LONDON (Reuters) – Britain’s market watchdog is resisting calls for stricter rules on investment funds, putting the regulator at odds with the Bank of England which wants tighter controls to prevent them becoming a source of contagion in financial markets.
The BoE has said these funds may need stronger controls after the turmoil triggered by the coronavirus pandemic exposed their potential threat to financial stability because unlike banks they do not hold reserves of capital.
Britain’s commercial property funds, for example, had to stop investors asking for their money back on a daily basis when extreme market volatility hit in March after economies entered lockdown.
Money market funds, a key source of short-term funding for companies, could have become a source of “contagion” during a COVID “dash for cash” had central banks not eased a liquidity crunch, the Bank of England said last month.
“How do we deal with the risks posed to financial stability by the structural tendency for money market and some other open-ended funds to be prone to runs, without having to commit scarce public money to costly support facilities?” the BoE said.
But Britain’s Financial Conduct Authority does not want to rush to impose tighter rules because investment funds can be an important source of cash for companies coping with the crisis.
“We are still very much in the context of a continuing health crisis,” Nausicaa Delfas, head of international at Britain’s Financial Conduct Authority (FCA), told Reuters.
“It’s important that we recognise that the non-bank sector is critical in enabling recapitalisation of companies to promote growth and recovery from the pandemic,” Delfas said.
“This is definitely looking to the medium and longer term.”
She said global and UK regulators are studying how the financial system operated during the early months of the crisis to see how banks, market infrastructure as well as non-banks functioned collectively under extreme stress.
The tension between central banks and securities watchdogs over regulating funds is not new, having surfaced in 2015 when the International Organization of Securities Commissions (IOSCO) torpedoed an attempt by the Financial Stability Board (FSB) to impose bank-like rules on big asset managers.
“The discussion has calmed down quite a lot since then and there is a recognition of the need to be fully informed,” a financial market source said.
The FSB referred to an April statement which said that while the pandemic has highlighted potential vulnerabilities in non-banks, it was important to reap the benefits of the dynamic sector and apply existing recommendations.
The FSB will update on its thinking next week.
The BoE noted in a Financial Policy Committee statement in May that “underlying issues need to be addressed once the immediate problems have passed.” The Bank has said it was in “close contact” with other authorities outside Britain.
An update on funds is expected on August 6 from the BoE.
But a senior funds industry official said Brexit and lack of global consensus on what should be done, leaves Britain with only limited room to reform a cross-border sector on its own beyond making a “noise.”
LOCAL PROBLEM?
Some regulators have noted there has been no global run on funds to indicate a systemic problem, one financial market source said.
March market volatility pointed to problems in the commercial paper market – used for short-term financing – rather than with the money market funds themselves, the source added.
This source said that about 95% of fund assets suspended globally in the pandemic were in UK property funds and that was because of an inability to value assets in extreme conditions.
Before the crisis, the shuttering of a flagship UK open-ended equity fund run by then star stockpicker Neil Woodford had created a sense urgency in Britain for fund industry reform.
But fundamental reform of money market and other open-ended funds like Woodford’s will be tough for Britain because 8,317 of 10,930 of those sold in the country come under European Union law, which Britain can no longer influence since Brexit.
And Britain’s finance ministry has said that there are no viable UK alternatives to EU money market funds in the short or medium term.
“Any action on sterling money market funds in the UK will likely be in the form of additional requirements on EU money market funds being sold in the UK,” said Sean Tuffy, head of market and regulatory intelligence at Citi Securities Services.
(Reporting by Huw Jones. Editing by Jane Merriman)
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
