ICMA responds to the European Commission survey assessing the adequacy of macroprudential policies for non-bank financial intermediation (NBFI)
20 November The Asset Management and Investors Council (AMIC) of ICMA welcomes the opportunity to provide feedback to the European Commission's consultation on Assessing the adequacy of macroprudential policies for Non-Bank Financial Intermediation (NBFI). This paper represents an ICMA–wide consultation response, led by the Asset Management and Investors Council (AMIC) Committee and incorporates feedback from the broader ICMA membership.
The objective of the consultation was to seek a view on the adequacy of the macroprudential framework for NBFI; to identify the vulnerabilities and risks of NBFIs; and map the existing macroprudential framework. An additional aim was to gather feedback on the current challenges to macroprudential supervision to find areas for further improvement.
In conclusion, we believe a uniform, one-size fits all macroprudential framework is unsuitable for the diverse NBFI ecosystem. The focus should be on enhancing regulatory cooperation, data sharing, and targeted interventions to support NBFIs’ liquidity and funding roles while addressing systemic risks without stifling economic growth. Such an approach will ensure the EU remains competitive and robust in the evolving financial landscape.
ICMA is grateful for the input from stakeholders, and we present a summary of our key findings below.
To read the full consultation click here.
Key vulnerabilities and risks stemming from NBFI
• Diverse Landscape: The NBFI ecosystem's heterogeneity precludes a one-size-fits-all macroprudential framework akin to that of banks.
• Systemic Liquidity Risks: leveraging existing surveillance tools should facilitate the visibility of less known and less monitored NBFI entities and activities.
• Central Clearing Concerns: Current margin requirements (cash-only collateral) exacerbate procyclicality during stress periods. Expanding eligible collateral to include high-quality securities (e.g., MMFs and government bonds) could mitigate these effects.
• Role in Bond Markets and Private Lending: Hedge funds and private credit providers play vital roles in bond market liquidity and SME-focused funding.
Overview of existing macroprudential tools and supervisory architecture in EU legislation
• Robust Regulation: EU regulations governing asset managers, investment funds, and money market funds (MMFs) are stringent and have been recently enhanced at both EU and global levels.
• Corporate Paper (CP) Markets: Greater standardization and transparency could deepen market participation but must avoid unintended consequences, such as misinterpretations of issuer strategies or financial health.
Excessive leverage
• Excessive Leverage: Existing leverage caps within the highly regulated NBFI sectors are sufficient. System-wide cross border systemic counterparty risk monitoring would enhance the surveillance of NBFIs that not currently in scope of EU regulation.
• Bank-NBFI Links: Focus should remain on improved data sharing to monitor and mitigate interconnected risks effectively.
Monitoring interconnectedness
• Enhanced Coordination: Instead of new mechanisms, leveraging existing coordination tools and improving data sharing between NCAs, ESAs, and central banks is key. A single regulatory reporting hub would enhance transparency and policy response capabilities.
• Consistent Supervision: Supervision should be consistent across all management companies, irrespective of size, as size alone is not a suitable risk metric.
Supervisory coordination and consistency at EU level
• Data Utilization: Leverage existing data (e.g., EMIR reporting) for systemic risk monitoring, limiting additional reporting burdens on asset managers, investment funds and banks.
• Facilitate Liquidity Provider Roles: Policies must support NBFIs’ critical roles as liquidity providers, avoiding unnecessary regulatory burdens.
• Global Coordination: Recognize the global nature of financial markets and collaborate internationally to address risks posed by non-EU domiciled entities.
