FSB Warns of Vulnerabilities in Non-Bank Sector

The Financial Stability Board (FSB) has expressed concerns about persistent vulnerabilities in the global financial system due to inadequate regulation of non-bank financial institutions (NBFIs), which now account for nearly half of global financial assets. In a letter to G20 finance ministers and central bank governors, FSB Chair Klaas Knot highlighted that many risks identified during the COVID-19 pandemic remain unresolved, particularly regarding money market funds and liquidity management. Despite some progress, the implementation of key reforms has been inconsistent across G20 nations, risking further destabilization. Knot emphasized the urgent need for full and timely execution of NBFI reforms to enhance systemic resilience. The FSB plans to release a consultation report with proposed policy solutions by the end of the year, amid ongoing debates about the degree of regulation required for NBFIs. The FSB's warnings underscore the importance of addressing these issues to prevent future economic shocks.