Egypt's Financial Regulatory Authority (FRA) Chairperson Mohamed Farid stressed the importance of bolstering the resilience of non-bank financial institutions against various shocks, calling it a key objective for all regulatory bodies. He noted that a thorough understanding and proactive management of risks enhances the stability of these institutions, highlighting their crucial role – and related challenges – in both developed and emerging economies. Farid made these remarks during a panel discussion on potential financial stability risks within the non-bank financial sector at a meeting of the Middle East and North Africa Regional Consultative Group for the Financial Stability Board (FSB). He participated as a member of the group in his capacities as FRA Chairman, Vice Chair of the International Organization of Securities Commissions (IOSCO), and Chair of the Emerging Markets Committee. The discussion, chaired by Central Bank of Egypt Governor Hassan Abdalla, included participation from representatives of the Saudi Central Bank (SAMA), the Central Bank of Jordan, and the Bank of England. Abdalla and SAMA Governor Ayman Al-Sayari co-chair the FSB's regional consultative group, which includes Farid and central bank governors from several other countries. Farid cited the International Monetary Fund's 2023 Global Financial Stability Report, which highlighted the significant role non-bank financial institutions play in the global financial system, promoting access to finance and economic growth. He noted the increase in these institutions' share of global financial assets, from approximately 40% to nearly 50% since the global financial crisis, underscoring their importance in key financial markets. He also referenced the FSB's December 2024 report, which indicated 8.5% growth in the size of these institutions, raising their share of global financial assets to 49.1%. Farid pointed to IOSCO's decision to prioritize financial stability and risks related to non-bank financial institutions in its work plan and the establishment of a Financial Stability Group in March 2020 to enhance its focus on resilience. He outlined IOSCO's multi-pronged approach to developing this sector, including work on money market fund resilience, liquidity risk management in open-ended funds, sound bond market foundations, data collection and monitoring, and leverage in non-bank financial institutions. He explained that leverage in non-bank financial markets, which allows borrowing equivalent to capital, increases investment opportunities but also elevates risk. Farid noted that IOSCO's 2025-2026 risk outlook identified leverage linked to non-bank financial institutions as a major risk. He also highlighted the focus of IOSCO's Africa and Middle East Regional Committee on regional regulatory issues and lessons learned from the 2020 money market fund turmoil. Member countries identified challenges posed by non-bank financial institutions, including the need for betterunderstanding their ecosystem and interconnections, closing data gaps, and developing real-time monitoring. Data limitations, some members noted, hinder a comprehensive understanding of leverage in this sector. Farid stated that several countries in the region are actively working to address these risks and review regulatory frameworks, adding that the development of derivatives markets in the region requires further work. He emphasised the importance of integrating regulatory oversight and innovative monitoring indicators for effective risk monitoring, incorporating both quantitative and qualitative approaches. Farid suggested enhancing regulatory frameworks that promote transparency and accountability in non-bank financial institutions, emphasizing compliance with disclosure requirements for asset managers, insurance companies, and hedge funds. While highlighting the importance of monitoring indicators, he also suggested considering a broader set of indicators tailored to the unique characteristics of these institutions. Developing indicators that assess their interconnectedness with the broader financial system could provide a better picture of potential risks. He mentioned that the FRA launched a financial stability unit to promote sustainable sector development and mitigate systemic risks. Farid stressed the essential role of collaboration between regulatory bodies, non-bank financial institutions, and academic researchers to improve monitoring indicators, urging regulators and institutions to share best practices and information on potential risks. He also noted that leveraging technological advancements and data analytics would enable regulators to better identify emerging trends and respond to challenges.
