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By Huw Jones
LONDON, July 30 (Reuters) - Global work by regulators on whether big asset managers should face tougher rules because of their size has been put on hold to focus on their ability to cope in volatile markets, a task force set up for the Group of 20 leading economies said on Thursday.
The Financial Stability Board (FSB) had proposed a method for identifying large asset managers that could then face extra scrutiny, a move which has been fiercely opposed by the sector.
Last month, IOSCO, a global regulatory body for market supervisors and an FSB member, also said it would no longer work on the project, adding asset managers should not be viewed as banks.
The FSB published a revised set of proposals, but these were still widely criticised during a consultation process, according to responses published last month.
The world's biggest asset manager, BlackRock, told the FSB that deeming big funds "systemic" was premature until the specific risks such entities posed had been identified.
PIMCO, one of the world's biggest bond funds, said the revised proposal represented a "significant step backward".
The FSB said on Thursday it would focus instead on looking at financial stability risks from asset management activities and market liquidity.
The work is timely as policymakers have become increasingly worried there is not enough liquidity in bond markets to cope with rises in interest rates from their prolonged low levels.
"This work will evaluate the role that existing or additional activity-based policy measures could play in mitigating potential risks, and make policy recommendations as necessary," the FSB said in a statement.
The FSB will discuss the initial findings in September, the same month some economists expect the Federal Reserve to raise U.S. rates, and develop policy recommendations as necessary by spring 2016.
There could also be a clash between the FSB and IOSCO over any recommendations affecting how funds can act in markets.
IOSCO officials say asset managers already have tried and tested mechanisms for dealing with market upheavals.
But FSB Chairman Mark Carney has said these tools were fashioned in an era of much deeper market liquidity, meaning new mechanisms may be needed.
The FSB said it would use the work on funds' activities to conduct further analysis on a methodology for assessing whether big funds are systemically important. (Reporting by Huw Jones; Editing by Carolyn Cohn and Mark Potter)