The Financial Stability Board (FSB) said that implementation of its recommendations for dampening procyclicality and other financial stability risks associated with securities financing transactions is incomplete and continues to face significant delays in most jurisdictions. This is according to the international authority’s latest progress report on G20 non-bank financial intermediation reforms.
FSB member jurisdictions report making some progress in implementing a set of 18 policy recommendations. It noted that:
- The FSB has been facilitating the implementation of the SFT data standards, including monitoring and assessing national progress and incorporating the results into reports of the G20 Data Gaps Initiative. Only a few FSB jurisdictions are submitting data, and in most of these cases the coverage is limited to only a subset of three market segments and granularity is limited. To help jurisdictions facing practical challenges, a sequencing approach by market segment and data granularity was adopted.
- Thirteen jurisdictions report that they conducted a review of their reporting requirements and assessed them to be fully or partially compliant with the FSB’s proposed requirements for reporting by fund managers to end-investors. Some of the remaining jurisdictions believe that a review is not necessary because they judge their reporting requirements for mutual funds to satisfy the FSB recommendation.
- Seven jurisdictions report that they have implemented a regulatory regime that meets the FSB minimum standards for cash collateral reinvestment, and six others report to be in the process of implementing such a regime.
- Seventeen jurisdictions assess their existing regulations to be fully or partially compliant with the FSB principles for regulations governing re-hypothecation of client assets.
- Eighteen jurisdictions indicate they had implemented minimum regulatory standards for collateral valuation and management, though some seem to have applied such standards only for certain market participants.
- Thirteen jurisdictions report that they have central counterparties (CCPs) in their interdealer repo market. Of these jurisdictions, eight had considered broadening participation of their CCP to other funding providers in the repo market. Of the ten jurisdictions without a CCP in their inter-dealer report markets, three evaluated the costs and benefits of introducing one.
- Sixteen jurisdictions have qualitative standards for the calculation of collateral margin/haircuts, and seven have no plans to introduce such standards. Of those with standards in place, five jurisdictions have reviewed their existing standards against the FSB recommendation on qualitative standards for firms’ haircut methodologies.
- Four jurisdictions have implemented the framework of numerical haircut floors, which has been incorporated in the finalised Basel III framework due by January 2023, and implementation is in progress in four more jurisdictions. Implementation challenges noted by some jurisdictions relate to level playing-field concerns (because some jurisdictions have deferred implementation of the haircut floors for several years) and the complexity or appropriateness in introducing the framework.
- Ten jurisdictions have completed their initial assessment of the need and implementation approach for introducing the framework of numerical haircut floors on non-bank-to-non-bank transactions. Thirteen have yet to begin a review.
In 2013, the FSB, working with standard-setting bodies, developed a framework and policy toolkit – endorsed by the G20 – for strengthening the oversight and regulation of non-bank entities.
The report also found that:
- Jurisdictions have made progress in implementing Basel III reforms to mitigate spillovers between banks and non-bank financial entities, but implementation is not yet complete.
- Adoption of the 2012 International Organization of Securities Commissions (IOSCO) recommendations to reduce the run risk of money market funds (MMFs) is most advanced in the largest MMF markets.
- Adoption of the IOSCO recommendations on incentive alignment approaches for securitisation and of the Basel Committee on Banking Supervision standard on the revised securitisation framework is ongoing.
- Implementation of most FSB recommendations to assess and mitigate systemic risks posed by other non-bank financial entities and activities is ongoing.
In addition to these reforms, the FSB is carrying out further analytical and policy work to enhance the resilience of the NBFI sector, building on the lessons from the March 2020 market turmoil. Progress in the implementation of new agreed NBFI policies will be reported in future versions of this report.