FSB Assesses Progress Toward NBFI Reforms, Issues Other Updates

FSB, in conjunction with the standard-setting bodies, had developed a framework and policy toolkit in 2013 for strengthening the oversight and regulation of non-bank entities. The policy framework, which the G20 endorsed, identified five specific areas in which policies are needed to mitigate the potential systemic risks associated with non-bank financial intermediation (NBFI). In addition, the Basel Committee on Banking Supervision (BCBS) has policies in this area, which include higher capital requirement for bank exposures to non-bank financial entities; the standard for measuring and controlling large exposures; enhancements to the prudential treatment of banks’ off-balance sheet exposures; and guidance on the identification and management of step-in-risk. Below are the key findings presented in the progress report with respect to these policy areas and reforms:

• The FSB Jurisdictions have made progress in implementing Basel III reforms to mitigate spillovers between banks and non-bank financial entities. The capital requirements for equity investments of banks in funds are in force in 19 of the 22 FSB jurisdictions, for which it is applicable, three more than last year (Australia, Hong Kong, UK). These requirements, due in January 2017, are not yet in place in China, Mexico, and the US, and are not applicable for India (where equity investments in funds are not held in the banking book), and Indonesia (where banks are prohibited from making equity investments in funds). Furthermore, the supervisory framework for measuring and controlling banks’ large exposures is in place in 20 FSB jurisdictions, two more than last year (South Africa, UK). This framework, to be implemented by January 2019, is not yet in place in Korea, Mexico, Russia, and Turkey.
• Adoption of the 2012 International Organization of Securities Commissions (IOSCO) recommendations to reduce the run risk of money market funds is most advanced in the largest money market fund markets, whereas progress in liquidity management is less advanced.
• Adoption of the IOSCO recommendations on incentive alignment approaches for securitization and of the Basel Committee on Banking Supervision (BCBS) standard on the revised securitization framework is ongoing. About one-third of FSB jurisdictions, for the IOSCO recommendations, and one-sixth of FSB jurisdictions, for the BCBS standard, have yet to implement them. The revised BCBS securitization framework is yet to be implemented in China, South Africa, Türkey, and the United States.
• Implementation of FSB recommendations for dampening procyclicality and other financial stability risks associated with the securities financing transactions is incomplete and continues to face significant delays in most jurisdictions.
• Implementation of most FSB recommendations to assess and mitigate systemic risks associated with non-bank financial entities other than the money market funds (MMFs).

In addition to these reforms, FSB is carrying out additional analytical and policy work to enhance the resilience of the non-bank financial intermediation sector, building on the lessons from the March 2020 market turmoil. FSB expects to report progress in the implementation of these additional non-bank financial intermediation policies in future versions of the report.

Related Links

• Report on Non-Banking Financial Intermediation Reforms
• Consultation Feedback on Cyber Incident Reporting
• Consultation Feedback on Crypto-Asset Framework

Keywords: International, Banking, Securities, NBFI, Non-Bank Financial Intermediation, Systemic Risk, Financial Stability, Securitization, Basel, Regulatory Capital, Cryptoassets, Cyber Risk, Cyber Incident Reporting, IOSCO, BCBS, FSB