authority ( nca ) colleagues. i also believe that we and nca and esa colleagues need to ensure we play an active role in the development and design of policy proposals by the commission and by legislators, in the eu and domestically. policy outcomes are more likely to be delivered if the design of the policy takes account of – and is influenced by – the expertise of those of us who are tasked with implementing the legislative output. our aim is to deliver a more efficient allocation of financial services in the eu, greater participation from eu citizens in capital markets, and high quality products and choice to customers and investors, in an environment where they are supported and risks are appropriately identified and mitigated. vulnerabilities as i said earlier, while there are many opportunities for market - based finance, not just through the development of cmu, there are also risks and challenges. excessive leverage and excessive liquidity transformation, for example, can give rise to fire - sale externalities. such vulnerabilities can have implications for markets in which funds are invested and ultimately the provision of finance to the real economy. here, actions that firms might take in times of stress, which are perfectly rational from their individual perspective, can also have adverse implications for the functioning of financial markets. and in the case of a highly interconnected funds sector, shocks can be transmitted to other parts of the financial system and the real economy, domestically and across borders. the experiences from the covid - 19 shock in march 2020 bore - out some of these concerns. certain types of money market funds ( mmfs ) – those investing in private sector debt – experienced acute outflows. moreover, funds with exposures to less liquid assets, or assets that became temporarily illiquid, were particularly susceptible to outflows. this overall pattern of redemptions was consistent with the presence of ‘ first ‑ mover advantage ’ dynamics amplifying redemption pressures in some cases. in my view, the march 2020 experience, coupled with the lessons learned from the gfc, reinforce the case for the development and operationalisation of a macroprudential framework for investment funds. macroprudential frameworks generally are quite new, and in the context of the funds sector, the approach is at an even earlier stage. a macroprudential perspective considers the resilience of the financial system as whole, not just individual nodes in the system. and it focuses explicitly on the interaction between finance and the macro economy, seeking to avoid adverse

tools in the ucits or open - ended aifs they manage ; broaden the activities that fund managers may engage in ( e. g. benchmark administration ) ; allow asset managers of alternative investment funds to use depositary services on a cross - border basis, if the domestic depositary market is small and underdeveloped ; and generally strengthen and harmonize reporting requirements for asset managers and investment funds. the directive shall be transposed into member states ’ legislation within 24 months of its entry into force. in this respect, the recent fit - for - 55 stress test ( to which the eba was a key contributor ) has been a trailblazing / / pioneering exercise that brought together the expertise of the three european supervisory authorities ( esas ), the ecb and national competent authorities. is one of the metrics used to define systemic financial institutions, 11 as it is usually considered ( and has proven time and again, including in the great financial crisis ) to be a threat to financial stability and an amplifier of shocks. but is this always the case? with my researcher hat on, my argument today is that if we measure interconnectedness for assets as opposed to entities, then interconnectedness is likely to improve market quality, especially in times of stress, because highly interconnected corporate bonds allow for risk sharing. 12 this discussion is related to two very controversial debates. one, as already mentioned, is about the role of interconnectedness in financial stability. the other is about whether the traditional entity - based regulation should be complemented by activity - based regulation. while my paper does not have the ambition to resolve such disputes, it does provide a framework for better assessing systemic risks from an asset - based perspective. clearly, the jury is still out and more research is needed. as i said in my very first speech earlier this year, 13 ‘ research insights are a necessary input to help policymakers address the challenges they face in their work. this is even more so the case when it comes to financial stability and macroprudential policy, an area that needs to be flexible as it grows in response to a fast - evolving financial environment ’. as i speak to you today, trying to decide which of my hats fits better for the occasion ( after all, i am italian and need to be properly dressed for every occasion ), i realize that regulation and research are systemically connected and the two hats are more similar than i thought. many of the topics we research are driven by