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Financial Stability Board to address shadow banking risks and seek reforms to OTC derivatives trading


Measures designed to address unregulated banking activities and reforms to over-the-counter (OTC) derivatives trading are two of the main priorities that the Financial Stability Board (FSB) is to pursue under the German presidency of the G20, Bank of England governor Mark Carney has announced.

Carney said the FSB, which he chairs, would also continue to support "full and consistent implementation" of reforms to financial services regulations to make the system more resilient following the last global financial crisis.

The FSB, which monitors and assesses vulnerabilities affecting the global financial system and makes recommendations to address those issues, will also look to address "emerging vulnerabilities, including misconduct risks, as well as those stemming from the decline in correspondent banking and from climate-related financial risks", during the time that Germany holds the presidency of the G20, Carney said.

Carney outlined the four priorities (8-page / 85KB PDF) the FSB would focus on in a recently published letter.

As part of efforts to address 'shadow' banking risks, the FSB will seek to address "structural vulnerabilities in asset management", Carney said.

"The FSB has not identified new shadow banking risks that currently require additional regulatory action at global level," Carney said. "However, given that new forms of shadow banking activities are certain to develop in the future, FSB member authorities must maintain and continue to invest in an effective and ongoing programme of surveillance, data sharing and analysis so as to support judgements on any required regulatory response in the future."

On OTC derivatives reforms, Carney said the FSB is due to set out "further, detailed guidance" on central counterparty resilience, recovery and resolvability at G20 summit in Hamburg this July, and that the FSB would review and report on existing reforms that have already been implemented in the OTC derivatives market by the time of the summit.

In addressing emerging vulnerabilities, the FSB is also assessing the implications of financial technology (fintech), Carney said. The FSB will "publish its report on the financial stability implications of fintech, identifying regulatory and supervisory issues that merit authorities’ attention from a financial stability perspective" by the time of the Hamburg G20 summit, he said.

"Given the cross-border reach of fintech, an international approach to assessing and responding to vulnerabilities related to the expansion of fintech and increasing flows of information will be important," Carney said.

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