LONDON Britain's fund managers face calls to hold more emergency cash, potentially crimping their ability to pay dividends or expand.
Banks and insurers have been set tough rules aimed at making them less likely to go bust if markets collapse, and regulators are now looking at the multi-trillion-pound asset management industry.
First to feel the pinch last week was Aberdeen Asset Management, which was asked to raise the minimum amount of cash it holds by 140 million pounds ($184 million), after a review by the Financial Conduct Authority.
Funds can make profits in depressed markets because they collect annual fees on the assets they manage, but if clients quit en masse, a manager's revenue could disappear overnight.
While most firms are cash-rich, any tightening in capital rules adds further stress with investors uneasy over fund charges in view of low average returns.
"If you're asked to hold more capital, then that will constrain your opportunities elsewhere, which could include returning capital to shareholders, looking for new acquisitions, launching new products," said Julian Young, senior partner in the wealth and asset management business at consultants EY.
The FCA's decision was driven by the removal of a capital credit for the insurance Aberdeen had put in place to cover losses and by the need for it to have more on hand for "unquantifiable" risks.
Analysts were sanguine about the impact on Aberdeen's full-year dividend but noted that the demand has cut the amount of cash it holds on its balance sheet above the regulatory minimum to only 78 million pounds.
"It may be that Aberdeen is the first to get this approach...and it will be coming to the others, but if it is, having spoken to a few of them, it's not something they have been made aware of or are necessarily expecting," said Shore Capital analyst Paul McGinnis.
The FCA declined to comment.
Each firm currently assesses its own risks and capital requirements under the Internal Capital Adequacy Assessment Process (ICAAP) at least yearly and regulators can check at any time and demand a change.
"What the regulator is looking for is a much more dynamic process," EY's Young said.
"Part of it is looking at macro risks, part of it is looking at liquidity and part of it is being very vigilant ... those risks could be because of geography, technology or they could be due to product," Young said.
Investment bank Morgan Stanley said it expects investors to focus increasingly on the amount of capital held by asset managers and it therefore has an 'underweight' rating on Aberdeen, among others.
Christian Edelmann, who oversees banking and wealth and asset management at consultants Oliver Wyman, co-authored the Morgan Stanley report. He said for many years capital had largely unmanaged and unmonitored.
"This is mainly driven by the view that, in contrast to banks, asset managers act on a fiduciary and not on a principal risk-taking basis; hence capital levels vary hugely across asset managers.
Markets are now wondering who may be next.
Ashmore, which like Aberdeen has taken an asset hit from emerging markets, declined to say if it was talking to the FCA, but in its full-year results it increased its regulatory capital by 5.5 million pounds to 100 million pounds and had total cash of nearly 591 million pounds.
Schroders, Britain's biggest listed asset manager, said its capital position was "very strong" - 687 million pounds in regulatory capital against total capital of 2.9 billion pounds - and the firm was not in special talks with its regulator, the Prudential Regulation Authority, over capital.
Henderson Group, which was not required to hold a minimum capital buffer between 2009 and April 2016, as it digested several large takeovers, said it was expecting the FCA to review what it should put to one side by the end of the year.
Ahead of that, it has assessed the minimum level to be 145 million pounds, under the ICAAP process, and has an extra 105 million pounds above that figure.
A Jupiter spokeswoman said it had an estimated requirement of 39 million pounds and an indicative surplus of 103 million pounds at the half-year.
Aside from Aberdeen's reduced dividend cover, Shore Capital's McGinnis said the issue of regulatory capital was not a major concern as most firms had little debt and were well-capitalised already.
($1 = 0.7598 pounds)
(Editing by Sinead Cruise and Alexander Smith)