Policy Proposals to Enhance Money Market Fund Fesilience: Final report

11 October 2021 | PDF full text (1 MB)

Summary of document history

Summary of document history

The March 2020 market turmoil exposed vulnerabilities in MMFs that need to be addressed.

This report sets out policy proposals to enhance money market fund (MMF) resilience, including with respect to the appropriate structure of the sector and of underlying short-term funding markets. It reflects public feedback received on a consultative version of the report, which the FSB published in June 2021. The policy proposals form part of the FSB’s work programme on non-bank financial intermediation and are intended to inform jurisdiction-specific reforms and any necessary adjustments to the policy recommendations for MMFs issued by IOSCO. Enhancing MMF resilience will help address systemic risks and minimise the need for future extraordinary central bank interventions to support the sector.

MMFs are subject to two broad types of vulnerabilities that can be mutually reinforcing: they are susceptible to sudden and disruptive redemptions, and they may face challenges in selling assets, particularly under stressed conditions. The prevalence of these vulnerabilities in individual jurisdictions may depend on market structures, use and characteristics of MMFs.

The report considers the likely effects of a broad range of policy options to address these vulnerabilities, by examining how these options would affect the behaviour of MMF investors, fund managers and sponsors, as well as the options’ broader effects on short-term funding markets, including through impacts on the use of potential substitutes for MMFs. Policy options are grouped according to the main – though not necessarily the only – mechanism through which they aim to enhance MMF resilience.

The policy toolkit includes mechanisms to: impose on redeeming fund investors the cost of their redemptions; absorb credit losses; address regulatory thresholds that may give rise to cliff effects; and reduce liquidity transformation.

The report also includes considerations on how to prioritise options in the context of identified vulnerabilities; and how authorities can combine options to address all MMF vulnerabilities prevalent in their jurisdiction.

FSB members are assessing, or will assess, MMF vulnerabilities in their jurisdiction and will address them using the framework and policy toolkit in this report, in line with their domestic legal frameworks. The FSB recognises that individual jurisdictions need flexibility to tailor measures to their specific circumstances. At the same time, as shown by the experience of March 2020, there are important cross-border considerations to be kept in mind. International coordination and cooperation on implementing policy reforms is critical to mitigate spillovers and avoid regulatory arbitrage.

In addition, the FSB will, working with IOSCO, review progress made by member jurisdictions in adopting reforms to enhance MMF resilience. The review process involves a stocktake to be completed by the end of 2023 of the measures adopted by FSB member jurisdictions, including their evidence-based explanation of relevant MMF vulnerabilities and policy choices made. This stocktake will be followed up with an assessment of the effectiveness of these measures in addressing risks to financial stability by 2026.

IOSCO plans to revisit its 2012 Policy Recommendations for Money Market Funds in light of the framework and policy toolkit in this report.

Finally, in response to the feedback from the public consultation, the FSB and IOSCO intend to carry out follow-up work, complementing MMF policy reforms, to enhance the functioning and resilience of short-term funding markets.

FSB publishes final report with policy proposals to enhance money market fund resilience

Press enquiries:
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[email protected]
Ref: 24/2021

The Financial Stability Board (FSB) today published its final report with policy proposals to enhance money market fund (MMF) resilience. The report, which was delivered to the G20, is a key deliverable for 2021 of the FSB’s work programme on non-bank financial intermediation. The policy proposals in the report aim to address systemic risks and minimise the need for future extraordinary central bank interventions to support the sector.

MMFs are subject to two broad types of vulnerabilities that can be mutually reinforcing: they are susceptible to sudden and disruptive redemptions, and they may face challenges in selling assets, particularly under stressed conditions. The prevalence of these vulnerabilities in individual jurisdictions may depend on market structures, use and characteristics of MMFs.

The report considers the likely effects of a broad range of policy options to address these vulnerabilities. Policy options are grouped according to the main mechanism through which they aim to enhance MMF resilience. The policy toolkit includes mechanisms to: impose on redeeming fund investors the cost of their redemptions; absorb credit losses; address regulatory thresholds that may give rise to cliff effects; and reduce liquidity transformation. The report includes considerations on how authorities can prioritise and combine these options.

In terms of next steps, FSB members are assessing, or will assess, MMF vulnerabilities in their jurisdiction and will address them using the framework and policy toolkit in this report, in line with their domestic legal frameworks. The FSB recognises that individual jurisdictions need flexibility to tailor measures to their specific circumstances. At the same time, as shown by the experience of March 2020, there are important cross-border considerations to be kept in mind. International coordination and cooperation on implementing policy reforms is critical to mitigate spillovers and avoid regulatory arbitrage.

The FSB will, working with the International Organization of Securities Commissions (IOSCO), review progress made by member jurisdictions in adopting reforms to enhance MMF resilience. The review process involves a stocktake by the end of 2023 of the measures adopted by FSB member jurisdictions, followed up with an assessment by 2026 of the effectiveness of these measures in addressing risks to financial stability.

IOSCO plans to revisit its Policy Recommendations for Money Market Funds in light of the framework and policy toolkit in this report. Moreover, in response to the feedback from the public consultation, the FSB and IOSCO intend to carry out follow-up work, complementing MMF policy reforms, to enhance the functioning and resilience of short-term funding markets.

Notes to editors

The FSB published in November 2020 a Holistic Review of the March Market Turmoil, which lays out a comprehensive and ambitious work programme for strengthening the resilience of the NBFI sector while preserving its benefits.

The final report with policy proposals to enhance MMF resilience reflects public feedback received on a consultative version of the report, which the FSB published in June 2021. The FSB also published today an overview of the responses to its public consultation.

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

Policy proposals to enhance money market fund resilience

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Money market funds (MMFs) are subject to two broad types of vulnerabilities that can be mutually reinforcing: they are susceptible to sudden and disruptive redemptions, and they may face challenges in selling assets, particularly under stressed conditions.

The report considers the likely effects of a broad range of policy options to address these vulnerabilities. Policy options are grouped according to the main mechanism through which they aim to enhance MMF resilience. The policy toolkit includes mechanisms to: impose on redeeming fund investors the cost of their redemptions; absorb credit losses; address regulatory thresholds that may give rise to cliff effects; and reduce liquidity transformation. The report includes considerations on how authorities can prioritise and combine these options.

Policy proposals to enhance money market fund resilience: Overview of the responses to the consultation

8 October 2021 | PDF full text (136 KB)

Summary of document history

Summary of document history

The consultation report with policy proposals to enhance MMF resilience was published on 30 June 2021 and the comment period closed on 16 August. The FSB received responses from various stakeholders, the large majority of which came from fund managers and their trade associations (mainly in the US and Europe). The remaining responses came from banks or banking associations, and from other trade associations and think tanks. All non-confidential responses have been published on the FSB’s website.

In addition, the FSB organised a virtual public workshop on 12 July to gather further feedback on the consultation report. Over 250 people attended the workshop, and a recording of the event is available on the FSB website.

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.

FSB and IMF publish the 2021 Progress Report on the G20 Data Gaps Initiative

Ref no: 22/2021

The Financial Stability Board (FSB) and International Monetary Fund (IMF) today published the Sixth Progress Report – Countdown to December 2021 on the implementation of the Second Phase of the G20 Data Gaps Initiative (DGI-2).

2021 marks the final year of the second phase of the Data Gaps Initiative (DGI-2), and the twelfth year since the G20 Finance Ministers and Central Bank Governors endorsed the twenty recommendations made by IMF staff and the FSB Secretariat to address the data gaps identified during the Global Financial Crisis of 2007-08.

The report highlights that:

  • Significant progress has been achieved in closing identified policy-relevant data gaps during phases 1 and 2 of the Data Gaps Initiative.

  • The initiative has proved its value during the crisis triggered by the COVID-19 pandemic, helping policymakers to access key information in order to assess developments and risks in the financial and nonfinancial sectors, as well as to analyse interconnectedness and cross-border spillovers.

  • The pandemic continues to affect the DGI-2 work program. Given the limited time available, it is very likely that some recommendations will not be fully completed by the end of 2021. In particular, challenges are observed in: securities financing transaction data; institutional sectoral accounts; household distributional information; data on general government debt and operations; and commercial property price indices.

  • Nevertheless, participating economies continue to take forward the agreed DGI-2 recommendations, building on the collaboration and peer pressure mechanism. Participating economies and international organisations also recognise the need for a new international cooperation initiative on data gaps after the conclusion of the DGI at the end of 2021.

  • Building on the DGI process, the new initiative will focus on priorities of policy makers and avoid duplication with other existing initiatives. Four main statistical and data priorities to be covered by a possible new DGI have been identified: (i) climate change; (ii) household distributional information; (iii) fintech and financial inclusion data; and (iv) access to private sources of data and administrative data, and data sharing. A detailed workplan for the new initiative will be developed.

Notes to editors

In October 2009, the FSB and IMF published The Financial Crisis and Information Gaps, a report which responded to a request from the G20 Ministers and Governors to explore information gaps and provide appropriate proposals for strengthening data collection. The report, which set out a series of recommendations to address identified data gaps, was endorsed by G20 Ministers and Governors and led to the first phase of work (DGI-1). In September 2015, it was agreed that the DGI work should continue into a second phase (DGI-2).

The main objective of DGI-2 is to implement the regular collection and dissemination of reliable and timely statistics for policy use. DGI-2 also includes new recommendations to reflect evolving policymaker needs. Its twenty recommendations are clustered under three main headings: (i) monitoring risk in the financial sector; (ii) vulnerabilities, interconnections and spillovers; and (iii) data sharing and communication of official statistics. DGI-2 maintains continuity with the DGI-1 recommendations while setting more specific objectives for G20 economies to compile and disseminate minimum common datasets for these recommendations.

The member agencies of the Inter-Agency Group on Economic and Financial Statistics (IAG) are the Bank for International Settlements, European Central Bank, Eurostat, IMF (Chair), Organisation for Economic Co-operation and Development, United Nations and the World Bank. The FSB participates in the IAG meetings.

Press enquiries:
FSB: +41 61 280 8477, [email protected]
IMF: +1 202 623 4277, [email protected]

G20 Data Gaps Initiative (DGI-2): The Sixth Progress Report—Countdown to December 2021

| PDF full text (500 KB)

Accurate and timely data enhance the ability of policymakers and market participants to understand the economic and financial stability risks and develop effective responses.

2021 marks the final year of the second phase of the Data Gaps Initiative (DGI-2), and the twelfth year since the G20 Finance Ministers and Central Bank Governors endorsed the twenty recommendations made by IMF staff and the FSB Secretariat to address the data gaps identified during the Global Financial Crisis of 2007-08.

The DGI-2 Progress Report highlights that:

  • Significant progress has been achieved in closing identified policy-relevant data gaps during the two phases of the Data Gaps Initiative.
  • The initiative has proved its value during the crisis triggered by the COVID-19 pandemic, helping policymakers to access key information in order to assess developments and risks in the financial and nonfinancial sectors, as well as to analyse interconnectedness and cross-border spillovers.
  • Although the pandemic continues to affect the DGI-2 work programme, participating economies continue to take forward the agreed DGI-2 recommendations. However, given the limited time that remains available, it is very likely that some recommendations will not be fully completed by the end of 2021. In particular, challenges are seen in: securities financing transaction data; institutional sectoral accounts; household distributional information; data on general government debt and operations; and commercial property price indices.
  • Participating economies and international organisations also recognise the need for a new international cooperation initiative on data gaps after the conclusion of the DGI at the end of 2021.
  • Building on the DGI process, the new initiative will focus on priorities of policymakers and avoid duplication with other initiatives. Four main statistical and data priorities to be covered by a possible new DGI have been identified: (i) climate change; (ii) household distributional information; (iii) fintech and financial inclusion data; and (iv) access to private sources of data and administrative data, and data sharing. A detailed workplan for the new initiative will be developed.

Regulation, Supervision and Oversight of “Global Stablecoin” Arrangements: Progress Report on the implementation of the FSB High-Level Recommendations

7 October 2021 | PDF full text (558 KB)

Fostering the soundness of “global stablecoins” is Building Block 18 of the FSB roadmap to enhance cross-border payments.

This report:

  • discusses key market and regulatory developments since the publication of the FSB high-level recommendations in October 2020;
  • takes stock of the implementation of the FSB high-level recommendations across jurisdictions;
  • describes the status of the review of the existing standard-setting body (SSB) frameworks, standards, guidelines and principles in light of the FSB high-level recommendations; and
  • identifies areas for consideration for potential further international work.

The report notes that, overall, the implementation of the FSB high-level recommendations across jurisdictions is still at an early stage. Jurisdictions have taken, or are considering, different approaches towards implementing the high-level recommendations, which could give rise to the risk of regulatory arbitrage and harmful market fragmentation.

The report also notes that standard-setting bodies, including BCBS, CPMI, and IOSCO are assessing whether and how existing international standards and principles may apply to stablecoin arrangements and, where appropriate, adjusting them in light of the FSB high-level recommendations. The report stresses that a number of issues may not be fully covered by existing standards and principles and that gaps should be addressed in a holistic manner that is coordinated across sectors..

Authorities have identified several issues relating to the implementation of the recommendations that may warrant further consideration and where further work at international level could be useful. These include: conditions for qualifying a stablecoin as a “global stablecoin”; prudential, investor protection, and other requirements for issuers, custodians, and providers of other global stablecoin functions (e.g. wallet providers); redemption rights; cross-border and cross-sectoral cooperation and coordination; and mutual recognition and deference.

The FSB will continue to support the effective implementation of the FSB high-level recommendations and facilitate coordination among SSBs. The FSB will undertake a review of its recommendations in consultation with other relevant SSBs and international organisations. The review, which will be completed in July 2023, will identify how any gaps could be addressed by existing frameworks and will lead to the update of the FSB’s recommendations if needed.

FSB publishes progress report on the regulation, supervision and oversight of “global stablecoin” arrangements

Press enquiries:
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[email protected]
Ref: 21/2021

The FSB today published a report on the progress made on the implementation of its high-level recommendations for Regulation, Supervision and Oversight of “Global Stablecoin” Arrangements.

The report incorporates the results of a comprehensive stocktake of the implementation of the FSB’s high-level recommendations in 48 jurisdictions in the FSB and its Regional Consultative Groups, covering 21 advanced economies and 27 emerging market and developing economies.

The report notes that the market capitalisation of existing so-called “stablecoins” has continued to grow over the course of 2020/21. Overall, however, the implementation of the FSB high-level recommendations across jurisdictions is still at an early stage. Jurisdictions have taken, or are considering, different approaches towards implementing the recommendations. To address the risk of regulatory arbitrage and harmful market fragmentation and the greater financial stability risks that could arise were stablecoins to enter the mainstream of the financial system, effective international regulatory cooperation and coordination are critical.

The report also notes that standard-setting bodies (SSBs), including BCBS, CPMI and IOSCO, are assessing whether and how existing international standards and principles may apply to stablecoin arrangements and, where appropriate, adjusting them in light of the FSB high-level recommendations. The report stresses that a number of issues may not be fully covered by ongoing work and that any gaps in existing standards and principles should be addressed in a holistic manner that is coordinated across sectors.

Authorities have identified several issues relating to the implementation of the recommendations that may warrant further consideration and where further work at international level could be useful. These include: conditions for qualifying a stablecoin as a “global stablecoin” (GSC); prudential, investor protection and other requirements for issuers, custodians and providers of other GSC functions (e.g. wallet providers); redemption rights; cross-border and cross-sectoral cooperation and coordination; and mutual recognition and deference.

The work on fostering the soundness of GSCs is an important part of the FSB’s Roadmap for enhancing cross-border payments endorsed by the G20 in October 2020. The FSB will undertake a review of its recommendations, in consultation with other relevant SSBs and international organisations. The review, which will be completed in July 2023, will identify how any gaps could be addressed by existing frameworks and will lead to the update of the FSB’s recommendations if needed.

The FSB is continuing to monitor closely FinTech developments and potential financial stability risks, including risks arising from the growth of crypto-assets and stablecoins in particular.

Notes to editors

The establishment of effective regulatory, supervisory and oversight approaches for GSC arrangements is a key building block (building block 18) of the FSB’s roadmap to enhance cross-border payments.

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

Principles on Outsourcing

1 October 2021

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Principle 1: A regulated entity should conduct suitable due diligence processes in selecting an appropriate service provider and in monitoring its ongoing performance.

Principle 2: A regulated entity should enter into a legally binding written contract with each service provider, the nature and detail of which should be appropriate to the materiality or criticality of the outsourced task to the business of the regulated entity.

Principle 3: A regulated entity should take appropriate steps to ensure both the regulated entity and any service provider establish procedures and controls to protect the regulated entity’s proprietary and client-related information and software and to ensure a continuity of service to the regulated entity, including a plan for disaster recovery with periodic testing of backup facilities.

Principle 4: A regulated entity should take appropriate steps to ensure that service providers protect confidential information and data related to the regulated entity and its clients, from intentional or inadvertent unauthorised disclosure to third parties.

Principle 5: A regulated entity should be aware of the risks posed, and should manage them effectively, where it is dependent on a single service provider for material or critical outsourced tasks or where it is aware that one service provider provides material or critical outsourcing services to multiple regulated entities including itself.

Principle 6: A regulated entity should take appropriate steps to ensure that its regulator, its auditors, and itself are able to obtain promptly, upon request, information concerning outsourced tasks that is relevant to contractual compliance and/or regulatory oversight including, as necessary, access to the data, IT systems, premises and personnel of service providers relating to the outsourced tasks.

Principle 7: A regulated entity should include written provisions relating to the termination of outsourced tasks in its contract with service providers and ensure that it maintains appropriate exit strategies.

FSB launches new financial stability surveillance framework

30 September 2021

Press enquiries:
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Ref: 20/2021

The FSB today published its new Financial Stability Surveillance Framework. The framework supports the comprehensive, methodical and disciplined review of vulnerabilities by the FSB, and thereby helps to identify and address new and emerging risks to financial stability.

The framework embodies four key principles:

  • focus on vulnerabilities that may have implications for global financial stability;

  • scan vulnerabilities systematically and with a forward-looking perspective, while preserving flexibility;

  • recognise differences among countries; and

  • leverage the comparative advantages of the FSB while avoiding duplication of work.

The framework places particular emphasis on incorporating multiple perspectives in the assessment of both current and emerging vulnerabilities. It includes a common terminology and taxonomy – which defines key concepts such as vulnerabilities, shocks and resilience – that will aid shared understanding and consensus building amongst FSB members. It also distinguishes between global vulnerabilities that are currently material, those that may become material in the next 2 to 3 years, and those that may become material over a longer horizon.

Once identified, material global vulnerabilities will be subject to more intensive monitoring and analysis, and, as appropriate, policy dialogue among FSB committees. In addition, the FSB will communicate its view on vulnerabilities through its Annual Reports and other formats.

John C. Williams, President and Chief Executive Officer of the US Federal Reserve Bank of New York, who chaired the group that developed the framework, said “The new surveillance framework provides a global, cross-border and cross-sectoral perspective on current and potential emerging vulnerabilities that draws on the collective views of the FSB’s broad membership, as well as analysis by the FSB and outreach to private sector experts”.

Klaas Knot, President of De Nederlandsche Bank, Vice-Chair of the FSB and Chair of its Standing Committee on the Assessment of Vulnerabilities (SCAV) that oversaw the preparation of the report, said “The assessment of vulnerabilities in a rapidly evolving environment is a primary mission of the FSB and a cornerstone in maintaining financial stability. The new framework will further enhance the FSB’s ability to identify and address such vulnerabilities in a proactive manner”.

Notes to editors

The assessment of vulnerabilities affecting the global financial system is a core mandate of the FSB, as defined in the FSB Charter. Identifying material vulnerabilities facilitates monitoring by relevant public authorities and the preparation of policy actions to mitigate the financial stability risks posed by the vulnerabilities.

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