MFA urged the Central Bank of Ireland (CBI) to refrain from using macroprudential policy to apply bank-like regulations to private funds in a comment letter submitted today. The letter is in response to a CBI Discussion Paper.
The letter explains that bank-like regulation is inappropriate for private funds because it targets vulnerabilities that do not exist in the private fund industry. The structure of private funds mitigates risks present in banks, including:
• Liquidity risk: Sophisticated, institutional investors in private funds agree to strict redemption limitations and lockup periods, eliminating liquidity mismatches during times of stress.
• Contagion risk: If a private fund fails, the losses are borne by that specific fund’s investors and do not impact investments in other funds. The failure is firewalled from, and will not ripple across, the broader financial system.
• Taxpayer risk: Private funds do not have an implicit or explicit government backstop or insurance. Taxpayers are not responsible for losses in the industry.
MFA urges the CBI to focus on improving its access to accurate, relevant, and internationally standardized data from investment funds instead of implementing a bank-like regulatory regime. Improving CBI access to data will help regulators better understand what risks are present in the financial system and the appropriate policy to address it.
