LONDON (Reuters) - France’s markets watchdog (AMF) has proposed detailed rules on when asset managers can limit repayments from funds to investors in stressed markets, becoming the latest regulator to turn a spotlight on the growing asset management sector.
Fund managers can already impose “gates” to limit withdrawals by investors from open end funds in extreme market circumstances to avoid fire sales of assets that could worsen turbulence and undermine financial stability.
On Thursday the AMF launched a one-month public consultation to determine the “cases and conditions” under which asset management companies may use these gates.
The draft rules propose capping redemption requests in the same proportions for all unit holders in a fund, thus removing any “first mover” advantage for early requests.
Funds would be required to tell the watchdog and unit holders if gates are being activated, and the thresholds for triggering the gates would also be defined, the AMF said.
Asset managers would also be required to spell out the maximum duration for gates.
Slamming the brakes on redemptions came under the spotlight when some UK commercial property funds suspended redemptions after sharp falls in their values following Britain’s vote in June to leave the European Union.
Britain’s Financial Conduct Authority is due to publish a discussion paper on property funds in 2017 and has already expressed concerns about how the suspensions were handled.
The AMF said it proposes to expand its conditions for applying gates in real-estate funds sold to retail investors by imposing, under normal conditions, a minimum redemption threshold.
Global regulators are also concerned with promises some funds make to give investors their money back at short notice.
Funds like “UCITS” mutual funds sold in France are regulated under EU laws whose application is coordinated by the bloc’s European Securities and Markets Authority (ESMA) to ensure consistency.
ESMA’s executive director Verena Ross told a conference on Thursday held by ICI Global, a funds industry body, she was not aware of the AMF proposals.
“There are some issues that have a genuine, cross-Europe application and this might be one, but I am not commenting on that,” Ross said.
It was important that national regulators can consult on issues specific to their own market structures, she said.
“What we normally try to do when these type of issues come up, is that we sit together... to get the national supervisors to actually share their experiences, and see whether this is something that needs to be dealt with at the European level or at a national level,” Ross said.
Reporting by Huw Jones; Editing by Alexandra Hudson