March Global Regulatory Brief: Risk, capital and financial stability
The Global Regulatory Brief provides monthly insights on the latest risk and regulatory developments. This brief was written by Bloomberg’s Regulatory Affairs Specialists.
Risk, capital and financial stability regulatory developments
Recent periods of financial stress and the proliferation of risks across the financial system are fueling the development of regulatory initiatives to strengthen requirements and promote international best practice. The following policy developments represent a sample of wider regulatory and policy coverage available to Bloomberg Terminal customers. Run REGS <GO> to find out more or contact your Bloomberg representative to learn more.
- USA: SEC expresses concern over new private credit ETF
- Dubai: DFSA proposes revised capital requirements for operational risk
- UK: FCA set out findings from its valuation review for private market assets
- Australia: ASIC sets out preliminary regulatory agenda for private markets
US SEC expresses concern over new private credit ETF
The US Securities and Exchange Commission has published a public filing expressing a number of concerns about the State Street-Apollo private credit exchange-traded fund (ETF).
In more detail: Specifically, the SEC has expressed the following concerns:
- Fund name: The SEC is concerned that use of Apollo in the fund’s name is technically misleading given the limited nature of Apollo’s relationship with the Fund.
- Liquidity: The SEC is concerned about the Fund’s liquidity risk management program under rule 22e 4 given the sole reliance on bids from Apollo.
- Valuation: The SEC is concerned that the fund is unable to fulfil requirements to calculate their NAV per share at least once daily.
In response: Attorneys for the fund filed a response in response to the SEC’s concerns and confirmed that they will revise the fund name as soon as practicable.
Dubai proposes revised capital requirements for operational risk
The Dubai Financial Services Authority (DFSA) published a consultation outlining proposed revisions to capital requirements for operational risk.
Important context: The DFSA aims to align the capital risk requirements for operational risk with Basel III.
Key Proposals: The DFSA intends to replace the current Basic Indicator and Alternative Standardised Approaches (used under Basel II) with the new Standardised Approach from Basel III, which is more risk-sensitive.
- Refining the calculation methodology to better capture operational risk exposure and ensuring firms hold adequate capital buffers against potential losses.
- Exclusion of Internal Loss Multiplier (ILM) to align with EU, UK, and Australian regulators.
- Refined Definition of Operational Risk which includes legal risks such as fines, penalties and excludes strategic and reputational risks.
Next Steps: The DFSA proposes 1 July 2026 as the effective date, allowing firms time to update their systems and comply with the new requirements. The consultation period is open until 12 May 2025.
FCA set out findings from its valuation review for private market assets
The UK Financial Conduct Authority has set out the findings from its multi-firm review of valuation processes for private market assets.
Context: With the UK representing the largest centre for private market asset management in Europe, the FCA considers robust valuation practices to be important for facilitating further growth and capability in the private markets space.
- Fair and appropriate valuations are considered necessary to understanding investment performance and informed decision making, such as on asset allocation and manager selection.
- There is also a heavy reliance on valuations for determining transaction price in the case of open-ended fund structures investing in private assets or firms transferring private assets between vehicles.
Scope: The scope of this review included firms managing funds or providing portfolio management and/or advisory services in the UK for private equity, venture capital, private debt and infrastructure assets.
- The sample covered around £3 trillion of global private assets under management (AUM). Of that, UK private AUM was around £1 trillion.
In summary: The review assessed the robustness of firms’ valuation processes and governance, including the checks and balances that help address the risk of poor conduct and harm to investors. It did not seek to independently validate firms’ fair value assessments for specific assets.
- The FCA found many examples of good practice in firms’ valuation processes, including the quality of reporting to investors, documenting valuations, using third-party valuation advisers to introduce additional independence and expertise, and consistent application of established valuation methodologies.
Conflicts of interest: While many firms had limited the conflicts in their valuation process around fees and remuneration through specific policies, other potential conflicts were only partly identified and documented.
- These include potential valuation-related conflicts related to investor marketing, secured borrowing, asset transfers, redemptions and subscriptions and uplifts and volatility.
- Moreover, firms had different levels of independence within their valuation processes and many firms did not have defined processes or a consistent approach for ad hoc valuations to revalue assets during market or asset-specific events.
Best practice: Given the importance of managing stale valuation risk, the FCA encourages firms to consider the types of events and quantitative thresholds that could trigger ad hoc valuations.
Firm expectations: The FCA expect firms to consider the findings from this review and identify any gaps in their approach. In particular, firms should consider whether they should make improvements in (i) the governance of their valuation process (ii) identifying, documenting, and addressing potential conflicts in their valuation process (iii) ensuring functional independence for their valuation process (iv) incorporating defined processes for ad hoc valuations.
Next steps: The FCA will share its findings to inform the work of other bodies, such as the Bank of England’s work on Non-Bank Financial Institutions and IOSCO’s work to promote the use of proportionate and consistent global valuation standards in private markets.
- The FCA is expected to conduct further work on managing conflicts of interest in private markets and streamlining the UK’s fund management regulatory framework.
Australia sets out preliminary regulatory agenda for private markets
The Australian Securities and Investments Commission (ASIC) has published a paper intended to open up a discussion on Australia’s future regulatory approach to private markets.
In summary: The paper outlines a number of preliminary views and conclusions across the following themes.
- Public market concerns: ASIC is concerned about future of Australia’s public markets and there are regulatory levers that can be pulled to help address this.
- Private market risks: Opacity, conflicts, valuation uncertainty, illiquidity and leverage in private markets are the key risks that ASIC will focus on.
- Superannuation: The size of Australian superannuation funds is expected to drive further growth of private markets and coincides with the discussion around retail participation in private markets.
- Data needed for risk assessment: A number of international regulators are increasing their access to reliable data on private markets and ASIC considers it necessary to have better recurrent data to more accurately assess risk.
- Private credit: While the private credit market does not appear to be systemically important in Australia, potential failures on the horizon means that ASIC is increasing its focus to ensure that investment offers comply with existing frameworks.
Looking ahead: ASIC will provide an update later in the year outlining key feedback to this paper. The deadline to provide feedback is April 28.
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