The G20’s Financial Stability Board (FSB) and global securities markets regulator body IOSCO on Wednesday said that they will make tackling “shadow banking” a priority in 2024.

In a rare joint statement, the bodies issued tougher liquidity management guidance for asset managers of open-ended investment funds. This adds to existing guidance for money market funds which FSB and IOSCO members commit to applying.

The first-of-its-kind joint-statement said: “The Revised FSB Recommendations… set out the key objectives for an effective regulatory and supervisory framework to address vulnerabilities arising from liquidity mismatch in OEFs.

“Combined with the LMT Guidance, these recommendations aim to achieve a significant strengthening of liquidity management by OEF managers compared to current practices.”

A report from Reuters on the subject noted that both types of funds make up part of the $218 trillion non-bank financial intermediation (NBFI) sector which, combined with hedge funds, property funds and insurance companies, has been dubbed ‘shadow banking’ and makes up almost half of all global financial assets.

Klaas Knot, chair of the FSB, said: “The combined efforts of the FSB and IOSCO aim to mark a step change to liquidity risk management within OEFs. A key part of this is a strengthening of the framework around the use of LMTs at a global level. Swift and consistent implementation of these recommendations is critical to addressing financial stability risks arising from liquidity mismatch in OEFs.”

Jean-Paul Servais, Chair of IOSCO, said “The FSB and IOSCO have worked closely together to deliver a comprehensive policy package designed to strengthen open-ended fund managers’ liquidity management to improve investor protection and support financial stability.”

Servais noted that while much of the data does not fall under the remit of both bodies, he is confident that working with central banks through the FSB will address the challenge.

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