Global regulators are taking the first steps toward a set of rules that could corral risks at firms including hedge funds and private lenders.
The Financial Stability Board aims to publish draft recommendations for addressing leverage at such non-bank financial intermediaries by the end of next year or early 2025, John Schindler, the secretary general of the world's top financial watchdog, said in an interview on Wednesday. It's not yet clear whether that would mean "specific policies" or a call for authorities to collect more data, he said.
The FSB is now pushing for tougher standards for less-regulated corners of finance following recent bouts of turmoil, such as the dash for cash at the onset of the pandemic or the 2021 collapse of family office Archegos Capital Management. That means hedge funds and private lenders are coming in for closer scrutiny after traditional banks spent more than a decade in the cross-hairs of regulators.
"The first phase is to gather information on what data are available and what policies are already in place," said Schindler. "The second phase would be to ask given what we know and what we don't know, what recommendations can we make for NBFI leverage?"
NBFIs accounted for $217.9 trillion, or 47%, of global financial assets at the end of 2022. A narrower measure of firms that are involved in credit intermediation and may pose "bank-like financial stability risks" stood at $63.1 trillion, according to the FSB.
Yet much of the data on that sector is beyond the remit of many supervisors, said Jean-Paul Servais, who chairs the board of the International Organization of Securities Commission, which is working with the FSB on the issue of leverage at non-banks.
That also makes it more complicated for banking regulators to grasp the risks that traditional lenders face. Andrea Enria, the European Central Bank's top regulatory official floated the idea of stricter oversight for non-banks in an interview with Bloomberg TV on Dec. 19.
"Sometimes there's a lot of opaqueness, so there is a broader question of whether the perimeter of regulation should be expanded," he said.
