We recommend that the FSB:

• Research and assess the wider activities and rolling impacts of NBFIs on markets, thereby calibrating a more holistic response to reflect new risks, particularly related to leverage, liquidity management, and market interconnectedness, as highlighted by Andrew Bailey, the Governor of the BoE in his recent speech.
• Reflect on the important insights revealed by the new scenario testing work under the BoE SWES, relating to:
  • How the behaviours of different financial institutions can interact to amplify market shocks
  • Mismatches in market participants' expectations
  • Surveillance and systemic risk assessment capabilities
  • Vulnerabilities in the UK financial markets and the potential for cross-border spillovers, particularly in repo markets and derivatives trading.
• Urge other central banks to carry out and share learnings from exercises like the BoE’s SWES.
• Gives more credence to the benefits that international cooperation and coordination on data sharing can bring, especially when looking at reporting and regulating standards.
• Includes an assessment and suitable amendments to its proposals to how and what type of data disclosure is likely and appropriate from different types of NBFIs and their business models, given current interconnectedness.
• Adopt a flexible approach between entity-based and activity-based measures and seeks to understand the impact of these measures in experimental stress scenarios and exercises and to scrutinise the application of those measures proposed in the consultation.
• Appreciates that adopting codes of conduct to improve private disclosure may be a suitable course of action initially to address the risks posed by leverage in NBFI.
• Remove the recommendation to employ overreaching concentration and exposure limits on certain product types such as derivatives and SFTs for banks, irrespective of the counterparty which may not be an NBFI.
• Should not make recommendations on measures whereby banks are used by authorities as a proxy to supervise or regulate NBFIs, for example encouraging excessive focus on banks’ counterparty risk management as a way of limiting the financial stability risks of NBFIs.
• Clearly defines the scope of firms intended to be captured under its proposals. For example, any direct or indirect limits on leverage should not apply to those firms that do not use leverage (e.g. money market funds, non-leveraged pension funds and investment funds).