INVESTMENT funds and broker-dealers are next in line for tougher regulations, a global group of watchdogs said yesterday.
The Financial Stability Board (FSB), headed by Bank of England governor Mark Carney, has already sought out global systemically important financial institutions (G-SIFIs) in the banking and insurance sectors.
Now it wants to find the riskiest firms elsewhere in the financial markets, including investment funds and intermediaries such as securities underwriters.
Finance firms owned by businesses in other sectors, such as car manufacturers, will also be scrutinised.
The FSB wants to find out if any other of these firms are so big and widely connected that their collapse would send shock waves through the financial system and risk bringing down other firms.
The regulators will look at the institutions’ creditors, investors and counterparties; how a liquidation of their assets could impact on prices in the wider markets; and how the core services will stand up to stress, particularly if there are no other firms offering similar services.
If any G-SIFIs are found by the regulator, they can expect to face tougher scrutiny and to put more controls in place to make sure they do not fail.
In banks the FSB has made G-SIFIs hold extra capital buffers to make it less likely they will fail.
And the lenders have to come up with plans to explain how core services like payments will still function even if other parts of the business fail or need to be wound down.
The FSB’s consultation will run until April.