Eminence submitted a comment letter to the Financial Stability Board (FSB) in response to the FSB’s consultation report on margin and collateral calls.
In summary, Eminence considers that, whilst the recommendations provided by the FSB are, broadly speaking, examples of sound collateral management practice, they present a risk of encouraging Standard Setting Bodies and national regulators to enact overly prescriptive rules in relation to liquidity risk management for participants in the non-bank financial intermediation sector. The assessment of what is an appropriate liquidity risk management measure for a private fund is necessarily a case-by-case analysis, so Eminence respectfully notes that a ‘one-size-fits-all’ approach to liquidity risk management is not likely to be an appropriate solution.
Furthermore, under the existing regulatory frameworks which impose margin / collateral requirements on dealers, as well as specific regulatory regimes which impose margin / collateral requirements on derivative counterparties, policymakers already have ample authority to address potential systemic risk issues.
