Ahead of this week’s G20 meeting, FSB Chair Randal Quarles highlighted key issues to finance ministers and central bank governors in a letter. Among them was addressing new and emerging vulnerabilities in the financial system.
The FSB, writes Quarles, will continue to scan the horizon to identify and assess emerging risks. When it comes to technological innovation on global financial stability, The FSB will continue to assess the impact of evolving market structures. 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.
The growth in non-bank financing represents a welcome increase in the diversity of the sources of finance supporting economic activity, provided that such financing is resilient. The FSB continues to monitor closely the developments and risks in non-bank financial intermediation.
The FSB’s latest annual Global Monitoring Report on Non-Bank Financial Intermediation documents that non-bank financial assets continue to grow, and are now just under half of total global financial assets. It is therefore important to analyze the potential financial stability implications of different types of non-bank finance and how such financing flows will behave.
Technological innovation, a key focus of the Japanese G20 Presidency, has the potential to change significantly the structure and functioning of the global financial system. While such changes hold the promise of substantial economic benefits, they may also give rise to new risks. T
he FSB continues to monitor the financial stability implications of cryptoassets and is currently working to identify possible regulatory gaps in this area. In addition, the global financial authority is analyzing broader financial stability implications of technological innovation, such as the entry of large technology firms into finance and the growth in decentralized financial technologies.
For this April G20 meeting, the FSB delivered a directory of regulators on cryptoassets. For the June G20 meeting, the FSB will deliver a report on the financial stability implications of decentralized financial technologies for the governance of financial regulation.
The FSB will continue to contribute to work to enhance cyber resilience, supporting the Japanese G20 Presidency’s focus on financial innovation. Building on its 2017 stock take of regulatory and supervisory cybersecurity practices and its 2018 cyber lexicon, during 2019 and 2020 the FSB will develop and report on effective practices relating to a financial institution’s response to, and recovery from, a cyber incident. For the June G20 meeting, a progress report will be delivered on the development of effective practices for cyber incident response and recovery.