The Sustainability Accounting Standards Board (SASB) is seeking technical feedback from corporate risk professionals and credit risk analysts on key issues in the Asset Management & Custody Activities industry.
During its Dec. 4, 2019 meeting, the Standards Board approved a standard-setting project to re-evaluate the Systemic Risk Management topic and corresponding accounting metrics included in the SASB standard for the Asset Management and Custody Activities industry. The initiation of this project was largely driven by stakeholder feedback provided to SASB since the codification of the standards in November 2018 as well as by recent regulatory changes. Specifically, the U.S. Financial Stability Oversight Council (FSOC) in January approved an “activities-based approach” to address systemic risk as it pertains to nonbank financial institutions and in late 2018 the U.S. Securities and Exchange Commission (SEC) rescinded the proposed rule under which funds would report aggregate liquidity classification information about their portfolios.
SASB’s project team recently began conducting consultation with key stakeholders–including corporate reporters, investors across asset classes and strategies, and subject matter experts—to identify areas in which SASB can improve how it has defined the scope of the Systemic Risk Management disclosure topic and the effectiveness of the associated performance metrics.
On the corporate side, SASB seeks to engage with individuals in enterprise risk officer, risk manager, or equivalent roles, while on the investor side, we look for input from credit risk analysts covering asset managers and custodian banks. If you fit one of these profiles—or know someone who does—and are willing to consult with our analysts and offer constructive input, please reach out to the project team members: Anton Gorodniuk (firstname.lastname@example.org) and Devon Bonney (email@example.com).
In re-examining the scope of this disclosure topic, SASB’s intent is to capture the important role asset/wealth managers and custodian banks play in the financial system and potential social externalities that may result from a failure to manage risks associated with relevant activities. These include operational and business risks faced by asset managers, wealth managers, and custodian banks. Specifically, SASB is looking to explore the entity-level (as opposed to the fund-, portfolio-, or security-level) risk associated with management of liquidity risk, collateral management and counterparty risk in Securities Financing Transactions (SFTs), credit risk, and market risk. SASB’s goal is to provide related performance metrics that will be decision-useful to investors in assessing the quality of risk management and the magnitude of potential risk exposure at individual nonbank financial institutions.
SASB is not looking to get involved in a broader discussion of systemic risk management or debate the impact of asset/wealth managers and custodian banks on the financial system. SASB does not position itself as an expert in systemic risk management and will not provide a view contrary or additive to that currently established by global regulators.
Instead, SASB seeks to understand how, in the context of the existing regulatory environment, it can provide decision-useful information to investors regarding risk management.
In revisiting the performance metrics associated with this disclosure topic, SASB is seeking stakeholder views on usefulness of the current metrics—both conceptually and from a technical standpoint (i.e., the clarity and applicability of technical guidance). We are also interested in recommendations for updates to the existing metrics as well as suggestions for additional or alternative metrics that could be decision-useful for investors in assessing an entity’s performance on the issue.
At the end of the consultation period, SASB will publish a summary of comments received from stakeholders without attribution to individuals or their affiliated organizations.
Anton Gorodniuk, CFA, is the Lead Analyst – Financials at SASB.