Among the items listed in the Financial Stability Board’s (FSB’s) 2023 program, the organization announced it is intensifying forward-looking monitoring to identify, assess and address new and emerging risks to global financial stability, which includes ongoing work to more fully integrate monitoring of vulnerabilities associated with non-bank financial intermediation (NBFI), technological innovation and climate change.
The FSB also announced it will develop and run a global bank stress test, in cooperation with the Basel Committee on Banking Supervision (BCBS).
The NBFI sector has grown much faster than the banking sector since 2008, and accounts for almost half of all financial assets globally. The FSB will advance its work program for enhancing the resilience of NBFI by assessing and addressing activities and types of entities that may contribute to aggregate liquidity imbalances and give rise to systemic risk. This work, set out in the FSB’s latest NBFI progress report, will be carried out within the FSB as well as by standard-setting bodies (SSBs) and international organizations.
That includes:
- Assessing vulnerabilities associated with non-bank leverage, including completing a deep dive on forms of leverage that are harder for authorities to monitor (‘hidden leverage’), and if relevant, consider policy approaches to any issues identified.
- Conducting follow-up policy work on addressing liquidity mismatch in open-ended funds; a data pilot initiative to enhance monitoring of open-ended fund vulnerabilities; and coordination with the International Organization of Securities Commissions (IOSCO) in its development of detailed guidance on liquidity management tools and in promoting the use of stress testing.
- Undertaking policy work on enhancing market participants’ liquidity preparedness for margin and collateral calls. The FSB work will be coordinated with the follow-up work on margining practices of the BCBS, the Committee on Payments and Market Infrastructures (CPMI) and IOSCO.
- Carrying out work with IOSCO to enhance the functioning and resilience of short-term funding markets.
For cyber and operational resilience, the FSB noted that another feature of digital innovation is the ever-greater use by financial institutions of outsourcing to third-party providers. While outsourcing may have provided additional resilience during the pandemic, it has also reinforced the importance of effective policies for the oversight of financial institutions’ reliance on critical service providers. Greater interconnections in the financial system increase the surface for cyber attacks. Enhancing operational and cyber resilience therefore remain important items on the FSB agenda.
In 2023, the FSB will finalize its report on achieving greater convergence in cyber incident reporting, reflecting feedback from the public consultation. It will also, in collaboration with relevant industry stakeholders, undertake work to determine prerequisites for, and the feasibility of, developing a format for incident reporting exchange (FIRE) to standardize common information requirements for incident reporting.
In addition, the FSB will report on strengthening financial institutions’ ability to manage third-party risks and outsourcing, that includes: (i) expectations for financial authorities’ oversight of financial institutions’ reliance on critical service providers (including bigtech and fintech firms); and (ii) common definitions and terminologies on third-party risk management and outsourcing.