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 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 October 2019 its fifth 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.

Implementation of the FSB policy framework for the oversight and regulation of NBFI continues to progress.

  • In 2018, 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 NBFI. The exercise benefited from improvements in data consistency and comprehensiveness, and will continue 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.

  • To strengthen the monitoring of NBFI, the FSB is assessing data availability and making improvements to its annual monitoring exercise. The FSB will also launch a thematic peer review in 2020 to assess progress in implementing its 2013 policy framework.

The implementation of policies to reduce the run risk of MMFs continues (Graph 4).

  • Implementation of the International Organization of Securities Commissions (IOSCO) recommendations for MMFs is most advanced in 14 FSB jurisdictions (two more since 2018), including the two largest markets (China and the US).

  • Twenty-one FSB jurisdictions have implemented the fair value approach for the valuation of MMF. Thirteen jurisdictions permit MMFs that offer a stable NAV (in specific circumstances and with safeguards). Eleven out of the 13 jurisdictions have final implementation measures in force.

  • Progress in liquidity management is less advanced and less even, with nine jurisdictions yet to have published draft regulation in this area.

Implementation progress is most advanced in the largest MMF markets

Implementation of incentive alignment approaches for securitisation is ongoing (Graph 5).

  • The IOSCO recommendations have been implemented by 15 FSB jurisdictions (five more since 2018).

  • 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 reforms in other policy areas for NBFI is at an earlier stage.

  • To mitigate spillovers of risks to the banking system, the BCBS published a framework for the identification and management of step-in risk.1 Ten jurisdictions have adopted risk-based capital requirements for banks’ investments in the equity of funds (one more since 2018), which took effect in 2017. Nine jurisdictions have adopted the supervisory framework for measuring and controlling banks’ large exposures (see section 1.1).

  • IOSCO issued final recommendations to improve liquidity risk management practices in investment funds,2 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. IOSCO also issued a consultation paper on a proposed framework to assess leverage used by investment funds.3 Once implementation of the FSB recommendations is progressed, IOSCO and the FSB will assess if these recommendations have been implemented effectively, and the FSB will report back to the G20.

  • Implementation of the FSB policy recommendations for securities financing transactions (SFTs) has seen significant delays in some jurisdictions. These delays stem mainly from the new date for implementing the minimum haircut standards on bank-to-non-bank SFTs into banking regulation as part of Basel III, which is now January 2022. The FSB has therefore decided to adjust the implementation timelines for its recommendations related to minimum haircuts standards for non-centrally cleared SFTs.4 Meanwhile, efforts continue 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 October 2019)


1 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).

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

3 See the IOSCO Report: Leverage (November 2018).

4 See FSB adjusts implementation timelines for its policy recommendations to address financial stability risks in securities financing transactions (July 2019).