Hello everyone, thank you for joining today’s call.

The FSB has been looking at risks related to non-bank financial intermediation for a number of years. Yesterday, we published our annual global monitoring report, which showed that the NBFI sector accounts for almost 50% of total global financial assets and, has grown by ~130% between 2009 and 2023.

This growth comes with an increase in complexity and interconnectedness in the financial system, which, if not properly managed, can pose substantial risks to financial stability. This has been demonstrated by many recent episodes of market stress: the March 2020 market turmoil, the 2021 Archegos failure, and the September 2022 dislocation in the UK gilt market. Last year, we published a report highlighting the vulnerabilities associated with NBFI leverage, including propagation and amplification mechanisms, and describing the data gaps that lead to hidden leverage. We have spent the past year digging deeper into these issues and discussing with our members what policy measures could be taken to address them.

The results of this work form the basis of today’s consultation report.

The report puts forward nine policy recommendations addressed to FSB member authorities and to standard-setting bodies.

The recommendations should be seen as a comprehensive package that reflect the complexity of financial stability risks related to NBFI leverage in different jurisdictions, and the heterogeneous nature of NBFI entities, activities and market structures. They equip authorities with the flexibility needed to address specific risks within jurisdictions, while allowing for a consistency of outcomes across jurisdictions.

The recommendations aim to enhance authorities’ and market participants’ ability to identify, monitor and contain financial stability risk associated with NBFI leverage. Specifically:

  • The first group of recommendations speaks to the need for authorities to have a domestic framework in place to identify and monitor financial stability risks related to NBFI leverage. Such frameworks need to be robust and allow authorities to identify and monitor risks in a timely and effective manner, including through data, risk metrics, and disclosures to improve transparency and market discipline.
  • The second group of recommendations relates to the policy response. We propose a wide range of policy measures, including activity-based, entity-based, and concentration-related measures, to mitigate the specific financial stability risks posed by NBFI leverage in core financial markets. Authorities should select, design and calibrate the measures so that they can be effective and proportionate to the identified risks, taking into account the potential costs and unintended consequences.
  • The third group relates to the need to enhance counterparty credit risk management. We call for the timely and thorough implementation of the Basel Committee on Banking Supervision’s revised guidelines on counterparty credit risk. Additionally, we propose enhancing private disclosure practices between leveraged non-bank financial entities and their leverage providers.
  • The final two recommendations focus on addressing regulatory incongruence, and on cross-border cooperation and coordination. We advocate for the principle of “same risk, same regulatory treatment” to prevent regulatory arbitrage and ensure a consistent approach to managing financial stability risks across jurisdictions.

The proposed recommendations recognise that a combination of policy measures, chosen based on the nature of identified financial stability risks in each jurisdiction, will likely be more effective in addressing these risks than any standalone measure. It is important that authorities select, design and calibrate policy measures with a view to achieving consistent outcomes, on a global level, when it comes to addressing financial stability risks from NBFI leverage.

The FSB and standard-setting bodies will undertake further work to support and assist authorities in applying the recommendations, including developing guidance regarding the operationalisation of certain recommendations, where appropriate. We will be discussing next steps with the standard setters over the coming months.

We are confident that these recommendations, once implemented, will enhance the resilience of the NBFI sector. We look forward to receiving feedback from stakeholders during our consultation period.