CFA Institute: Standardisation and transparency are key
28 April 2015 London
Image: Shutterstock
Creating a robust framework around the reuse of collateral in securities financing, and greater transparency through transaction reporting could be the key to preventing financial instability and supporting healthy capital markets according to a study by the CFA institute.
The study found that this kind of framework could mitigate the build-up of excessive leverage. It also suggested that transparency could be improved through reporting transaction data to trade repositories and investors, with 47 percent of respondents agreeing.
It also called for increased standardisation and simplification of issuance structures, with 55 percent of professional investment respondents identifying a need for this in order to improve the ease and certainty of enforcing ownership rights and creditor protections. Here, the study also recommended improvements in transparency through initial and on-going disclosure to investors.
The study found that 25 percent considered the potential default of Chinese wealth management and trust products the greatest systemic risk, while 23 percent considered collateral management risks the biggest concern.
Respondents in the APAC and EMEA regions believed that regulators should be treating transparency and disclosures in shadow banking activity as a priority.
The CFA institute conducted the study as banks are addressing new capital regulatory requirements and slow balance sheet growth, and as shadow banking is increasingly viewed as a potential systemic risk for the finance and investment industry.
According to the Financial Stability Board, the global shadow banking sector is worth an estimated$75 trillion. In an environment of constrained bank lending, markets-based finance is being viewed as a potential solution to help channel capital to productive enterprises, and to help revive the real economy.
Rhodri Preece, head of capital markets policy for the EMEA region at CFA Institute and author of the study, said: 鈥淎mid the myriad shadow banking policy initiatives, the challenge facing regulators is to achieve coherence in the implementation of these measures and to minimise regulatory gaps and overlaps.鈥�
鈥淪hadow banking feeds directly into the capital markets union agenda because there is a desire from the policy perspective for markets-based finance to flourish and deepen the sources of finance available for European companies. Nonbank finance has the potential to deliver many benefits to the financial markets in Europe and indeed globally if the right measures are put in place to stimulate demand and justify investor confidence.鈥�
The study was informed by a survey of 600 CFA Institute members.
The study found that this kind of framework could mitigate the build-up of excessive leverage. It also suggested that transparency could be improved through reporting transaction data to trade repositories and investors, with 47 percent of respondents agreeing.
It also called for increased standardisation and simplification of issuance structures, with 55 percent of professional investment respondents identifying a need for this in order to improve the ease and certainty of enforcing ownership rights and creditor protections. Here, the study also recommended improvements in transparency through initial and on-going disclosure to investors.
The study found that 25 percent considered the potential default of Chinese wealth management and trust products the greatest systemic risk, while 23 percent considered collateral management risks the biggest concern.
Respondents in the APAC and EMEA regions believed that regulators should be treating transparency and disclosures in shadow banking activity as a priority.
The CFA institute conducted the study as banks are addressing new capital regulatory requirements and slow balance sheet growth, and as shadow banking is increasingly viewed as a potential systemic risk for the finance and investment industry.
According to the Financial Stability Board, the global shadow banking sector is worth an estimated$75 trillion. In an environment of constrained bank lending, markets-based finance is being viewed as a potential solution to help channel capital to productive enterprises, and to help revive the real economy.
Rhodri Preece, head of capital markets policy for the EMEA region at CFA Institute and author of the study, said: 鈥淎mid the myriad shadow banking policy initiatives, the challenge facing regulators is to achieve coherence in the implementation of these measures and to minimise regulatory gaps and overlaps.鈥�
鈥淪hadow banking feeds directly into the capital markets union agenda because there is a desire from the policy perspective for markets-based finance to flourish and deepen the sources of finance available for European companies. Nonbank finance has the potential to deliver many benefits to the financial markets in Europe and indeed globally if the right measures are put in place to stimulate demand and justify investor confidence.鈥�
The study was informed by a survey of 600 CFA Institute members.
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