The Financial Stability Board (FSB), the regulatory task force for the world's top 20 economies (G20), has published the first set of global standards for the $60 trillion "shadow banking" sector.
The FSB said that the 2007-09 financial crisis revealed "fault lines" in the lightly regulated sector, which includes money market funds, repurchase markets and hedge funds.
G20 leaders meet in Russia September 5-6 to endorse the standards.
- Targets credit investment funds, exchange-traded funds, credit hedge funds, private equity funds, securities broker-dealers, securitization entities, credit insurance providers/financial guarantors, finance companies and trust companies.
- G20 countries to have a variety of "tools" to rein in risk. These offer the ability to slow or suspend redemptions on stressed funds, limit investments in illiquid assets, impose liquidity buffers, limit leverage, impose capital requirements, apply curbs on the use of customers' money and demand tougher collateral standards.
- New system for regulators to share information on shadow banking by March 2014. FSB to start assessing by 2015 how G20 members apply the new framework.
- Proposals for minimum standards for calculating discounts, known as "haircuts", on collateral for securities lending and repo market participants.
- Proposed fixed minimum haircuts on transactions that have not passed through a clearing house backed by a default fund.
- Haircuts to be finalized by spring 2014 after FSB conducts an impact study this year. Implementation to depend on market conditions and time needed for adjustments to systems.
- Detailed data on sector to be collected globally to identify trends, most likely using trade repositories. Data to be aggregated monthly by FSB.
- European Union and United States already moving ahead with reform, representing the bulk of the world's MMF sector. These reforms to be reviewed by global regulators.
- FSB review on how to revive in an orderly way the moribund securitization market that lay at the heart of the U.S. sub-prime crisis and led to a global financial crisis.
- EU and United States already reforming the sector and global regulators to review effectiveness of the reforms.
(Compiled by Huw Jones; Editing by David Goodman)