LONDON Global regulators will propose safeguards in coming months to avoid asset managers destabilising markets with fire sales of assets or making promises to investors they can’t keep.

The Financial Stability Board said it would put out draft recommendations for public consultation in the summer to address “structural vulnerabilities” from asset management activities.

FSB Chairman Mark Carney told reporters on Thursday that a meeting of the board had agreed on the key policy recommendations for consultation.

The proposals are being thrashed out against a backdrop of concerns that liquidity in some markets, such as for government and corporate bonds, has become too thin to cope with heavy selling in stressed times to meet customer redemptions.

The draft proposals will cover risks from funds’ liquidity mismatch or where funds have been promising investors their money back immediately on assets that are infrequently traded in markets.

The proposals will also address risks posed by leverage within funds, operational risks, and challenges in transferring investment mandates in a stressed situation, the FSB said.

The lending of securities that funds hold on behalf of investors will also be addressed.

“The intention is to finalise the recommendations by the year end,” the FSB said.

The FSB had intended to treat big funds like banks and designate the world’s largest as systemically important.

Big funds feared this would lead to hefty capital requirements, but opposition from market watchdogs forced the FSB to focus instead on activities of the sector.

“This is not a process about designating specific asset managers, or applying some sort of standard that applies to banks to asset managers,” said Carney, who is also Bank of England governor.

“That is not what we are doing at all. We are looking at specific activities, we are looking at liquidity characteristics,” he added.

(Reporting by Huw Jones; Editing by Tom Heneghan)

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