LONDON Aberdeen Asset Management must increase the minimum amount of cash it holds as a regulatory capital buffer after changes to the way Britain's Financial Conduct Authority (FCA) models potential risks, the firm said on Monday.
It is the latest sign of how regulators are taking a closer look at an asset management sector that has expanded since the 2007-09 financial crisis, while banks have shrunk.
The suspension of property funds by Aberdeen and others after Britain's vote in June to leave the European Union also raised questions about the sector.
The FCA raised Aberdeen's total regulatory capital minimum to about 475 million pounds from a previous required level of 335 million, although the firm had chosen to hold at least 100 million pounds more than that.
At end March, Aberdeen held 553 million pounds in cash.
The firm said as a result of the FCA's new guidance it would do away with its previous policy of holding at least 100 million pounds in excess capital but did not provide details.
The FCA's decision followed a periodic review of Aberdeen's capital position and changes to the way the regulator factored in insurance and unquantifiable risks when modelling risk, the firm said in a statement.
The FCA had no comment.
The watchdog has ruled that the asset management sector can no longer insure itself against some risks and must instead hold capital to cover them, a person familiar with the matter said. In addition, the FCA looked at whether asset managers should hold extra capital to cover firm-specific risks.
Aberdeen says these two factors contributed "roughly" equal amounts to the capital hike.
It appears to be the first to make an announcement on the outcome of the FCA's sector-wide scrutiny.
Analysts at Credit Suisse, in a note to clients, said Aberdeen's comfortable first-half cash buffer of 218 million pounds above that required and favourable market moves meant there was a "good chance" its dividend would be maintained.
"It seems the FCA's regulatory gaze has now fixed upon the asset managers and so we would be surprised if Aberdeen is alone amongst its peer group in being required to hold more capital," they said.
"Aberdeen's prudent decision to hold a capital buffer has been vindicated and, save for a material downturn in markets, we expect shareholders will benefit via dividend stability."
Asset managers are also waiting for the FCA's review of fees in the sector.
(Additional reporting by Huw Jones, editing by Jason Neely and Susan Thomas)