Following the 2022 BCBS-CPMI-IOSCO review of margining practices, and recent reports on stress in commodities markets, the FSB has published a consultation report listing eight proposed policy recommendations for the enhancement of liquidity risk management in the non-bank financial intermediation (NBFI) sector.
If implemented, the policies will apply to non-bank participants with material exposures to spikes in margin and collateral calls during times of stress. They cover centrally and non-centrally cleared derivatives and securities markets, including securities financing.
The eight recommendations cover liquidity risk management and governance, stress testing and scenario design, and collateral management practices of non-bank market participants with a focus on risk management for the aforementioned liquidity strains. They have been designed to build on or complement existing liquidity risk management rules and regulations across sectors and jurisdictions.
In its report, the FSB also highlights the need for financial intermediaries to consider assessing liquidity preparedness for spikes in margin calls and collateral during times of stress during bilateral transactions with non-financial entities.
Commenting on the report, Jo Burnham, risk and margining SME at financial services firm OpenGamma, said: “There have been multiple stress events over the last half-decade that have exposed the need for many NBFIs to improve their liquidity risk management practices. The FSB has hit the nail on the head in recognising that NBFIs want to be proactive in enhancing their own collateral management processes. The ability to robustly stress test operational capabilities regularly is incredibly important.”
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