The FSB has designated reforms to non-bank financial intermediation (formerly referred to as “shadow banking”) as one of the priority areas for implementation monitoring. The reforms focus on five areas where the FSB has been coordinating and contributing to the development of policies:

  1. mitigating spill-over risks between the banking system and the system of non-bank financial intermediation;

  2. reducing the susceptibility of money market funds (MMFs) to “runs”;

  3. improving transparency and aligning incentives associated with securitisation;

  4. dampening procyclicality and other financial stability risks associated with securities financing transactions such as repos and securities lending; and

  5. assessing and mitigating systemic risks posed by other market-based entities and activities.

The task of regular monitoring and reporting in this area is carried out by the FSB in collaboration with standard-setting bodies as follows:

  • FSB workstreams on policy measures to dampen procyclicality and other financial stability risks in securities financing transactions (iv above), and on assessing and mitigating systemic risks posed by other non-bank financial intermediation entities and activities (v);

  • Basel Committee on Banking Supervision (BCBS) on policy measures to mitigate risks in banks’ interactions with non-bank financial entities (i); and

  • International Organization of Securities Commissions (IOSCO) on policy measures to reduce the susceptibility of money market funds (MMFs) to “runs” (ii), and to improve transparency and align incentives in securitisation (iii).

The FSB has also 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.

The FSB had initially used the term “shadow banking” for its work to enhance resilience of non-bank financial intermediation, as it was the term most commonly employed and, in particular, had been used in previous G20 communications. In October 2018, the FSB announced that it decided to replace the term “shadow banking” with the term “non-bank financial intermediation” in future communications. The new terminology emphasises the forward-looking aspects of the FSB’s work to enhance the resilience of non-bank financial intermediation, and does not affect the substance of the agreed monitoring framework and policy recommendations.

The FSB has also created a system-wide monitoring framework to track developments in global non-bank financial intermediation with a view to identifying the build-up of systemic risks and initiating corrective actions where necessary. The main findings are presented in the annual monitoring report.

The FSB published in November 2018 its fourth annual report on the implementation and effects of the G20 financial regulatory reforms. Below is an extract from this report on the status of implementation of non-bank financial intermediation-related reforms.

Progress has been made in implementing policies to reduce the run risk of MMFs (Graph 6).

  • Implementation of IOSCO recommendations for MMFs is most advanced in 12 FSB jurisdictions, including the two largest markets (US and China). Eight jurisdictions made progress in this area since last year.

  • Twenty-one FSB jurisdictions have implemented the fair value approach for the valuation of MMF portfolios, but progress in liquidity management is less advanced and less even, with nine jurisdictions yet to have published draft regulation in this area.

The number of FSB jurisdictions permitting MMFs that offer a stable net asset value (NAV) (in limited circumstances and regulated with adequate safeguards) has increased from 9 to 13 in 2018. Ten out of the 13 jurisdictions have final implementation measures in force.

Implementation progress is most advanced in the largest MMF markets

Implementation of incentive alignment approaches for securitisation is ongoing (Graph 7).

  • Implementation progress remains mixed across FSB jurisdictions in this area.

  • In the EU, the Securitisation Regulation and related Capital Requirements Regulation Amendments will contribute towards more complete implementation of IOSCO’s recommendations once they enter into application in 2019.

  • Most jurisdictions that have implemented incentive alignment requirements (partially or fully) oblige issuers to (directly or indirectly) retain typically 5% of the credit risk of the securitisation. However, there are exemptions to these requirements in some jurisdictions.

Implementation of incentive alignment reforms for securitisation is uneven

Implementation of the FSB policy framework for the oversight and regulation of non-bank financial intermediation continues to progress.

  • In 2017, all FSB jurisdictions (as well as Belgium, Cayman Islands, Chile, Ireland and Luxemburg) participated in the annual monitoring exercise to track global trends and risks (e.g. maturity/liquidity transformation and leverage) in non-bank financial intermediation. The exercise continues to be refined over time to provide more accurate measures of the degree to which such intermediation gives rise to bank-like financial stability risks.

  • Although progress is being made, more work is needed to monitor and respond to risks in this area.1 To strengthen the monitoring of non-bank financial intermediation, the FSB is assessing data availability and making improvements to its annual monitoring exercise.

Implementation of reforms in other policy areas for non-bank financial intermediation is also at an early stage.

  • In order to mitigate spillovers of risks to the banking system, the BCBS published a framework for the identification and management of step-in risk.2 Nine jurisdictions have adopted risk-based capital requirements for banks’ investments in the equity of funds, which came into force in 2017. Two jurisdictions have adopted the supervisory framework for measuring and controlling banks’ large exposures (see section 2.1).

  • IOSCO issued in February 2018 final recommendations to improve liquidity risk management practices in investment funds,3 so as to address liquidity mismatch in open-ended funds as part of its operationalisation of FSB policy recommendations to address structural vulnerabilities from asset management activities.

Implementation of the FSB policy recommendations for securities financing transactions (SFTs), including haircuts on non-centrally cleared SFTs, remains at an early stage. Work is underway to adopt standards and processes on global securities financing data collection and aggregation that are relevant for financial stability monitoring and policy responses.

Status of implementation

View status of implementation of reforms in priority areas by FSB jurisdictions as reported in the latest FSB annual report to G20 (as of November 2018)


1 See the Thematic Review on the Implementation of the FSB Policy Framework for Shadow Banking Entities (May 2016).

2 Step-in risk refers to the risk that a bank will provide financial support to a non-bank financial entity beyond, or in the absence of, its contractual obligations should the entity experience financial stress. See the BCBS Guidelines on Identification and management of step-in risk (October 2017).

3 See the IOSCO Recommendations for Liquidity Risk Management for Collective Investment Schemes (February 2018).