G20 watchdog urges governments to address non-bank financial risks

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ZURICH (Reuters) – The Financial Stability Board (FSB) on Wednesday pitched recommendations for governments to reduce risks around hedge funds, insurers and other non-bank financial intermediaries, which now account for almost half of global financial assets.

The sector of non-bank financial intermediation has grown by around 130% between 2009 and 2023, making markets more vulnerable for stress events, according to the Basel-based FSB, which acts as the G20’s financial risk watchdog.

“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,” said FSB Secretary General John Schindler.

In its consultation report, the FSB proposed member governments and institutions enhance their focus on non-banks and ensure they manage their credit risks adequately.

One set of recommendations calls for the creation of domestic frameworks to identify and monitor financial stability risks related to non-bank leverage.

Another group proposes that policy measures be selected, designed and calibrated by governments to mitigate the identified financial stability risks.

A third group deals with counterparty credit risk management, calling for a timely and thorough implementation of the Basel Committee on Banking Supervision’s revised guidelines.

The FSB also proposed stepping up private disclosure practices in the non-bank sector and addressing any regulatory inconsistencies by adopting the principle of “same risk, same regulatory treatment.”

A last recommendation calls for improved cross-border cooperation and collaboration.

With the consultation report, the FSB is inviting comments from member governments and institutions on its policy recommendations.

A final report is planned for release in mid-2025.

(Reporting by Ariane Luthi; Editing by Dave Graham)