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04 March 2015

FSB and IOSCO propose Assessment Methodologies for Identifying Non-Bank Non-Insurer Global Systemically Important Financial Institutions

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This document extends the SIFI framework that currently covers banks and insurers to other financial institutions. It includes a high-level framework for identifying G-SIFIs that would apply across NBNI financial entities, as well as detailed sector-specific methodologies.

The proposed methodologies aim to identify NBNI financial entities whose distress or disorderly failure, because of their size, complexity and systemic interconnectedness, would cause significant disruption to the wider financial system and economic activity at the global level or NBNI G-SIFIs in short. These methodologies comprise a high-level framework and an operational framework for identifying G-SIFIs that would apply across NBNI financial entities, as well as detailed NBNI sector-specific methodologies. Detailed sector-specific methodologies include: (a) near-final methodologies for finance companies and market intermediaries; and (b) a revised proposal on sector-specific methodologies for asset management entities. The latter comprises a revised methodology for investment funds (including hedge funds) and a new proposed methodology for asset managers.

In revising the proposed methodologies, the FSB and IOSCO intend to capture different types of systemic impact posed by a wide range of business models and risk profiles, while also maintaining broad consistency with the existing assessment methodologies for global systemically important banks (G-SIBs) and insurers (G-SIIs). At the same time, they have also tried to overcome limitations in data availability and the wide variety of business models in the NBNI space, by allowing a greater role for supervisory judgment in the assessment compared to the G-SIB and G-SII methodologies. The NBNI G-SIFI methodologies will thus rely on detailed analysis conducted primarily by national authorities, which is supplemented by supervisory information-sharing and international coordination through the FSB process.

Mark Carney, Chairman of the FSB, stated that “The revised proposal marks an important step towards addressing any too big to fail problems amongst entities that are neither banks nor insurers. These include finance companies, market intermediaries, investment funds and asset managers. It will also enhance authorities’ understanding of the risks to global financial stability posed by the activities of entities in financial markets, including the distress or disorderly failure of non-banks and non-insurers”. Greg Medcraft, Chairman of the IOSCO Board and a member of the FSB Plenary, stated that “The non-bank non-insurer financial space covers a wide range of business models and risk profiles. The second consultation will allow authorities to better understand systemic risks posed by the asset management sector in particular. We look forward to hearing industry's views on the important issues the consultation paper raises”.

Comments on this document should be submitted by 29 May 2015.

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