05 November 2014

Maijoor delivers keynote address to at EFAMA Forum in Brussels

Steven Maijoor, ESMA Chair, delivered the keynote speech at EFAMA's Investment Management Forum in Brussels. 

"The economic perspective of risks in asset management has recently attracted the attention of a broad range of policy makers and regulators in financial markets, and two main risks are identified. The first concerns the potential stability risks the asset management sector poses to the functioning of the broader financial system. The initial analyses focused on the possible stability risks of large individual asset managers but rightly this focus has shifted towards the stability risks embedded in certain activities and practices in asset management. I very much support this shift as it better takes into account the specific characteristics of the asset management sector.

This activity-based perspective is also reflected in ESMA’s approach, for example with our guidelines regarding securities financing activities by UCITS funds, which apply regardless of their size. Let me be clear, the stability risks in asset management are not necessarily lower than in other parts of the financial system. However, we need to address those risks taking the specific characteristics of asset management into account.

The second main risk in asset management is related to the unusual current economic environment with extremely low interest rates. These low interest rates have resulted in so-called search-for-yield behaviour and a compression of yields across high and low risk investments. In more mundane words, there is an increasing risk of overvaluation of shares and bonds in asset management. There is a widening gap between the ever increasing valuations and the very weak underlying economic fundamentals. While all involved - investors, industry and regulators - should try to reduce these risks as much as possible, we should also recognise that they are difficult to control. With extremely low interest rates, investors are inevitably less disciplined in their assessments of the risks attached to investments. It is the negative side-effect of the medicine used to cure problems in other parts of our financial system."

Full speech

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