regulatory capital for credit institutions and investment firms, noting that the commission’s proposals would damage the European asset management industry by impeding small businesses and jeopardising its competitive position relative to other parts of the world.
EAMA mainly represents asset management subsidiaries of major international banks, and according to the Basel Accord parent companies are obliged to hold capital to cover operational risk in respect of their investment arms.
“ The European asset management industry is not the same as the European banking industry and high capital requirements are not the answer to regulatory concerns about systemic risk or investor protection as far as the European asset management industry is concerned,” says Donald Brydon, president of EAMA.
“ Our preliminary assessment of the impact of the opaque proposals about which we have been consulted is that their effect will range from damaging to disastrous depending on the cost structure of the firm involved, and the proposals will affect all asset management firms subject directly or indirectly to the Capital Adequacy Directive,” he adds.
The EAMA also has reservations about the use of assets under management as a risk indicator and questions the rationale for replacing the current expenditure based capital requirement. Finally, the response urges the commission to consider the merits of approaches other than capital.
Trade association members of EAMA include the French Association Française de la Gestion Financière, Italian Assogestioni, UK Fund Managers’ Association, Spanish Inverco, and the Irish Association of Investment Managers.