FSB report assesses FinTech developments and potential financial stability implications

14 February 2019

Press enquiries:
+41 61 280 8138
[email protected]
Ref no: 3/2019

The Financial Stability Board (FSB) published a report today on FinTech and market structure in financial services. The publication is part of the FSB’s ongoing work to monitor FinTech market developments and their potential implications for financial stability. The FSB defines FinTech as technology-enabled innovation in financial services that could result in new business models, applications, processes or products with an associated material effect on the provision of financial services.

Technological innovation holds great promise for the provision of financial services, with the potential to increase market access, the range of product offerings, and convenience while also lowering costs to clients. At the same time, new entrants into the financial services space, including FinTech firms and large, established technology companies (‘BigTech’), could materially alter the universe of financial services providers. Greater competition and diversity in lending, payments, insurance, trading, and other areas of financial services can create a more efficient and resilient financial system. However, heightened competition could also put pressure on financial institutions’ profitability and this could lead to additional risk taking among incumbents in order to maintain margins. Moreover, there could be new implications for financial stability from BigTech in finance and greater third-party dependencies, e.g. in cloud computing services.

Some key considerations from the FSB’s analysis of the link between technological innovation and market structure are the following:

  • To date, the relationship between incumbent financial institutions and FinTech firms appears to be largely complementary and cooperative in nature.

  • The competitive impact of BigTech may be greater than that of FinTech firms. BigTech firms typically have large, established customer networks and enjoy name recognition and trust.

  • Reliance by financial institutions on third-party data service providers (e.g. data provision, cloud storage and analytics, and physical connectivity) for core operations is estimated to be low at present. However, this warrants ongoing attention from authorities.

Notes to editors

The digitalisation of finance has the potential to significantly change the current functioning of the global financial system, which raises a number of possible benefits and risks. The FSB is monitoring digitalisation trends, to assist in harnessing the benefits while mitigating risks. This includes analysis of the financial stability implications of technological innovation.

In this context, the FSB published in June 2017 a report on the Financial Stability Implications from FinTech. The report identified 10 areas that merited authorities’ attention, of which three were seen as priorities for international collaboration:

  • managing operational risk from third-party service providers;

  • mitigating cyber risks; and

  • monitoring macrofinancial risks that could emerge as FinTech activities increase.

This report follows up on these issues, providing further evidence on FinTech and resulting changes in market structure in the period since June 2017. As FinTech firms, BigTech firms, and the markets for third-party services continue to develop, it will be important to continue monitoring these developments and their financial stability implications. Further efforts on third-party dependencies are ongoing in the standard-setting bodies. The FSB Financial Innovation Network (FIN) is further exploring the market for third-party services for financial institutions, including how they manage lock-in risk and cross-border issues. Moreover, FIN is looking into the activities of BigTech in finance, including cross-border activities.

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 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.

FinTech and market structure in financial services: Market developments and potential financial stability implications

| PDF full text (702 KB)

This report assesses FinTech market developments in the financial system and the potential implications for financial stability. The FSB defines FinTech as technology-enabled innovation in financial services that could result in new business models, applications, processes or products with an associated material effect on the provision of financial services. 

Technological innovation holds great promise for the provision of financial services, with the potential to increase market access, the range of product offerings, and convenience while also lowering costs to clients. At the same time, new entrants into the financial services space, including FinTech firms and large, established technology companies (‘BigTech’), could materially alter the universe of financial services providers.  

Greater competition and diversity in lending, payments, insurance, trading, and other areas of financial services can create a more efficient and resilient financial system. However, heightened competition could also put pressure on financial institutions’ profitability and this could lead to additional risk taking among incumbents in order to maintain margins. Moreover, there could be new implications for financial stability from BigTech in finance and greater third-party dependencies, e.g. in cloud services.  

Some key considerations from the FSB’s analysis of the link between technological innovation and market structure are the following: 

  • To date, the relationship between incumbent financial institutions and FinTech firms appears to be largely complementary and cooperative in nature. 

  • The competitive impact of BigTech may be greater than that of FinTech firms. BigTech firms typically have large, established customer networks and enjoy name recognition and trust. 

  • Reliance by financial institutions on third-party data service providers (e.g. data provision, cloud storage and analytics, and physical connectivity) for core operations is estimated to be low at present. However, this warrants ongoing attention from authorities.

FSB work programme for 2019

12 February 2019 | PDF full text (232 KB)

This work programme details the FSB’s planned work and an indicative timetable of main publications for 2019. It reflects the FSB’s continued pivot from policy design to the implementation and evaluation of the effects of reforms and, in particular, vigilant monitoring to identify and address new and emerging risks to financial stability.

  • Addressing new and emerging vulnerabilities in the financial system – Preserving financial stability, and thereby supporting sustainable growth, requires the continued monitoring of developments in the global financial system. The FSB will continue to scan the horizon to identify and assess emerging risks through regular discussion by its members of macro-financial developments, as well as through the biannual Early Warning Exercise conducted jointly with the International Monetary Fund. The FSB will also continue to assess the impact of evolving market structures and of technological innovation on global financial stability. This includes the resilience of financial markets in stress, the implications of the growth of non-bank financial intermediation and operational issues such as cyber risks.

  • Finalising and operationalising post-crisis reforms – G20 post-crisis financial reforms have delivered a safer, simpler and fairer financial system. To reinforce this progress, the FSB is working with standard-setting bodies (SSBs) to complete work on a few final issues in the main reform areas.

  • Implementation and evaluating the effects of the reforms – Implementation of the reforms is not complete and it remains uneven. It is critical to maintain momentum and avoid complacency, in order to achieve the goal of greater resilience. The FSB, in collaboration with SSBs, will continue work on implementation monitoring through regular progress reports and peer reviews.

  • Evaluating the effects of the reforms – The FSB will also take forward its programme to evaluate the effects of post-crisis reforms. The objective is to assess whether reforms are operating as intended in an efficient manner, and to identify and deliver adjustments where appropriate, without compromising on the agreed level of resilience.

FSB publishes its 2019 work programme

Press enquiries:
+41 61 280 8138
[email protected]
Ref no: 2/2019

The Financial Stability Board (FSB) today published for the first time its annual work programme. This describes the FSB’s planned work and an indicative timetable of main publications for 2019. It reflects the FSB’s continued pivot from post-crisis policy design to the implementation and evaluation of the effects of reforms and, in particular, vigilant monitoring to identify and address new and emerging risks to financial stability. It also describes new initiatives to reinforce stakeholder outreach.

Main areas of work during the year are:

  • Addressing new and emerging vulnerabilities in the financial system – Preserving financial stability, and thereby supporting sustainable growth, requires the continued monitoring of developments in the global financial system. The FSB will continue to scan the horizon to identify and assess emerging risks through regular discussion by its members of macro-financial developments, as well as through the biannual Early Warning Exercise conducted jointly with the International Monetary Fund. The FSB will also continue to assess the impact of evolving market structures and of technological innovation on global financial stability. This includes the resilience of financial markets in stress, the implications of the growth of non-bank financial intermediation and operational issues such as cyber risks.

  • Finalising and operationalising post-crisis reforms – G20 post-crisis financial reforms have delivered a safer, simpler and fairer financial system. To reinforce this progress, the FSB is working with standard-setting bodies (SSBs) to complete work on a few final issues in the main reform areas.

  • Implementation of reforms – Implementation of the reforms is not complete and it remains uneven. It is critical to maintain momentum and avoid complacency, in order to achieve the goal of greater resilience. The FSB, in collaboration with SSBs, will continue work on implementation monitoring through regular progress reports and peer reviews.

  • Evaluating the effects of the reforms. The FSB will also take forward its programme to evaluate the effects of post-crisis reforms. The objective is to assess whether reforms are operating as intended in an efficient manner, and to identify and deliver adjustments where appropriate, without compromising on the agreed level of resilience.

Notes to editors

The FSB Chair, Randal K. Quarles, gave a speech on 10 February, “Ideas of Order: Charting a Course for the Financial Stability Board”, setting out his view of how the work of the FSB must evolve, and some key principles that should inform that work.

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 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.

Public responses to consultation on Financial resources to support CCP resolution and the treatment of CCP equity in resolution

8 February 2019

On 15 November 2018, the FSB published a consultation document on proposed Financial resources to support CCP resolution and the treatment of CCP equity in resolution. Interested parties were invited to provide written comments by 1 February 2019. The public comments received are available below.

Responses received

The FSB thanks those who have taken the time and effort to express their views. The FSB expects to publish further guidance for public consultation in 2020.

Global Monitoring Report on Non-Bank Financial Intermediation 2018

4 February 2019 | PDF full text (3 MB)

The Global Monitoring Report on Non-Bank Financial Intermediation 2018 presents the results of the FSB’s annual monitoring exercise to assess global trends and risks from non-bank financial intermediation.

The annual monitoring exercise is part of the FSB’s policy work to enhance the resilience of non-bank financial intermediation. It focuses on those parts of non-bank financial intermediation that perform economic functions which may give rise to bank-like financial stability risks (i.e. the narrow measure of non-bank financial intermediation).

Monitoring aggregates at end-2017: Narrowing down

Section 1 introduces the FSB’s monitoring approach, including its scope, data, and terminology. It also describes recent innovations in non-bank financial intermediation.

Section 2 provides an overview of the size and growth of all sectors in the financial system. Among them, “Other Financial Intermediaries” (OFIs) aggregate, which includes all financial institutions that are not central banks, banks, insurance corporations, pension funds, public financial institutions or financial auxiliaries, grew by 7.6% in 2017 OFIs’ growth exceeded that of banks, insurance corporations and pension funds. With $116.6 trillion, OFI assets represent 30.5% of total global financial assets, the largest share on record. Among the OFI sub-sectors, in 2017 structured finance vehicles grew for the first time since the 2007-09 global financial crisis.

Section 3 assesses the interconnectedness between non-bank financial entities and banks and among non-bank financial entities and cross-border linkages. In aggregate, banks and OFIs have become marginally more interconnected through credit and funding relationships in 2017, at levels similar to 2003-06. Investment funds and money market funds are the largest OFI sub-sectors that provide credit to banks.

Interconnectedness among sectors: aggregate linkages among sectors

Section 4 focuses on those parts of non-bank financial intermediation where bank-like financial stability risks may arise. The narrow measure of non-bank financial intermediation, which reflects an activity-based “economic function” assessment of risks, grew by 8.5% to $51.6 trillion in 2017, at a slightly slower pace than 2011-16. Since 2011, the Cayman Islands, China, Ireland and Luxembourg together have accounted for over two-thirds of the dollar value increase. The narrow measure represents 14% of total global financial assets. Key components include:

  • Collective investment vehicles (CIVs) with features that make them susceptible to runs continued to drive the overall growth of the narrow measure in 2017. They grew by 9.1%, a somewhat slower pace than annual growth during 2011-16 (13.2%). Together, CIV assets represent 71% of the narrow measure. The CIVs included in the narrow measure invest mostly in credit assets and are involved in liquidity transformation.

  • Non-bank financial entities engaging in loan provision that is dependent on short-term funding grew by 6% in 2017, and account for 7% of the narrow measure. This category largely consists of finance companies, which were found to employ some degree of leverage, and in some jurisdictions, a high degree of maturity transformation. Finance companies in a few jurisdictions also displayed high liquidity risk.

  • Market intermediaries that depend on short-term funding or secured funding of client assets grew by 5%, and make up 8% of the narrow measure. Broker-dealers constitute the largest entity type in this category. Reflecting their business models, broker-dealers in some jurisdictions continue to employ significant leverage, although it is considered to be lower than the level seen prior to the 2007-09 global financial crisis.

  • Securitisation-based credit intermediation increased by 9% in 2017, to account for 10% of the narrow measure, primarily driven by growth in trust company assets and securitisations.

Moving from MUNFI to the narrow measure: 29-Group at end-2017

Section 5 features case studies that discuss various aspects of non-bank financial entities and activities in greater detail, including: (i) FinTech credit; (ii) recent developments in the leveraged loan markets and the role of non-bank financial intermediaries; (iii) the non-bank credit cycle; (iv) cross-border movements of non-bank financial intermediation systems; and (v) the use of credit default swaps by non-bank financial institutions in the European Union.

Datasets from the report are publicly available for use in accordance with the FSB’s normal terms and conditions.

FSB publishes Global Monitoring Report on Non-Bank Financial Intermediation 2018

Press enquiries:
+41 61 280 8138
[email protected]
Ref no: 1/2019

The Financial Stability Board (FSB) today published the Global Monitoring Report on Non-Bank Financial Intermediation 2018. The report presents the results of the FSB’s eighth annual monitoring exercise that assesses global trends and risks from non-bank financial intermediation. It covers data up to end-2017 from 29 jurisdictions, which together represent over 80% of global GDP.

The annual monitoring exercise is part of the FSB’s strategy to enhance the resilience of non-bank financial intermediation. As in previous years, the exercise compares the size and trends of financial sectors in aggregate and across jurisdictions based primarily on sectoral balance sheet data. It focuses on those parts of non-bank financial intermediation that perform economic functions which may give rise to bank-like financial stability risks (i.e. the narrow measure of non-bank financial intermediation).

The main findings from the 2018 monitoring exercise include:

  • The narrow measure of non-bank financial intermediation grew by 8.5% to $51.6 trillion in 2017, a slightly slower pace than from 2011-16. Since 2011, the Cayman Islands, China, Ireland and Luxembourg together have accounted for over two-thirds of the dollar value increase. The narrow measure represents 14% of total global financial assets.

    • Collective investment vehicles (CIVs) with features that make them susceptible to runs continued to drive the overall growth of the narrow measure in 2017. They grew by 9.1%, a somewhat slower pace than during 2011-16. Together, CIV assets represent 71% of the narrow measure. They invest mostly in credit assets and are involved in liquidity transformation.

    • Non-bank financial entities engaging in loan provision that is dependent on short-term funding grew by 6% in 2017, to account for 7% of the narrow measure. This category largely consists of finance companies, which employ a somewhat elevated degree of leverage and, in some jurisdictions, a high degree of maturity transformation. Finance companies in a few jurisdictions also displayed high liquidity risk.

    • Market intermediaries that depend on short-term funding or secured funding of client assets grew by 5%, to make up 8% of the narrow measure. Broker-dealers constitute the largest entity type in this category. Reflecting their business models, broker-dealers in some jurisdictions continue to employ significant leverage, although it is considered to be lower than the level seen prior to the 2007-09 global financial crisis.

    • Securitisation-based credit intermediation increased by 9% in 2017, to account for 10% of the narrow measure, primarily driven by growth in trust company assets and securitisations.

  • In 2017, the wider “Other Financial Intermediaries” (OFIs) aggregate, which includes all financial institutions that are not central banks, banks, insurance corporations, pension funds, public financial institutions or financial auxiliaries, grew by 7.6% to $116.6 trillion in 21 jurisdictions and the euro area, growing faster than the assets of banks, insurance corporations and pension funds. OFI assets represent 30.5% of the total global financial assets, the largest share on record. Among the OFI sub-sectors, structured finance vehicles grew in 2017 for the first time since the financial crisis.

  • Investment funds and money market funds are the largest OFI sub-sectors that provide credit to banks. In aggregate, banks and OFIs have become marginally more interconnected through credit and funding relationships in 2017, remaining around 2003-06 levels.

Randal K. Quarles, FSB Chair, said: “Non-bank financing is a valuable alternative to bank financing for many firms and households. Of course, when it involves maturity or liquidity transformation, or leverage like banks, it may have effects on financial stability both directly and through its linkages with the banking system. The FSB’s monitoring exercise draws on the strength of the FSB’s broad-based and diverse membership to facilitate the sharing of information about these developments among authorities and helps to identify potential sources of financial stability risk. In this way, it contributes to harnessing the benefits of non-bank financing while containing associated risks.”

Klaas Knot, Chair of the FSB Standing Committee on Assessment of Vulnerabilities, said: “Non-banks play a growing role in the financial system, and their share of the financial system is the largest on record. They are becoming important players in areas where banks traditionally have played dominant roles. Authorities need to remain vigilant in addressing financial stability risks that emerge as a result of non-bank financing through enhanced data collection, improved risk analysis and implementing appropriate policy measures, including the FSB’s policy recommendations for addressing structural vulnerabilities from asset management activities.”

Notes to editors

In response to a G20 Leaders’ request at the Seoul Summit in 2010, the FSB adopted a two-pronged strategy to address the financial stability risks in non-bank financial intermediation (previously called shadow banking). First, the FSB created a system-wide monitoring framework to track developments in non-bank financial intermediation with a view to identifying the build-up of systemic risks and initiating corrective actions where necessary. Second, the FSB has been coordinating and contributing to the development of policies in five areas where oversight and regulation needed to be strengthened to mitigate the potential systemic risks associated with non-bank financial intermediation, with a focus on measures that seek:

  • to mitigate the spill-over effect between the banking system and non-bank financial intermediation;

  • to reduce the susceptibility of money market funds to “runs”;

  • to improve transparency and to align incentives associated with securitisation;

  • to dampen pro-cyclicality and other financial stability risks associated with securities financing transactions; and

  • to assess and mitigate financial stability risks posed by other non-bank financial intermediation.

In October 2018, the FSB announced its decision to replace the term “shadow banking” with the term “non-bank financial intermediation” in future communications, including this report. The change in terminology is intended to emphasise the forward-looking aspect of the FSB’s work to enhance the resilience of non-bank financial intermediation and clarify the use of the technical terms.

The change in terminology does not affect the substance or coverage of the agreed monitoring framework and policy recommendations, which aim to address bank-like financial stability risks arising from non-bank financial intermediation (i.e. maturity/liquidity transformation, leverage and/or imperfect credit risk transfer).

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.

Call for papers: 2019 Annual Meeting of the Central Bank Research Association (CEBRA)

18 January 2019

The FSB seeks academic paper submissions for a plenary session on the ‘Post-implementation Evaluations of the G20 Financial Regulatory Reforms’ at the 2019 Annual Meeting of CEBRA. The conference is co-organised by the School of International and Public Affairs at Columbia University, the Federal Reserve Bank of New York and the research centre for Sustainable Architecture for Finance in Europe (SAFE) at Goethe University and will take place at Columbia University in New York on 19-20 July 2019.

The FSB is supporting the full, timely and consistent implementation of the G20 financial regulatory reforms designed to increase the resilience of the global financial system while preserving its open an integrated structure. To this end, the FSB has developed a framework for the post-implementation evaluation of the effects of reforms. The framework aims to guide analyses of whether the G20 reforms are achieving their intended outcomes, and to help identify any material unintended consequences that may have to be addressed, without compromising on the objectives of the reforms. The plenary session will provide an opportunity to showcase examples of such evaluation studies.

Authors are invited to submit papers on the post-implementation evaluation of the G20 financial regulatory reforms. The topics of interest include the core areas of the G20 financial regulatory reform agenda:

  • making financial institutions more resilient (including Basel III);

  • ending too-big-to-fail, including resolution regimes, total loss-absorbing capacity, and global systemically important financial institutions;

  • making derivatives markets safer (including over-the-counter derivative reforms); and

  • enhancing the resilience of non-bank financial intermediation.

Other topics of interest include the effects of reforms on financial intermediation and papers on methodological approaches relevant for the evaluations and theoretical and empirical work on the social costs and benefits of financial regulatory reforms.

Papers should be submitted via the SAFE website by 2 February 2019.

Fiscal Transparency Code

1 January 2019

View the Standard

The IMF has for many years been at the forefront in promoting fiscal transparency as a critical element of effective fiscal policy making and accountability, and a key aspect of good governance. In 2014, the IMF released a revamped Fiscal Transparency Code (the Code), which is the global standard for disclosure of information about public finances, and replaced the 2007 Code and the related Fiscal Module of the Reports on the Observance of Standards and Codes (fiscal ROSC). In 2019, transparency practices in resource revenue management were finalized and added to the Code. The Code and evaluation reflect the lessons of the global financial crisis, incorporate developments in international standards, and build on feedback from stakeholder consultations.

Fiscal transparency – the comprehensiveness, clarity, reliability, timeliness, and relevance of public reporting on the past, present, and future state of public finances – is critical for effective fiscal management and accountability. Fiscal transparency allows for a better-informed debate by both policymakers and the public about the design and results of fiscal policy, and helps establish accountability for its implementation. It helps to highlight risks to the fiscal outlook, allowing an earlier and smoother fiscal policy response to changing economic conditions and thereby reducing the incidence and severity of economic crises. The degree of fiscal transparency can also help provide a sense of a country’s fiscal credibility and plays a role in how financial markets view the country’s fiscal track record. The loss of market confidence in governments with underestimated or hidden deficits in the wake of the recent financial crisis underscored the importance of fiscal transparency to global financial and economic stability.

The IMF’s Fiscal Transparency Code is the international standard for disclosure of information about public finances. The Code comprises a set of principles built around four pillars:

  • Fiscal reporting (Pillar I): Fiscal reports should provide a comprehensive, relevant, timely, and reliable overview of the government’s financial position and performance.
  • Fiscal forecasting and budgeting (Pillar II): Budgets and their underlying fiscal forecasts should provide a clear statement of the government’s budgetary objectives and policy intentions, and comprehensive, timely, and credible projections of the evolution of the public finances.
  • Fiscal risk analysis & management (Pillar III): Governments should disclose, analyze, and manage risks to the public finances and ensure effective coordination of fiscal decision-making across the public sector.
  • Resource revenue management (Pillar IV): Government revenues from natural resource exploration and extraction activity should be collected, managed, and disbursed in an open and transparent manner.

Assessment Methodology

View the Assessment Methodology

Fiscal Transparency Evaluations (FTEs) are the IMF’s fiscal transparency diagnostic. For each transparency principle, the Code differentiates between basic, good, and advanced practices to provide countries with clear milestones toward full compliance with the Code. Specifically, FTEs provide countries with:

  • a comprehensive assessment of their fiscal transparency practices against the differentiated standards set by the Code;
  • rigorous analysis of the scale and sources of fiscal vulnerability based on a set of fiscal transparency indicators;
  • a visual account of their fiscal transparency strengths and reform priorities through summary heat maps;
  • a sequenced fiscal transparency action plan to help them address those reform priorities; and
  • the option of undertaking a modular assessment focused on just one Pillar of the Code.

A Fiscal Transparency Handbook was issued in April 2018, providing more detailed guidance on implementation of the new Fiscal Transparency Code’s principles and practices, illustrated by examples from countries around the globe. The Handbook covers the Code’s first three pillars and replaces the 2007 Manual on Fiscal Transparency. A second volume covering Pillar IV will be issued at a later stage.