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Risk Managers Call for More Regulation on Prime Brokers, Family Offices

June 7, 2021

The Risk Snapshot Series highlights key insights from GARP’s quarterly survey of Financial Risk Managers (FRM®) about critical risk issues global risk managers and their organizations are navigating.

A new GARP survey of Financial Risk Managers (FRM®) reveals support for increasing regulatory requirements on prime brokers and family offices. These results come in the wake of the Archegos Capital Management meltdown, which set off a chain reaction in the markets that led to more than USD 10 billion in total losses for global banks.

 

FRMS SUPPORT GREATER REGULATION OF PRIME BROKERS AND FAMILY OFFICES

  • Overall, 71% of risk managers say that prime brokers need to be regulated more strongly; 65% believe family offices should be regulated more strongly
  • Among those in firms with prime brokers, 76% of those respondents support more regulation for prime brokers and 71% favor it for family offices


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FAMILY OFFICES SHOULD FILE  COMPREHENSIVE  REPORTS

  • 78% of risk managers feel family offices — similar to Archegos Capital, which managed the fortune of former hedge fund manager Bill Hwang — should be required to file reports similar to those that hedge funds in the U.S. submit to the SEC
  • 84% say such reports would help prime brokers evaluate risks posed by clients
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PRIME BROKERS SHOULD REPORT ALL EXPOSURES

  • 79% of all respondents say that prime brokers should be required to report all exposures to regulators
  • 74% of respondents at firms with prime brokers agree that prime brokers should be required to report all exposures to regulators
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TENSION EXISTS AT FIRMS BETWEEN BUSINESS LINES AND RISK MANAGEMENT

  • Nearly 40% of risk managers say tension between business lines and risk management ranges from “meaningful” to “extreme” at firms regarding limits and margin requirements around prime broker positions
  • 32% report “meaningful” to “extreme” tension around the speed of liquidation of client collateral when they violate margin requirements
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The GARP Risk Snapshot surveyed nearly 100 Financial Risk Managers (FRM®) from across the world in May 2021. To read about the study, click here.

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