Capital requirements for Asset Managers

Article in the FT today saying that the Financial Services Authority (FSA) has criticised asset managers for poor risk management, and that these failures might force it to impose higher capital requirements on some institutions.

The Investment Management Association (IMA) countered by saying that the FSA guidelines on capital requirements for asset managers were unclear, but also added that as asset managers did not hold client-owned assets on their balance sheets they did not need to hold capital against these assets unlike the banks.

I understand this last point by the IMA, but surely given an institutions fees (aka revenues) derive mainly from fees for managing these assets, surely the IMA is not doing itself any favours by effectively suggesting that the (currently volatile) value of these assets are not relevant from a institutional risk point of view? Poor investment performance leads to redemptions, leads to reduced fees, leads to concerns over institutional stability, leads to more redemptions etc, etc.

Anyway, interesting that this is receiving some regulatory attention and maybe buy-side risk management will soon be moving beyond helping to market and sell the latest investment product...