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Runs on Investment Funds Could Pose Systemic Risk, U.K. Regulator Says 

December 9, 2015

Juliet Samuel, The Wall Street Journal

Investment funds could pose a systemic risk to the financial system because of “herding” behavior by investors, according to a senior U.K. regulator.

David Lawton, director of markets policy at the U.K. Financial Conduct Authority, told a trading conference in London on Tuesday that regulators are worried about the impact of runs on funds, in which all investors try to pull their money from funds at once. This could “cause damaging ripples, or even waves, in the market,” he said, prompting spiraling drops in asset prices.

“Many funds have similar investment mandates, make similar investment choices and are all impacted more or less equally by macroeconomic factors,” he said. That leads, he said, to herding effects.

Mr. Lawton’s warning gives an indication of the direction that could be taken by a global group of regulators called the Financial Stability Board. Read more

 
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