FSB publishes consultation on SME financing evaluation

7 June 2019

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Ref no: 23/2019

The Financial Stability Board (FSB) today released for public consultation an Evaluation of the effects of financial regulatory reforms on small and medium-sized enterprise (SME) financing. The evaluation has been delivered to G20 Finance Ministers and Central Bank Governors for their meeting in Fukuoka on 8-9 June.

This evaluation examines the effects of the post-crisis financial regulatory reforms on the financing of SMEs. As part of a broader FSB examination of the effects of the G20 regulatory reforms on financial intermediation, it is motivated by the need to better understand the effects of the reforms on the financing of real economic activity and their contribution to the G20 objective of strong, sustainable, balanced and inclusive economic growth.

For the reforms that are within the scope of this evaluation, the analysis thus far does not identify material and persistent negative effects on SME financing in general, although there is some differentiation across jurisdictions. There is some evidence that the more stringent risk-based capital requirements under Basel III slowed the pace and in some jurisdictions tightened the conditions of SME lending at those banks that were least capitalised ex ante relative to other banks. These effects are not homogeneous across jurisdictions and they are generally found to be temporary. The evaluation also provides some evidence for a reallocation of bank lending towards more creditworthy firms after the introduction of reforms, but this effect is not specific to SMEs.

SME lending growth has resumed in recent years, although volumes remain below the pre-crisis level in some jurisdictions. Access to external finance for SMEs also appears to have improved, particularly in advanced economies. Stakeholder feedback suggests that SME financing trends are largely driven by factors other than financial regulation, such as public policies and macroeconomic conditions.

Any potential costs found in this evaluation, which appear limited and transitory, should be framed against the wider financial stability benefits of the G20 reforms estimated in ex ante impact assessments. These studies generally found significant net overall benefits in terms of reducing the likelihood and severity (lost output) of financial crises.

Responses to this public consultation should be sent to [email protected] by Wednesday 7 August 2019. Respondents are encouraged to use this template to submit their response. All responses will be published on the FSB website unless respondents expressly request otherwise. The final report will be published in November 2019.

Notes to editors

The evaluation draws on a broad range of information sources and is based on various types of analyses and extensive stakeholder feedback. These include responses to a questionnaire by FSB jurisdictions; input from stakeholders (SMEs, market participants, trade associations, think-tanks and academics) through a roundtable, a call for public feedback and interviews with market participants in FSB jurisdictions; a review of the literature; and empirical analysis using data from commercial providers and FSB member authorities.

The evaluation was undertaken using the FSB’s framework for the post-implementation evaluation of the effects of the G20 financial regulatory reforms. The framework guides analyses of whether the G20 reforms are achieving their intended outcomes, and helps identify any material unintended consequences that may have to be addressed, without compromising on the objectives of the reforms. This is the third evaluation under the FSB framework; the FSB recently launched a call for public feedback on the fourth evaluation, on the effects of too-big-to-fail reforms for systemically important banks, which will be completed in 2020.

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 Randal K. Quarles, Vice Chairman for Supervision, US Federal Reserve; its Vice Chair is Klaas Knot, President, De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

Decentralised financial technologies: Report on financial stability, regulatory and governance implications

6 June 2019 | PDF full text (635 KB)

This report considers the financial stability, regulatory and governance implications of the use of decentralised financial technologies such as those involving distributed ledgers and online peer-to-peer, or user-matching, platforms.

The report focuses on technologies that may reduce or eliminate the need for intermediaries or centralised processes that have traditionally been involved in the provision of financial services. Such decentralisation generally takes one of three broad forms: the decentralisation of decision-making, risk-taking and/or record-keeping. These decentralised technologies could be applied in a number of areas, including cross-border payments and settlements, the tokenisation of securitises, trade finance and insurance and peer-to-peer lending.

The report notes that the application of decentralised financial technologies – and the more decentralised financial system to which they may give rise – could benefit financial stability in some ways. It may also lead to greater competition and diversity in the financial system and reduce the systemic importance of some existing entities. At the same time, the use of decentralised technologies may entail risks to financial stability. These include the emergence of concentrations in the ownership and operation of key infrastructure and technology, as well as a possible greater degree of procyclicality in decentralised risk-taking. New uncertainties concerning the determination of legal liability and consumer protection may also affect public trust in the financial system. Recovery and resolution of decentralised structures may be more difficult.

These issues may pose challenges for financial regulatory and supervisory frameworks. A more decentralised financial system may reinforce the importance of an activity-based approach to regulation, particularly where it delivers financial services that are difficult to link to specific entities and/or jurisdictions. Certain technologies may also challenge the technology-neutral approach to regulation taken by some authorities.

These concerns could continue to be the subject of further consideration by authorities. Regulators may also wish to engage in further dialogue with a wider group of stakeholders, including those in the technology sector that have had limited interaction with financial regulators to date. This should help avoid the emergence of unforeseen complications in the design of decentralised financial technologies at a later stage.

The report was delivered to G20 Finance Ministers and Central Bank Governors for their meeting in Fukuoka on 8-9 June.

FSB report considers implications of decentralised financial technologies

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Ref no: 22/2019

The Financial Stability Board (FSB) today published a report on Decentralised financial technologies. This report considers the financial stability, regulatory and governance implications of the use of decentralised financial technologies such as those involving distributed ledgers and online peer-to-peer, or user-matching, platforms. The report has been delivered to G20 Finance Ministers and Central Bank Governors for their meeting in Fukuoka on 8-9 June, which includes a High-Level Seminar on Financial Innovation.

The report focuses on technologies that may reduce or eliminate the need for intermediaries or centralised processes that have traditionally been involved in the provision of financial services. Such decentralisation generally takes one of three broad forms: the decentralisation of decision-making, risk-taking or record-keeping. There are already examples emerging of decentralisation in payments and settlement, capital markets, trade finance and lending.

The report notes that the application of decentralised financial technologies – and the more decentralised financial system to which they may give rise – could benefit financial stability in some ways. It may also lead to greater competition and diversity in the financial system and reduce the systemic importance of some existing entities. At the same time, the use of decentralised technologies may entail risks to financial stability. These include the emergence of concentrations in the ownership and operation of key infrastructure and technology, as well as a possible greater degree of procyclicality in decentralised risk-taking. New uncertainties concerning the determination of legal liability and consumer protection may also affect public trust in the financial system. Recovery and resolution of decentralised structures may be more difficult.

These issues may pose challenges for financial regulatory and supervisory frameworks, particularly those that currently focus on centralised financial institutions. A more decentralised financial system may reinforce the importance of an activity-based approach to regulation, particularly where it delivers financial services that are difficult to link to specific entities and/or jurisdictions. Certain technologies may also challenge the technology-neutral approach to regulation taken by some authorities. These concerns could continue to be the subject of further consideration by authorities. Regulators may also wish to engage in further dialogue with a wider group of stakeholders, including those in the technology sector that have had limited interaction with financial regulators to date. This should help avoid the emergence of unforeseen complications in the design of decentralised financial technologies at a later stage.

Notes to editors

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 Randal K. Quarles, Vice Chairman for Supervision, US Federal Reserve; its Vice Chair is Klaas Knot, President, De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

Task Force on Climate-related Financial Disclosures: 2019 Status Report

5 June 2019 | PDF full text (8 MB)

This is the second status report on adoption of the Task Force for Climate-related Financial Disclosures (TCFD) has delivered to the FSB. The Status Report provides an overview of the extent to which companies in their 2018 reports included information aligned with the core TCFD recommendations published in June 2017.

To better understand current climate-related financial disclosure practices and how they have evolved, the Task Force reviewed reports for over 1,100 companies from 142 countries in eight industries over a three-year period. In addition, the Task Force conducted a survey on companies’ efforts to implement the TCFD recommendations as well as users’ views on the usefulness of climate-related financial disclosures for decision-making. While the Task Force found some of the results of its disclosure review and survey encouraging, it has concerns that not enough companies are disclosing decision-useful climate-related financial information.

The Task Force reviewed financial filings, annual reports, integrated reports, and sustainability reports. It found that:

  • Disclosure of climate-related financial information has increased since 2016, but is still insufficient for investors.

  • More clarity is needed on the potential financial impact of climate-related issues on companies.

  • Of companies using scenarios, the majority do not disclose information on the resilience of their strategies.

  • Mainstreaming climate-related issues requires the involvement of multiple functions.

The FSB has asked the TCFD to deliver another status report to the FSB in September 2020. The TCFD will undertake further work during the course of the next year to promote and monitor adoption of the TCFD recommendations. The Task Force is considering additional work to: (i) clarify elements of the TCFD’s supplemental guidance, (ii) develop process guidance around how to introduce and conduct climate-related scenario analysis, and (iii) identify business-relevant and accessible climate-related scenarios.

TCFD report finds encouraging progress on climate-related financial disclosure, but also need for further progress to consider financial risks

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Ref no: 21/2019

The Financial Stability Board (FSB) welcomed the publication today of the 2019 Status Report by the industry-led Task Force on Climate-related Financial Disclosures (TCFD). The Status Report provides an overview of the extent to which companies in their 2018 reports included information aligned with the core TCFD recommendations published in June 2017.

To better understand current climate-related financial disclosure practices and how they have evolved, the Task Force reviewed reports for over 1,100 companies from 142 countries in eight industries over a three-year period. In addition, the Task Force conducted a survey on companies’ efforts to implement the TCFD recommendations as well as users’ views on the usefulness of climate-related financial disclosures for decision-making. While the Task Force found some of the results of its disclosure review and survey encouraging, it has concerns that not enough companies are disclosing decision-useful climate-related financial information.

The Task Force reviewed financial filings, annual reports, integrated reports, and sustainability reports. It found that:

  • Disclosure of climate-related financial information has increased since 2016, but is still insufficient for investors.

  • More clarity is needed on the potential financial impact of climate-related issues on companies.

  • Of companies using scenarios, the majority do not disclose information on the resilience of their strategies.

  • Mainstreaming climate-related issues requires the involvement of multiple functions.

FSB Chair Randal K. Quarles said that: “The Task Force continues to provide a forum for market participants to develop and use a valuable private-sector solution to assess climate-related business risks. The increased participation levels confirm the value of these voluntary disclosures, allowing the public, markets, and investors to better monitor risks.”

Michael R. Bloomberg, Chair of the TCFD said: “We remain encouraged by the continued growth in the number of companies adhering to the guidelines of the TCFD – it means businesses are better informed about the risks they face, and investors are more capable of making sound decisions. However, we’re also clear-eyed about the serious threat that climate change poses. In order to keep people out of harm’s way, and build a more resilient global economy, we need more companies to follow their lead – and soon.”

A total of 785 organisations are now supporters of the TCFD, including the world’s largest banks, asset managers and pension funds, responsible for assets of $118 trillion.

The FSB has asked the TCFD to deliver another status report to the FSB in September 2020. The TCFD will undertake further work during the course of the next year to promote and monitor adoption of the TCFD recommendations. The Task Force is considering additional work to: (i) clarify elements of the TCFD’s supplemental guidance, (ii) develop process guidance around how to introduce and conduct climate-related scenario analysis, and (iii) identify business-relevant and accessible climate-related scenarios.

Notes to editors

The TCFD was established by the FSB in December 2015 to develop a set of voluntary, consistent disclosure recommendations for use by companies in providing information to investors, lenders and insurance underwriters about their climate-related financial risks. The members of the Task Force are drawn from a wide range of industries and countries across the globe.

The Task Force published its recommendations in June 2017 after extensive public engagement and consultation. The TCFD developed 11 recommendations on climate-related financial disclosures that are applicable to organisations across sectors and jurisdictions. The recommendations are structured around four thematic areas:

  • Governance: The organisation’s governance around climate-related risks and opportunities.

  • Strategy: The actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial planning.

  • Risk Management: The processes used by the organisation to identify, assess and manage climate-related risks.

  • Metrics and Targets: The metrics and targets used to assess and manage relevant climate-related risks and opportunities.

More information on the work of the Task Force, and companies’ statements of support, are available on the TCFD website.

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 Randal K. Quarles, Vice Chairman for Supervision, US Federal Reserve; its Vice Chair is Klaas Knot, President, De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

FSB Report on Market Fragmentation

4 June 2019 | PDF full text (791 KB)

This report, which was delivered to G20 Finance Ministers and Central Bank Governors ahead of their meetings in Fukuoka on 8-9 June, sets out the conclusions from the FSB’s work on market fragmentation and identifies several areas for further work to address it.

The report looks at some examples of financial activities where supervisory practices and regulatory policies may give rise to market fragmentation. It discusses potential trade-offs that authorities have considered between the benefits of increased cross-border activity and a need to tailor domestic regulatory frameworks to local conditions and mandates. The areas the report examines are the trading and clearing of over-the-counter (OTC) derivatives across borders; banks’ cross-border management of capital and liquidity; and the sharing of data and other information internationally.

The report lays out approaches and mechanisms that may enhance the effectiveness and efficiency of international cooperation, and help to mitigate any negative effects of market fragmentation on financial stability.

On this basis, the report identifies several areas for further work to address market fragmentation. These focus on facilitating further analysis and discussion of approaches and mechanisms for more efficient and effective cross-border cooperation amongst authorities. Such areas for further work include: exploring ways to, where justified, enhance the clarity of deference processes in derivatives markets; strengthening the understanding of approaches by supervisory and resolution authorities towards pre-positioning of capital and liquidity by international banks; considering ways to enhance supervisory communication and information sharing, including approaches and mechanisms to avoid future fragmentation; and considering whether there is evidence of market fragmentation with observed consequences for financial stability as part of the FSB’s ongoing evaluation of the effects of too-big-to-fail reforms.

FSB publishes report on market fragmentation

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Ref no: 20/2019

The Financial Stability Board (FSB) today published a report on market fragmentation and identified several areas for further work to address it. The report was delivered to G20 Finance Ministers and Central Bank Governors ahead of their meetings in Fukuoka on 8-9 June.

In response to a proposal by the Japanese G20 Presidency, the FSB explored issues around market fragmentation and considered tools to address them, where appropriate. The report focuses on instances where reducing market fragmentation might have a positive impact on financial stability, or improve market efficiency without any detrimental effect on financial stability.

The report looks at some examples of financial activities where supervisory practices and regulatory policies may give rise to market fragmentation. It discusses potential trade-offs that authorities have considered between the benefits of increased cross-border activity and a need to tailor domestic regulatory frameworks to local conditions and mandates. The areas the report examines are the trading and clearing of over-the-counter (OTC) derivatives across borders; banks’ cross-border management of capital and liquidity; and the sharing of data and other information internationally.

The report lays out approaches and mechanisms that may enhance the effectiveness and efficiency of international cooperation, and help to mitigate any negative effects of market fragmentation on financial stability.

On this basis, the report identifies several areas for further work to address market fragmentation. These focus on facilitating further analysis and discussion of approaches and mechanisms for more efficient and effective cross-border cooperation amongst authorities. Such areas for further work include: exploring ways to, where justified, enhance the clarity of deference processes in derivatives markets; strengthening the understanding of approaches by supervisory and resolution authorities towards pre-positioning of capital and liquidity by international banks; considering ways to enhance supervisory communication and information sharing, including approaches and mechanisms to avoid future fragmentation; and considering whether there is evidence of market fragmentation with observed consequences for financial stability as part of the FSB’s ongoing evaluation of the effects of too-big-to-fail reforms. Section 5 of the report describes this further work in more detail.

The FSB will review progress on this further work in November 2019.

Today the International Organization for Securities Commissions (IOSCO) published a follow-up report to work undertaken in 2015 by its Task Force on Cross-Border Regulation. The report, which complements the FSB’s work, considers where and why regulatory-driven market fragmentation in wholesale securities and derivatives markets is occurring, and what action(s), if any, IOSCO and its members could pursue to minimise its adverse effects.

Notes to editors

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 Randal K. Quarles, Vice Chairman for Supervision, US Federal Reserve; its Vice Chair is Klaas Knot, President, De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

Overnight Risk-Free Rates: A User’s Guide

| PDF full text (980 KB)

This user guide to overnight risk-free rates (RFRs) provides details on how RFRs are calculated to clarify how overnight RFRs can be used in cash products and to encourage adoption of these rates where they are appropriate.

Overnight RFRs are robust because they are anchored in active, liquid underlying markets. This contrasts with the scarcity of underlying transactions in the term interbank and wholesale unsecured funding markets from which some IBORs are constructed, a characteristic which could make them susceptible to manipulation. The FSB encourages the development and adoption of such overnight RFRs where appropriate, for example in business where term properties are not needed, or where exposure to bank credit risk is not necessary or desirable, in order to enhance financial stability.

FSB publishes user guide for overnight risk-free rates

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Ref no: 19/2019

The Financial Stability Board (FSB) has today published a user guide to overnight risk-free rates (RFRs). The guide provides an overview of RFRs, details of how they are calculated, and options on how overnight RFRs can be used in cash products. In doing so the FSB aims to encourage adoption of these rates where they are appropriate.

Interbank offered rates (IBORs), a type of interest rate benchmark, play a key role in global financial markets. The FSB started its work on reforms to IBORs in response both to cases of attempted manipulation and to the decline in liquidity in key interbank unsecured funding markets. In 2014, the FSB set out recommendations to reform major interest rate benchmarks, such as key IBORs, and has been monitoring progress on implementation since then.

As part of this work, the FSB published in July 2018 a statement on reforms to IBORs and the development of RFRs and term rates. That statement noted that, to ensure financial stability, benchmarks which are used extensively must be especially robust. Overnight RFRs have been identified in a number of currency areas because these rates are robust and are anchored in active, liquid underlying markets. This contrasts with the scarcity of underlying transactions in the term interbank and wholesale unsecured funding markets from which some IBORs are constructed, a characteristic which could make them susceptible to manipulation. The FSB continues to encourage the development and adoption of such overnight RFRs where appropriate, for example in business where term properties are not needed, or where exposure to bank credit risk is not necessary or desirable. This will enhance financial stability.

Notes to editors

In April 2019 the FSB Chair Randal K. Quarles hosted a meeting with industry participants on progress on the transition to RFRs.

In November 2018, the FSB published its most recent progress report on implementation of its recommendations to reform major interest rate benchmarks. The report sets out the progress made on the development of RFRs, and markets based on these rates, and on further reforms to IBORs.

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 Randal K. Quarles, Vice Chairman for Supervision, US Federal Reserve; its Vice Chair is Klaas Knot, President, De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

Further information on reform of financial benchmarks is available on the FSB website.