RegTech Intelligence

Shadow banking: it all starts with data

In November 2012, the FSB published its proposals for regulating the shadow banking sector – and in particular the repos/securities lending market – in two consultation papers, collectively titled: ‘Policy Framework for Strengthening Oversight and Regulation of Shadow Banking Entities’.

These papers are fundamental in setting the tone for the global shadow banking regime, including defining what exactly shadow entities are and the infrastructure to collect data on them. JWG submitted two responses to this, dealing with both general shadow banking policy and securities lending/repos.

All 72 responses to the consultation expressed concern surrounding the enhanced supervision of risk within the shadow banking sector. Additionally, the majority of respondents agreed that the FSB‘s proposals were premature and that a better understanding of the shadow banking sector was necessary, along with comprehensive impact assessments, before actively regulating the area. In particular, several noted the need for central trade repositories and LEI-integration before the FSB‘s proposals could be effectively implemented.

While these responses have offered valuable contributions to the future framework, some key ‘nuts and bolts’ will still need to be addressed before it is finalised. Universal data standards must be mandated for the infrastructures that collect this information, especially before decisions are made to begin constructing repo trade repositories. Additionally, the FSB needs to engage in a scoping exercise of currently available data sources to obtain a more realistic picture of the sizes and risks of the shadow banking sector and to deliver the data in the smartest way possible.

Ultimately, this step in regulating shadow banking is a major piece of the systemic regulation puzzle.

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