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The recommendations respond to calls for regulatory adjustments to manage liquidity strains in the non-bank financial intermediation sector arising from spikes in margin and collateral calls during market stress. They build on and complement existing rules and regulations for liquidity risk management and governance across various sectors and jurisdictions.
The FSB’s eight policy recommendations focus on liquidity risk management and governance, stress testing and scenario design, and collateral management practices of non-bank market participants. They address liquidity risks from spikes in margin and collateral calls during times of market-wide stress and apply to both centrally and non-centrally cleared derivatives and securities markets. These recommendations apply to a broad range of non-bank market participants, including insurance companies, pension funds, hedge funds, other investment funds, and family offices. While non-financial entities such as commodity traders are not directly within the scope of the recommendations, they and their counterparties could benefit from adopting these recommendations as sound practices for liquidity risk management.