The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023, which includes addressing vulnerabilities in the non-bank sector, developing a framework for supervision and oversight of crypto-asset markets, and enhancing cross-border payments. The letter also outlines the planned work to enhance cyber and operational resilience and to address climate-related financial risks, through the FSB climate roadmap.
FSB, in its letter, highlights various areas in which progress will be made to further strengthen the global financial system, from climate risks to cross-border payments, crypto-assets to investment funds. As part of the work priorities for 2023, FSB will:
- address climate-related financial risks through enhancements to disclosures, data and analysis of climate-related vulnerabilities including work on how financial institutions can use transition plans for managing transition-related risks to financial stability.
- deliver a consultative document to the G20 aimed at strengthening financial institutions’ ability to manage third-party and outsourcing risk.
- publish a revised report to the G20 on achieving greater convergence in cyber incident reporting that includes recommendations to address impediments to convergence, advances work on establishing common terminologies related to cyber incidents and proposes the development of a common format for incident reporting exchange.
- finalize its recommendations for the regulation, supervision, and oversight of crypto-assets and markets and its recommendations targeted at global stablecoin arrangements.
- conduct forward-looking analysis to assess the implications of crypto-assets for financial stability by undertaking in-depth analysis of the large crypto-asset intermediaries that provide a wide range of services to the ecosystem.
- undertake analysis of the increasing trend toward the tokenization of assets and how that could affect financial stability.
- enhance market participants’ liquidity preparedness for margin and collateral calls and identify data gaps in regulatory reporting.
- deliver a report on the financial stability aspects of commodity markets; this report forms part of the FSB work program to strengthen the resilience of the non-bank financial intermediation (NBFI) sector.
- address liquidity mismatch in open-ended funds and promote greater and more consistent use of funds’ liquidity management tools.
- conduct a peer review of money market mutual fund policy reform measures, to take stock of members’ progress in implementation of reforms designed to make the sector more resilient.
- publish a report on the implementation of the G20 Roadmap to enhance cross-border payments with detailed next steps to achieve the roadmap’s goals, which will be accompanied by the establishment of two new taskforces to strengthen private sector participation in taking the roadmap forward.
The report on financial stability aspects of commodities markets presents an overview of the globally traded commodities markets that are of particular economic importance at the current juncture (crude oil, natural gas, and wheat) and examines their vulnerabilities; focus is also on the mechanisms through which any further stresses in these markets could propagate more broadly through the financial system. The report findings show that there is a significant concentration in commodities markets and certain banks are more highly exposed to commodities traders, some of whom represent a significant share of market activity. Based on the findings, the report suggests that there is a need to continue monitoring developments in commodities markets and the preparedness of commodities firms—working with central counterparties (CCPs) and clearing members—to manage sudden increases in margin on derivatives positions. The report also identifies a number of data gaps that hamper the assessment of vulnerabilities and transmission channels in the commodities sector. The report explains how the commodities ecosystem has adapted to the February 2022 shock and concludes with learnings and policy implications. A number of the vulnerabilities and channels of contagion discussed in this report—including leverage, impact of large margin calls on liquidity demand, and market opacity—are not unique to commodities markets. Many of these issues are being addressed in the FSB work program to enhance the resilience of non-bank financial intermediation.
Keywords: International, Banking, G20, NBFI, Non-Bank Financial Intermediation, Regtech, Operational Resilience, Climate Change Risk, ESG, Cross-Border Payments, Cyber Risk, Third-Party Risk, Outsourcing Risk, Disclosures, Transition Risk, Commodity Risk, Crypto-Assets, Data Gaps, FSB
Hasan leads Moody’s Analytics ESG methodology development. He is expert on carbon transition, nature related risks and is a guest lecturer at ESSEC Business school on sustainable finance.
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