These principles involve: defining and updating the regulatory perimeter; collecting information and assessing shadow banking risks (i.e. maturity/liquidity transformation, imperfect credit risk transfer and/or leverage); enhancing public disclosure to help market participants understand these risks; adopting appropriate policy tools to mitigate identified risks; and participating in an information-sharing exercise within the FSB on assessments and tools.
The peer review describes the steps undertaken by the FSB in 2015 to enhance its assessment of non-bank financial entities and activities that may give rise to financial stability risks. For the first time, all FSB jurisdictions participated in an information-sharing exercise as part of their implementation of the Policy Framework. The exercise resulted in a more focused analysis of shadow banking risks, as shown in the FSB’s Global Shadow Banking Monitoring Report 2015.
The peer review concludes that, notwithstanding the progress made, implementation of the Policy Framework remains at a relatively early stage. More work is needed to ensure that jurisdictions can comprehensively assess and respond to potential shadow banking risks posed by non-bank financial entities, and support FSB risk assessments and policy discussion.
The main findings of the review are as follows:
Most non-bank financial entities fall within the regulatory perimeter, and there is a broad range of institutional arrangements for their regulation and supervision. Investment funds represent the majority of the assets of entities covered by the information-sharing exercise, and have experienced the fastest growth in recent years. This underscores the growing importance that securities regulators play in promoting financial stability.
Most jurisdictions classified non-bank financial entities into the five economic functions broadly in line with the Policy Framework, but there are some differences and inconsistencies in the classification and assessment of risks based on those functions.
Reviews of the regulatory perimeter in most jurisdictions appear to be ad hoc and undertaken in response to concerns arising about a particular activity or entity type.
Data from existing reporting and disclosure arrangements for non-bank financial entities were not usually designed for collecting shadow banking-specific information, so they may not be adequate or sufficiently granular to assess related risks.
It is unclear whether disclosure requirements for non-bank financial entities and reports published by authorities (e.g. financial stability reviews) enable market participants to adequately assess shadow banking risks posed by these entities. Few jurisdictions report planning reviews that could enhance those disclosures.
Jurisdictions report a range of policy tools to address shadow banking risks posed by non-bank financial entities. Some of these tools, especially for investment funds, are discretionary in nature. Most jurisdictions report no initiatives to change their toolkit.