The Financial Stability Board (FSB) has just released its “Global Monitoring Report on Non-Bank Financial Intermediation (NBFI) 2024,” and it’s a wake-up call for the financial sector. The report reveals that the NBFI sector grew by 8.5% in 2023 — significantly outpacing the 3.3% growth of the traditional banking sector. NBFIs now account for a staggering 49.1% of global financial assets.

This rapid expansion isn’t just a story of growth; it’s a story of risk. As non-bank financial entities like hedge funds, private equity firms, and insurers take on larger roles in global finance, they’re also introducing fresh vulnerabilities. Concerns are rising over liquidity mismatches and leverage within the sector, two critical elements that have historically been flashpoints for financial instability.

Regulators are responding. We’re seeing a clear shift towards increased regulatory scrutiny, with the FSB calling for accelerated implementation of reforms aimed at shoring up the resilience of NBFIs. In the UK, the Prudential Regulation Authority is proposing enhanced liquidity reporting requirements for insurers engaged in derivative activities. These moves signal a tightening regulatory environment designed to reduce systemic risk.

For market participants, the implications are clear. Greater transparency, stricter reporting, and the potential for increased capital requirements are all on the table. Firms operating in this space will need to be proactive, not reactive. Those who can adapt to this new regulatory landscape will be better positioned for the future.

For me, this raises questions about how prepared NBFIs are for this shift. Have firms done enough to manage liquidity risks and leverage exposures? Will regulators go further than reporting requirements to mandate stricter capital buffers? Most importantly, how can firms turn these regulatory headwinds into competitive advantage?

It’s a crucial moment for those of us working in or with NBFIs. The sector’s expansion presents enormous opportunity, but only for those who are prepared to engage with the growing calls for regulatory reform. As we’ve seen in past crises, resilience isn’t built overnight. Firms must act now to avoid being caught on the back foot.

Read the FSB report here: https://lnkd.in/eUZgjy-3

I’m curious to hear what others in the industry think. Are these regulatory changes overdue, or are we at risk of stifling innovation in a rapidly evolving sector? How are your firms preparing for what’s to come? Let’s discuss.

SecFin Solutions

Read about my consulting and education services here: https://lnkd.in/dfQyAQpZ