FSB examines the relevance of climate transition plans for financial stability

14 January 2025

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Ref: 1/2025

  • Climate transition plans provide forward-looking information that can be useful to measure and monitor climate-related risks to financial stability.
  • However, limited data availability and differences in scope, coverage and quality of key metrics limit the usefulness of transition plans for financial stability assessments at present.
  • Continued efforts towards standardisation and broader adoption of transition plans are key to enhancing effective use of these plans by financial authorities.

The Financial Stability Board (FSB) published today a report on The Relevance of Transition Plans for Financial Stability, which looks at the role that firms’ climate transition planning and the resulting outputs – transition plans – can play for financial stability. Transition plans provide forward-looking information on how non-financial companies and financial institutions may adjust their activities in response to climate risks, which can be useful for authorities to measure and monitor climate-related financial risks.

Transition planning and plans can help address climate-related risks to financial stability through three channels. First, they facilitate firms’ strategy setting, which informs better climate-related risk management. Second, they help inform investment decisions by addressing information gaps and reducing market failures. Third, they can support authorities’ macro-monitoring of transition and physical risks both in the financial system and the real economy.

The use of transition plans for financial stability and macroprudential purposes remains in the early stages. Transition plans are not inherently designed for the purpose of financial stability assessments; their primary purpose is business strategy and target setting. Moreover, they are only available for a restricted number of firms and differ widely in terms of scope, coverage, methodologies and quality of key metrics.

Satoshi Ikeda, Deputy Commissioner for International Affairs and Chief Sustainable Finance Officer at Japan’s Financial Services Agency, who chaired the FSB group that prepared the report said: “Because of their forward-looking perspective, transition plans could help improve the monitoring of climate-related financial risks by financial authorities, but more work is needed to enhance their coverage, transparency, reliability and comparability.”

Broader adoption of transition plans and continued efforts towards standardisation, including by international organisations and standard-setters, are key to making transition plans usable by financial authorities.

Notes to editors

Addressing the financial risks from climate change is a key priority of the FSB. In July 2021, the FSB published a Roadmap for Addressing Financial Risks from Climate Change, outlining the key actions to be taken by standard-setting bodies and other international organisations over a multi-year period in four key policy areas: firm-level disclosures, data, vulnerabilities analysis, and regulatory and supervisory practices and tools. This report aims to contribute to Roadmap discussions on how transition plans can be used to address climate financial risks.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland and hosted by the Bank for International Settlements.

Public responses to consultation on Format for Incident Reporting Exchange (FIRE)

3 January 2025

Summary of document history

Summary of document history

On 17 October 2024, the FSB published Format for Incident Reporting Exchange (FIRE): Consultation report. Interested parties were invited to provide written comments by 19 December 2024. The public comments received are available below.

Responses received

The FSB thanks those who took the time and effort to express their views. The FSB expects to publish the final report in Q2 2025.

Annual Progress Report on Meeting the Targets for Cross-border Payments: 2024 Methodology document

19 December 2024

Leverage in Non-Bank Financial Intermediation: Consultation report

18 December 2024 | PDF full text (499 KB)

Summary of document history

Summary of document history

The proposed policy recommendations aim to enhance the ability of authorities and market participants to monitor vulnerabilities from NBFI leverage, contain NBFI leverage where it may create risks to financial stability, and mitigate the impact of these risks.

This report focuses on policy measures to address leverage in non-bank financial intermediation (NBFI) where it can create financial stability risks.

Leverage is a financial technique used to increase exposures, boost returns or take positions that can offset potential losses from other exposures (hedging).

In 2023, the FSB published a report on The Financial Stability Implications of Leverage in Non-Bank Financial Intermediation, which discussed the vulnerabilities associated with NBFI leverage. That report found that NBFI leverage played a significant role in recent episodes of market stress, such as the March 2020 market turmoil, the default of Archegos in March 2021, the commodities market turmoil in 2022, and the Liability-Driven Investment (LDI) crisis that amplified stress in the UK Gilt market in September 2022.

Our proposed policy recommendations seek to address financial stability risks arising from leverage in NBFI, through improved risk identification and monitoring, a combination of policy measures, and enhanced cross-border collaboration.

The FSB is inviting comments on its consultation report and the questions set out below. Responses will be published on the FSB’s website unless respondents expressly request otherwise on the online form.

FSB consults on recommendations to address financial stability risks arising from leverage in non-bank financial intermediation

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Ref: 40/2024

  • Proposed policy recommendations aim to enhance the ability of authorities and market participants to identify, monitor and contain financial stability risks associated with leverage in non-bank financial intermediation (NBFI).
  • Proposed recommendations call for authorities to address financial stability risks from NBFI leverage in core financial markets; ensure sufficient counterparty credit risk management by leverage providers; and determine whether and how to address any inconsistencies in regulatory treatment.
  • The FSB and standard-setting bodies (SSBs) will undertake further work to support and assist authorities in applying the recommendations, including developing guidance where appropriate.

The Financial Stability Board (FSB) today published a consultation report on leverage in non-bank financial intermediation (NBFI). The proposed policy recommendations are addressed to FSB member authorities and SSBs. They aim to enhance the ability of authorities and market participants to monitor vulnerabilities from NBFI leverage, contain NBFI leverage where it may create risks to financial stability, and mitigate the impact of these risks. The recommendations build on the 2023 FSB report on The Financial Stability Implications of Leverage in Non-Bank Financial Intermediation, which found that NBFI leverage played a significant role in recent episodes of market stress.

The nine policy recommendations cover:

  • risk identification and monitoring, supported by a suite of risk metrics, and work to assess and address data challenges;
  • measures to address financial stability risks related to NBFI leverage in core financial markets, including measures that affect specific activities, types of entities, and concentration-related risks;
  • counterparty credit risk management and private disclosure;
  • addressing inconsistencies by adopting the principle of “same risk, same regulatory treatment”; and
  • enhancing cross-border cooperation and collaboration.

Entities in scope are non-bank financial firms that use leverage, either financial or synthetic, including hedge funds, other leveraged investment funds, pension funds, and insurance companies. Where relevant, banks and broker-dealers are also in scope in their role as leverage providers.

The FSB notes that market structures, legal frameworks, and financial stability risks related to leverage vary across jurisdictions. The report outlines general principles for the selection, design, and calibration of policy measures, noting that, in many cases, combinations of the policy measures outlined may be most effective in addressing financial stability risks arising from NBFI leverage.

The FSB is inviting comments on this consultation report and the questions set out within it. Responses should be submitted via this secure online form by 28 February 2025. All responses will be published on the FSB website unless respondents request otherwise. The final report will be published in mid-2025. 

Notes to editors

The proposed policy recommendations complement the FSB’s recommendations to enhance the liquidity preparedness of non-bank market participants for margin and collateral calls during times of market-wide stress, as well as the work of the SSBs, such as the Basel Committee on Banking Supervision (BCBS) work on counterparty credit risk management and the joint work by the BCBS, the Bank for International Settlements’ Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) on margining practices.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland and hosted by the Bank for International Settlements.

The FSB’s proposed recommendations to address leverage in NBFI

17 December 2024

Opening remarks by John Schindler, Secertary General of the Financial Stability Board, at the media briefing about the FSB's consultation document "Leverage in Non-Bank Financial Intermediation", hosted on 17 December 2024.

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.

Global Monitoring Report on Non-Bank Financial Intermediation 2024

16 December 2024 | PDF full text (8 MB)

The size of the NBFI sector increased 8.5% in 2023, more than double the pace of banking sector growth (3.3%), raising the NBFI share of total global financial assets to 49.1%.

The comprehensive monitoring of global trends, vulnerabilities, and innovations of the non-bank financial intermediation (NBFI) sector is a key part of the FSB’s ongoing efforts to enhance financial system resilience.This report describes broad trends in financial intermediation across 29 jurisdictions that account for around 88% of global GDP, before narrowing its focus to the subset of NBFI activities that may be more likely to give rise to vulnerabilities.

In 2023, the size of the NBFI sector increased 8.5%, more than double the pace of banking sector growth (3.3%), raising the NBFI share of total global financial assets to 49.1%. The growth of the NBFI sector was largely attributed to higher valuations for mark-to-market instruments, which rebounded after a significant decrease in 2022. Investor inflows to NBFI entities also contributed to the increase.

All NBFI subsectors grew at rates around two times their five-year average in 2023. The assets of almost all entity types increased, with investment funds continuing to drive changes in the asset levels of the NBFI sector. Money market fund (MMF) assets grew in the majority of reporting jurisdictions, driven primarily by increased flows as a result of higher MMF yields relative to bank deposits as well as, in part, by the March 2023 banking turmoil in the United States and Switzerland.

The financial assets of entities classified in the FSB’s narrow measure – the subset of NBFI engaging in credit intermediation and that may give rise to financial stability risks – increased 9.8% to reach $70.2 trillion, the highest level ever recorded in this exercise. The narrow measure reflects an activity-based “economic function” (EF) assessment of risks.

Financial institutions’ borrowings continued to increase in 2023, despite the higher interest rate environment. Borrowings from the NBFI sector increased at a slightly faster pace than that of banks (4.1% compared to 3.4%, respectively). Captive financial institutions and broker-dealers were the entity types among the NBFI sector with the largest amount of total borrowings, both at around $6.3 trillion. Real estate investment trusts (REITs), finance companies, broker-dealers, and structured finance vehicles were the entity types with the largest levels of financial leverage.

Most NBFI vulnerability metrics remained stable over the past year, with fixed income and mixed funds showing high degrees of liquidity transformation, while finance companies, broker-dealers and SFVs displayed relatively high levels of leverage. To complement the monitoring of vulnerabilities, jurisdictions also provided information on the availability of policy tools for lending activities dependent on short-term funding (predominantly finance companies), and intermediation activities dependent on short-term funding (primarily broker-dealers), detailed in Box 3-1 of the report.

The report also includes, for the first time, data on non-bank fintech lending from some of the participating jurisdictions on a best-efforts basis. This addresses part of the third phase of the G20 Data Gaps Initiative, which includes a recommendation to close data gaps related to non-bank fintech lending.

Rebecca Maher, Member of FSB Secretariat, presents the main findings of the FSB Global Monitoring Report on Non-Bank Financial Intermediation 2024.

Datasets from the report are publicly available for use in accordance with the FSB’s normal terms and conditions.

FSB reports strong growth in non-bank financial intermediation in 2023

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Ref: 39/2024

  • Annual monitoring exercise shows the non-bank financial intermediation (NBFI) sector grew at more than double the pace of the banking sector in 2023, led by investor inflows and higher asset valuations.
  • Most vulnerability metrics of NBFI entities involved in credit intermediation activities that may pose bank-like financial stability risks remained stable.
  • FSB report also includes data on non-bank fintech lending for the first time. The outstanding amounts reported by 10 jurisdictions totalled around $42 billion.

The Financial Stability Board (FSB) today published its annual Global Monitoring Report on Non-Bank Financial Intermediation. The report describes broad trends in financial intermediation in 2023 across 29 jurisdictions that account for around 88% of global GDP, before narrowing its focus to the subset of NBFI activities that may be more likely to give rise to vulnerabilities.

The main findings from this year’s monitoring exercise include:

The report also includes data on non-bank fintech lending for the first time, in response to a recommendation in the third phase of the G20 Data Gaps Initiative to close data gaps related to this activity. 10 jurisdictions reported total non-bank fintech lending of around $40 billion, or 1% of the total loan assets held by their OFIs.

Notes to editors

The FSB created a system-wide monitoring framework to track developments in NBFI in response to a G20 Leaders’ request at the Seoul Summit in 2010. The objective of the monitoring exercise is to identify the build-up of vulnerabilities in NBFI and initiate corrective actions where necessary.

Complementing this monitoring, the FSB has been coordinating the development of policies, together with its member standard-setting bodies and international organisations, to mitigate potential vulnerabilities associated with NBFI. Progress under the FSB work programme to enhance resilience in NBFI is detailed in the FSB’s July 2024 report.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland and hosted by the Bank for International Settlements.

Recommendations to Promote Alignment and Interoperability Across Data Frameworks Related to Cross-border Payments: Final report

12 December 2024 | PDF full text (407 KB)

Summary of document history

Summary of document history

The transfer of data across borders is essential to the functioning of the cross-border payments system.

Based on the positive feedback received during consultation, this report sets out final recommendations for promoting alignment and interoperability across data frameworks (i.e. the laws, rules, and regulatory requirements for collecting, storing and managing data) applicable to cross-border payments. The recommendations aim to mitigate unintended frictions that may pose significant challenges to improving the cost, speed, transparency and accessibility of cross-border payments. At the same time, they uphold the underlying objectives of data frameworks (such as preserving the security of transactions, meeting anti-money laundering and combating the financing of terrorism (AML/CFT) and sanctions objectives, and protecting the privacy of individuals).

To help ensure that the recommendations are taken forward in a coordinated manner, the FSB will establish a Forum on Cross-Border Payments Data bringing together a diverse set of public sector stakeholders relevant to cross-border payments, including payments, AML/CFT, sanctions, and data privacy and protection experts.

The recommendations to promote alignment and interoperability across data frameworks related to cross-border payments fall into four broad categories:

  • Addressing uncertainty about how to balance regulatory and supervisory obligations
  • Promoting the alignment and interoperability of regulatory and data requirements related to cross-border payments
  • Mitigating restrictions on the flow of data related to payments across borders
  • Reducing barriers to innovation
FSB Recommendations

Recommendation 1: The FSB, in collaboration with the OECD, FATF and the GPA, should establish a Forum for collaboration on policymaking, with a view to resolving data framework frictions and facilitating exchanges of ideas and analysis, on cross border payments and related data issues. The Forum would also include relevant stakeholders from international organisations (IOs), SSBs, data protection and privacy authorities (DPAs) and regulatory agencies. The Forum should develop channels for regular engagement with industry stakeholders involved in cross border payments.

Recommendation 2: Relevant authorities, international organisations and standard-setting bodies should work within the Forum to identify, map and address possible areas of divergence and inconsistency in data frameworks relevant to cross-border payments and facilitate discussion among authorities on how to make these requirements more consistent while meeting AML/CFT and sanctions objectives, preventing fraud, and protecting data privacy objectives. Forum participants should take into consideration successful examples from other areas. The Forum should also consider a process to ensure that new potentially emerging divergences and inconsistencies are addressed as they arise.

Recommendation 3: National authorities should encourage the adoption by market participants, including central banks and payment system operators, of the Bank for International Settlements’ Committee on Payments and Market Infrastructure (CPMI)’s harmonised ISO 20022 data requirements for cross-border payments.

Recommendation 4: To avoid the inconsistent application of cross-border payment-related data requirements for AML/CFT compliance, national authorities should implement FATF Recommendation 16 and provide clear and accessible guidance on any additional data required to comply with local AML/CFT regulations. They should also use applicable global data standards, where available.

Recommendation 5: Sanctions authorities should take steps to standardise the way sanctions lists are
formatted, shared and updated. The use of sufficient and standardised identifiers should be encouraged
to better facilitate identification, reduce false positives, and promote links between data sources.

Recommendation 6: National authorities should support the enhanced use of standardised global
identifiers, such as the Legal Entity Identifier (LEI), including by taking steps to emphasise that the use
of standardised global identifiers in cross-border payments is best practice.

Recommendation 7: Building on its ongoing evidence-based and multi-stakeholder work on crossborder data flows, the OECD, together with data privacy and protection authorities and relevant crossborder payments stakeholders, should explore different options to enable faster, less costly, more transparent and more accessible cross-border payment-related data flows while ensuring high levels of privacy protection.

Recommendation 8: Building on the work outlined in Recommendation 7, relevant authorities should adopt and enforce consistent standards in domestic privacy and data protection regimes applicable to payment processing and identify appropriate cross-border data transfer mechanisms.

Recommendation 9: National authorities should provide a clear and reasonable legal pathway for cross-border payments market participants to transmit across borders data related to payment processing, risk management, or fraud and financial crime prevention. Where applicable, national authorities should provide alternatives to requirements to use local computing facilities.

Recommendation 10: National authorities should establish clear and transparent mechanisms to allow cross-border payments market participants to share data with foreign regulatory and supervisory authorities, as appropriate. Cross-border payments market participants should ensure relevant regulatory and supervisory authorities have full and timely access to data in accordance with their respective mandates.

Recommendation 11: When designing their data-related policies, relevant authorities should consider potential impacts on consumers and cross-border payments market participants. In particular, jurisdictions should consider how data restrictive policies, including data localisation and data mirroring requirements, could affect the cost, speed, transparency and accessibility of cross-border payments.

Recommendation 12: National authorities and international standard setters should promote innovation that may offer solutions to data frictions in cross-border payments by taking steps to foster public-private sector partnerships, facilitate dialogue with innovators, create regulatory frameworks that support innovation, and share best practices with international counterparts.

Jennifer Fowler, Member of the FSB Secretariat, presents the FSB recommendations to promote alignment and interoperability across data frameworks related to cross-border payments.

Recommendations to Promote Alignment and Interoperability Across Data Frameworks Related to Cross-border Payments: Overview of responses to consultation

| PDF full text (107 KB)

Summary of document history

Summary of document history

On the 16 July the FSB published the consultative report Recommendations to Promote Alignment and Interoperability Across Data Frameworks Related to Cross-border Payments.

The FSB received 36 responses (including six confidential). Respondents included banks, card networks, non-bank payment service providers, financial industry trade associations, private sector entities providing corporate registration services, public sector entities, and data privacy and protection advocacy groups. The respondents were geographically diverse, including entities located in Africa, Asia, Australia, the United Kingdom, the United States, and the European Union.

This document summarises the comments raised in the public consultation and sets out the main changes made to the final report in order to address them.