FSB Consults on Recommendations to Address NBFI Leverage Risks

Published: 18 December 2024

On 18 December 2024, the Financial Stability Board (FSB) published a consultation report on proposed policy recommendations aimed at addressing financial stability risks arising from leverage in non-bank financial intermediation (NBFI). The consultation builds on the FSB’s 2023 report, which identified vulnerabilities from NBFI leverage during periods of market stress.

The proposed recommendations focus on enhancing the ability of authorities and market participants to monitor, contain, and mitigate risks associated with NBFI leverage. They address various aspects, including risk identification, regulatory consistency, and cross-border coordination.

Key Recommendations:

  • Risk Monitoring and Metrics: Authorities should adopt robust risk metrics and address data challenges to enhance the identification and monitoring of leverage-related vulnerabilities in NBFI.
  • Core Market Risks: Measures should target risks associated with specific activities, types of entities, and concentration in core financial markets.
  • Counterparty Credit Risk: Providers of leverage, such as banks and broker-dealers, should ensure sufficient credit risk management and disclosure practices.
  • Regulatory Consistency: The principle of “same risk, same regulatory treatment” should guide efforts to address inconsistencies in the treatment of leveraged activities across jurisdictions.
  • Cross-Border Coordination: Enhanced collaboration and sharing data between regulators across jurisdictions is critical for addressing leverage risks that span global markets.

Entities in scope include hedge funds, leveraged investment funds, pension funds, and insurance companies that use financial or synthetic leverage, along with leverage providers such as banks and broker-dealers.

The consultation seeks feedback on the proposed measures and invites responses by 28 February 2025. The final report is expected to be published in mid-2025.

For further information please contact James Hopegood ([email protected])