Regulators have cited liquidity and leverage as their chief concerns regarding asset managers and the potential risk they pose to the nation’s financial system.

The Financial Stability Oversight Council, composed mostly of the federal financial regulators, on Thursday expressed concerns that asset managers could shy away from holding highly liquid assets out of competitive pressures to increase returns and outperform benchmarks.

The group raised the alarm that highly leveraged managers could get caught in a downward price spiral where they’re forced to sell assets to meet collateral or margin calls in panic situations.

As hedge funds and other private investment vehicles boost their holdings of derivatives to increase leverage, the FSOC warned, the tactic could raise the complexity and volume of risk.

The regulators said they were also worried about the potential for delays or other obstacles in transferring client accounts from one asset manager to another in times of stress

The FSOC added it will gauge whether the Securities and Exchange Commission’s planned tighter oversight of investment advisors and investment companies will reduce systemic risk.

The concerns were voiced as the FSOC prepares to seek comment from the industry and other stakeholders on how much systemic risk asset managers pose––if any.

Earlier this year, the group held a roundtable discussion on the subject with asset management executives and academics.

In September 2013, the Treasury Department’s Office of Financial Research, which advises the FSOC, came out with a controversial report claiming the asset management sector could be systemically risky.