Fund suspensions crucial to prevent asset fire sales, says Bank deputy
Ben Broadbent said there could be a wider financial stability risk if investment funds were forced to sell off assets on the cheap.
Investment managers like Neil Woodford are right to block investors from withdrawing cash from funds to prevent asset fire sales, according to the deputy governor of the Bank of England.
Ben Broadbent, the deputy governor for monetary policy, told MPs on the Treasury Select Committee that fund suspensions should not be banned, as he was questioned on the Woodford Investment Management saga.
He said: “To be clear, suspensions are allowed.
“Fundamentally, if you have got a fund whose assets are less liquid than their liabilities, there will be episodes when that’s probably the right thing to do.
“I don’t think we should see this as an adherent problem or something we should get rid of.”
He added there could be a wider UK financial stability risk if funds were forced to sell off investments quickly at values below their market price.
“That’s precisely what suspensions are designed to prevent,” he added.
But he stressed it was important that investors understood that suspensions were a possibility that could see them blocked from accessing their money.
“There might be a question about whether investors are sufficiently aware of these risks,” he said.
He declined to comment on the regulatory supervision of the Woodford fund, but told MPs: “You cannot have a system where regulators collectively could reduce all risk to zero.
“I don’t think that’s possible or desirable. There is risk in these funds.”
On the Woodford fund suspension, he added: “There are no rules broken, so far as I understand it.”
Hi comments come as the boss of Britain’s City watchdog joined calls for Mr Woodford to waive management fees for his suspended equity income fund.
Andrew Bailey, chief executive of the Financial Conduct Authority (FCA), said Mr Woodford should “consider his position” on charging fees.
Mr Broadbent, appearing in front of the Commons committee following his re-appointment as deputy governor, remained tight-lipped on whether he had applied to succeed Mark Carney at the head of Bank.
He said he was appearing in his capacity as deputy governor, and that the committee would have a chance to question the next governor in future.
The deadline for applications for the post of governor passed on June 5 and an appointment is expected in the autumn.