Global: G20 Financial Watchdog Calls for Action on Non-Bank Financial Risks

ZURICH, Dec 18 – The Financial Stability Board (FSB), the financial risk oversight body for G20 nations, has issued a call to action for governments to address growing risks in the non-bank financial sector. This sector, which includes hedge funds, insurers, and other financial intermediaries, now represents nearly half of global financial assets.

According to the Basel-based FSB, the non-bank financial intermediation sector has expanded by approximately 130% between 2009 and 2023, significantly increasing market vulnerability to stress events.

“This growth comes with an increase in complexity and interconnectedness in the financial system, which, if not properly managed, can pose substantial risks to financial stability,” stated FSB Secretary General John Schindler.

Recommendations to Mitigate Risks

In its consultation report, the FSB outlined several key recommendations to address these risks:

1. Monitoring and Managing Non-Bank Leverage:
   Governments are encouraged to establish domestic frameworks to identify and monitor financial stability risks stemming from non-bank leverage.
2. Targeted Policy Measures:
   Authorities should design and implement policy tools tailored to mitigate identified risks to financial stability.
3. Counterparty Credit Risk Management:
   The FSB emphasized the timely adoption of the Basel Committee on Banking Supervision’s revised guidelines to strengthen credit risk management practices.
4. Enhanced Disclosure and Regulatory Alignment:
   The FSB proposed improving private sector disclosure practices and addressing regulatory inconsistencies by adopting the principle of “same risk, same regulatory treatment.”
5. Strengthened Cross-Border Cooperation:
   Improved international collaboration is essential to address the interconnected nature of the global financial system effectively.

Invitation for Feedback

The FSB’s consultation report invites member governments and institutions to provide feedback on these policy recommendations. The organization aims to release its final report by mid-2025.

Growing Concerns Over Systemic Risks

As non-bank financial intermediaries play an increasingly prominent role in global markets, their complexity and interdependence with traditional banking systems raise significant concerns. The FSB’s proactive approach highlights the urgency of developing robust frameworks to ensure systemic stability and mitigate potential shocks.

The recommendations reflect a broader commitment to safeguarding global financial stability through enhanced governance, transparency, and regulatory consistency.