FSB: Update On Financial Regulatory Factors Affecting The Supply Of Long-Term Investment Finance

In February 2013, the FSB provided an initial report to G20 Finance Ministers and Central Bank Governors which identified Basel III, over-the-counter (OTC) derivatives market reforms, and the regulatory and accounting framework for different types of institutional investors as reforms that may affect the provision of long-term investment finance. In August 2013, the FSB provided an update to G20 Ministers and Governors and outlined next steps in the work.

At the St. Petersburg Summit in September 2013, the G20 Leaders looked forward to the FSB's ongoing monitoring of the impact of financial regulatory reforms on the supply of long-term investment financing. This note describes the FSB's further monitoring work since then, which has consisted of:

• a survey of FSB members to collect inputs on any specific regulatory reform areas that may have had material unintended consequences on the provision of long-term finance and to identify and review any proposals for potential reforms to international financial regulation that could be taken to facilitate the channelling of funds to support long-term investment without compromising prudential and financial stability objectives
• continued engagement with practitioners in long-term finance from the private sector to understand and assess whether and how regulatory reforms are affecting the provision of long-term finance for investment, including in the light of recent developments in the market;
• consultation with FSB Regional Consultative Groups (RCGs) on the potential impact of financial regulation on long-term investment; and
• work by the FSB Secretariat together with the staff of the IMF, World Bank and OECD to develop a set of key quantitative indicators that summarise the main developments in the provision of long-term finance across different types and regions.

The FSB's monitoring continues to find little tangible evidence or data to suggest that global financial regulatory reforms have had adverse consequences on the provision of long-term finance. The reforms are intended to be proportionate to risks and to support financial stability. They are not designed to encourage or discourage particular types of finance.

With most regulatory reforms still at an early stage of implementation, it remains too early to fully assess their impact on the provision of long-term finance or changes in market behaviour in response to these reforms. Indeed, authorities and market participants both note that regulatory reforms need to be finalised and fully implemented in order to reduce uncertainty in the market and achieve the intended effects. The regulatory community will remain vigilant to avoid material unintended consequences and to analyse potential impacts as implementation proceeds. The FSB's monitoring has highlighted a shortage of consistent data on long-term investment finance for analysing the impact of regulatory reforms. This illustrates the potential merits of the project to develop standardised definitions for quantitative indicators of long-term investment finance, that could be collected in a comparable fashion across countries.

Going forward, the FSB will continue to monitor impacts, including to identify any potential financial regulatory impediments to the promotion of market-based financing, to the development of new instruments to finance long-term investment, or to the supply of long-term financing by either domestic or foreign intermediaries. The impact of financial regulation on the provision of long-term finance for investment will be reviewed under the FSB's general monitoring framework to avoid duplication and to ensure continuity of monitoring. 

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