الهيئة العامة للرقابة المالية

 Dr. Mohamed Farid – FRA Chairman , Vice Chair of IOSCO Board :

• Financial stability is essential for non-banking financial markets to support sustainable economic development.
• Understanding and proactively managing risks builds resilience in non-banking financial institutions.
• FRA launched a Financial Stability Unit to support sustainable sector development and mitigate systemic risks.
• Effective monitoring of NBFI risks requires a combined approach of robust regulatory oversight and innovative monitoring indicators.
• Authorities and financial institutions must collaborate to share best practices and information on potential risks.
• Data analysis will enable regulators to monitor trends and potential risks.
• Closing data gaps and using technology to enhance supervision are crucial for non-banking financial institution stability

Dr. Mohamed Farid, FRA Chairman participated in a two-day panel discussion in Sharm El-Sheikh focused on the latest developments concerning potential financial stability risks within the non-banking financial sector. This discussion took place as part of the FSB Regional Consultative Group for Middle East and North Africa (RCG MENA) meeting.

Dr. Farid’s participation stemmed from his membership in the FSB Regional Consultative Group for Middle East and North Africa (RCG MENA). He attended in his official capacities as Chairman of the Financial Regulatory Authority, Vice Chair of IOSCO Board and Chair of the GEM Committee

Hassan Abdallah, Governor of the Central Bank of Egypt chaired the panel discussion. Among those who participated in the discussion were Mishari Alkheraigi, representing the Saudi Central Bank (SAMA), Mohammed Al-Amayreh, representing the Central Bank of Jordan and Lee Foulger, representing the Bank of England who participated remotely.

The FSB Regional Consultative Group for Middle East and North Africa (RCG MENA) is co-chaired by Hassan Abdallah, Governor of the Central Bank of Egypt and Ayman Al-Sayari, Governor of the Saudi Central Bank (SAMA).  The RCG MENA membership includes Dr. Mohamed Farid, FRA Chairman, as well as Central Bank Governors from several countries across the region, specifically Jordan, Kuwait, Oman, Qatar, Tunisia, Turkey, and the United Arab Emirates.

During his participation, Dr. Farid emphasized the critical need to bolster the resilience of non-banking financial institutions (NBFIs) against a range of economic shocks, asserting that this should be a top priority for all regulatory and supervisory authorities. He argued that a thorough understanding of potential risks, coupled with their proactive management, is paramount to enhance the stability and robustness of NBFIs.  He underscored the vital role of NBFIs in both developed and emerging economies, acknowledging both the opportunities they present and the challenges associated with their sound development and effective market performance.

Dr. Farid highlighted the positive contributions of NBFIs, referencing the International Monetary Fund’s (IMF) April 2023 Global Financial Stability Report. The report, he noted, underscores the significant role these institutions play in the global financial system by expanding access to finance and stimulating economic growth. He further pointed out the substantial increase in the share of global financial assets held by NBFIs—rising from approximately 40% to nearly 50% since the global financial crisis—demonstrating their growing importance in facilitating transactions within core financial markets, particularly in government and corporate bonds.

Moreover, FRA Chairman drew attention to the Financial Stability Board’s (FSB) December 2024 report, which documented an 8.5% expansion in the size of the NBFI sector.  This growth, he noted, has further increased the sector’s share of total global financial assets to 49.1%.

Dr. Farid highlighted the International Organization of Securities Commissions’ (IOSCO) recognition of financial stability and the inherent risks posed by non-bank financial institutions (NBFIs) as a top priority, evidenced by their inclusion in IOSCO’s work plan. He noted that the IOSCO established the Financial Stability Engagement Group (FSEG) in March 2020 to strengthen its focus on financial stability and resilience against economic shocks.

Dr. Farid explained that IOSCO’s NBFI development plan addresses a range of critical areas, including strengthening the resilience of money market funds , liquidity risk management in open-ended investment funds.

Furthermore, the plan addresses several key areas, including robust bond markets and data-driven risk monitoring for NBFIs.  A crucial focus is leverage, which allows NBFIs to borrow substantial amounts-often matching their capital base-to boost investments.  However, this practice significantly magnifies risk, leaving these institutions highly susceptible to market downturns.

Dr. Farid pointed to IOSCO’s biennial Risk Outlook for 2025-2026 which identifies NBFI leverage as a significant threat to financial stability.  He also underscored the work of AMERC, comprised of 42 member regulatory bodies, in addressing region-specific securities regulation challenges.

He also highlighted key lessons learned from March 2020 market turmoil that affected money market funds and identified several ongoing challenges presented by non-bank financial institutions (NBFIs). These challenges include the need for accelerated efforts to understand the complex NBFI ecosystem and its intricate interconnections, addressing critical data gaps, and developing real-time monitoring frameworks. Member states of the Africa/Middle-East Regional Committee (AMERC) noted that the persistent lack of comprehensive data hinders a more thorough understanding of NBFI leverage and associated systemic risks.

Dr. Farid affirmed that several IOSCO member states in the MENA region are actively developing risk mitigation initiatives and reviewing their regulatory frameworks. He also acknowledged the significant work remaining to develop robust regional financial derivatives markets.

He further emphasized that effective monitoring of NBFI risks requires a combined approach of robust regulatory oversight and innovative monitoring indicators. He stressed the importance of closely monitoring these risks, advocating for an integrated quantitative and qualitative risk assessment methodology. This integrated approach, he suggested, is crucial not only for the MENA region but also for safeguarding global financial system stability.

FRA Chairman emphasized that these methods for strengthening oversight of non-banking financial institutions (NBFIs) include bolstering regulatory frameworks that promote transparency and accountability.  He stressed the critical importance of compliance with disclosure requirements for asset management companies, insurance companies and hedge funds as this provides regulatory bodies with the essential data needed to assess potential risks effectively.

Dr. Farid highlighted the crucial importance of monitoring indicators for effectively managing these risks. He suggested exploring a wider range of indicators designed to reflect the unique characteristics of each non-banking financial institution.  He further explained that developing indicators to assess the interconnectedness between these institutions and the broader financial system would provide a more comprehensive view of potential risks.

He also noted that FRA has established a dedicated Financial Stability Unit to foster sustainable development within the non-banking financial sector and crucially, to mitigate various systemic risks.

On the other hand, FRA Chairman underscored that collaboration among regulatory bodies, NBFIs and academic researchers is vital for improving monitoring indicators. He stressed the necessity for regulatory authorities and financial institutions to work together, exchange ideas, best practices and information related to potential risks.

Dr. Farid further pointed out that utilizing technological advancements and data analytics will empower regulatory bodies to enhance their monitoring of emerging trends. This enhanced monitoring capability, he explained, will also facilitate a more rapid and effective response to emerging challenges within the NBFIs.