The Financial Conduct Authority (FCA) has today published a
series of recommendations for asset managers designed to increase
resilience of Liability Driven Investment (LDI) funds.
Following the recommendations set out recently by the Bank of
England’s Financial Policy committee, the FCA has set out
guidance around risk management and operational arrangements for
LDI managers so that they can address risks to market integrity
and financial stability.
Sarah Pritchard, Executive Director, Markets at the FCA, said:
“We have been clear that asset managers must take the necessary
steps so that their LDI portfolios are resilient to future market
volatility.
“Since September last year, we have been closely monitoring asset
managers using LDI strategies as they make improvements and the
sector is now much more resilient to potential risks, but there
is more to be done.
“This guidance sets out what we expect in terms of risk
management, stress testing and client communication, so that the
necessary lessons are learned from last September’s extreme
events. Many of these lessons will be relevant to firms beyond
the LDI sector.”
Since the events that occurred in the gilt market in September
2022, the FCA has been working closely with its regulatory
partners in the UK and internationally. The FCA has also been
engaging directly with firms involved in the management of LDI
portfolios to develop and maintain increased resilience to deal
with possible future volatility.
The FCA will continue to work with regulatory partners in
engagement with this sector on implementing or complying with any
further guidance or requirements issued by other authorities,
including the Financial Policy Committee recommendations of March
2023 and The Pension Regulator’s guidance issued in April 2023.
Notes to editors:
-
Link to LDI guidance
-
FCA statement welcoming
statements by TPR, CBI and CSSF on resilience of LDI
portfolios
- The structure of the LDI market is such that there are
differences in regulatory oversight for the various participants:
pension schemes, product managers (such as managers of
alternative investment funds), investment consultants, investment
banks and portfolio managers. The FCA is responsible for the
authorisation and regulation of UK-based fund managers. These
FCA-authorised entities are typically responsible for the
execution of investment strategies in respect of the assets which
have been delegated to them by the product manufacturer,
typically the non-UK domiciled alternative investment fund
manager (AIFM).
