Macroprudential Policy for Investment Funds
The funds sector is diverse, with different types of fund cohorts presenting different systemic risk profiles. This needs to be accounted for in any systemic risk assessment as well as policy deliberations.
Overall, as the funds sector has continued to grow and become more integral to the wider functioning of several key financial markets, the regulatory framework needs to evolve. The current regulatory framework for the funds sector – which has been largely designed around the protection of investors – helps address some funds-specific elements that can contribute to systemic risk. However, as evidenced by recent episodes, the current framework has not been sufficient to reduce the propensity of certain fund cohorts to amplify shocks in times of stress.
A macroprudential perspective is therefore needed in the regulation of the funds sector. Significant progress in this direction has been made recently, including through the FSB’s and IOSCO’s package of measures on MMF resilience and on liquidity management of OEFs. As the nature of systemic risk is multi-faceted and constantly evolving, developing an overarching macroprudential framework for the funds sector would strengthen the overall regulatory architecture. In turn, this would better equip the sector to serve as a resilient form of financing, supporting broader economic activity.

Discussion Paper
This Discussion Paper (DP11) aims to advance the discussion on how a comprehensive macroprudential perspective in the regulation of the funds sector could be achieved. It covers what the objectives of a macroprudential framework would be; outlines key principles that could underpin its design; discusses potential tools that could be used to achieve these macroprudential objectives; and considers a range of practical issues that would need to be progressed to make such a framework operational. DP11 seeks views on a number of issues relating to the fund sector, including:
- Systemic risks
- The current regulatory framework
- The objectives and principles of macroprudential policy
- The design of macroprudential tools
- Considerations for operationalising this framework.
DP11 is structured as follows:
Section 1 of the Discussion Paper outlines the size, scale and diversity of the fund sector, both globally and in Ireland. It outlines the relevance of the sector for the functioning of the financial system and real economy, and the financial intermediation role the sector plays.
Section 2 considers the systemic risk posed by the fund sector. It explores the sources of systemic risk, the underlying economic frictions and vulnerabilities in funds, and the channels of shock transmission to the broader financial system. It also outlines previous fund-related financial instability episodes.
Section 3 outlines the current regulatory framework for funds in the EU (i.e. UCITS, AIFMD and the MMFR), which was developed primarily for investor protection. It explains how this framework can have a positive macroprudential impact, but also discusses the limitations of such tools in reducing the amplification of shocks.
Section 4 proposes potential objectives and key principles for a macroprudential framework for the funds sector. It outlines a number of factors that need to be considered when designing a macroprudential framework for this sector.
Section 6 outlines some of the practical considerations for operationalising a macroprudential framework for funds, including international co-ordination, the role of regulatory authorities, and data requirements.
Section 7 concludes with a summary of the issues discussed throughout the Discussion Paper. It invites stakeholders to submit written responses to the questions outlined in the Discussion Paper.
Have Your Say
Central Bank of Ireland invites interested stakeholders to provide written responses to the questions contained throughout our Discussion Paper. You are also invited to provide any general observations on the matters discussed or issues raised.
The closing date for submissions is 15 November 2023.
Provide your feedback.
DP 11 - An approach to macroprudential policy for investment funds | pdf 1207 KB
Next steps
Once all feedback has been collated post 15 November 2023, we will publish a feedback statement covering some or all of the topics raised in the written responses. This feedback will help inform the Central Bank’s participation in any international or European regulatory discussions on the topic, and inform further analysis and policy work in this area.