SIFMA, a US trade body representing brokers and asset managers, says securities lending is adequately regulated and the risks of the practice are contained.

The group was responding to a recent FSB paper, which listed securities lending activities of asset managers acting as agent lenders (particularly those providing indemnities to beneficial owners) as one of four key financial stability risks to be addressed in 2016.

“Securities lending is not a source of systemic risk,” experts within SIFMA's asset management division wrote in a statement on Thursday.

“Moreover, securities lending is already subject to a range of existing and pending regulations that we believe adequately address any risks that may be associated with the practice.

“The indemnifications that are the subject of the FSB’s recommendation are well regulated and the potential liability is self-contained and limited to the difference between the replacement cost of the security and the value of the collateral pledged.” 

Earlier this year the FSB suggested that authorities should monitor 'buy-side' agent lenders’ indemnity activities in order to “detect the development of material risks or regulatory arbitrage that may adversely affect financial stability”.

The regulator added: “Authorities should verify and confirm asset managers adequately cover potential credit losses from the indemnification provided to their clients.”

In its response to the FSB, SIFMA made clear that it was generally supportive of  the FSB’s recommendations, which also include the implementation of robust liquidity risk management programs and a better understanding of the use of leverage and securities lending practices across jurisdictions.

“We appreciate the FSB’s efforts to recognise the differences between asset management and other financial services firms, and support the FSB’s acknowledgement of the role of securities regulators,” said Timothy Cameron, managing director and head of SIFMA's asset management group.

“Our goal is to provide the FSB with information to further inform their approach to and views of asset management as unique and well-equipped to continue its track record for successfully meeting shareholder redemptions through normal and stress conditions without presenting a systemic risk to global financial stability.”