Non-bank financial intermediation (NBFI), crypto-assets and decentralised finance (DeFi) and cross-border payments topped the list of the FSB’s priorities for 2023, which its Chair Klaas Knot outlined in a recently published letter.

Laying out the work priorities for 2023 Knot noted the recent easing in the state of the global economy, however, also warned that while the expectations of a ‘soft landing’ for it have grown, the outlook remained clouded by uncertainty.

“The combination of near record-high levels of debt, rising debt service costs and stretched asset valuations in some key markets could pose serious threats to financial stability.”

“Our ambitious workplan for 2023 highlights the various areas in which progress will be made to further strengthen the global financial system, from climate risks to cross-border payments, crypto-assets to investment funds.”

Klaas Knot, Chair FSB

Cross-border payments

To achieve the G20 targets for enhancing cross-border payments, the FSB has set out these priority actions:

Payment system interoperability

• Central bank operators’ community of practice;
• FPS interlinking across borders; and
• Cross-border payment service level agreements/schemes.
  

Legal, regulatory and supervisory frameworks

• Central bank operators’ community of practice;
• FPS interlinking across borders; and
• Cross-border payment service level agreements/schemes.

Data exchange and message standards

• Interaction with data frameworks;
• ISO 20022 harmonisation requirements;
• API harmonisation; and
• LEI use.

The work will also involve payment summits, industry taskforces, monitoring and progress reporting, technical assistance and public outreach. The goal is to achieve the targets outlined by 2027.

LRS taskforce

To strengthen its goals, the FSB will create two taskforces that will boost and engage the private sector’s participation with its priorities. One, the LRS taskforce, will focus on legal, regulatory, and supervisory matters regarding cross-border payments and will:

• Provide input and feedback on frictions in legal, regulatory or supervisory frameworks regarding cross-border payments and other relevant data-related frameworks.
• Present analysis of potential areas for action that could address the frictions.

The FSB is now seeking approximately 30 members to join the taskforce. Once established the taskforce will meet at least once a quarter.

Crypto and DeFi

Another key work topic is crypto regulation and DeFi. As we reported earlier, the FSB has already warned that many stablecoins will not meet future regulatory standards. And in its recent report on DeFi and its financial stability risks, it also warned that the ”growth of DeFi has potential wide ranging implications for traditional financial markets, and DeFi inherits vulnerabilities of that system and may amplify them”.

The report also addressed the need for proactive monitoring of the technology in order to fill data gaps and explore what crypto-assets may need to cover DeFi risks.

“Data on crypto-asset markets in general and DeFi specifically, lack transparency, consistency, and reliability,” the report stated.

The FSB intends to have its recommendations for the regulation, supervision and oversight of crypto-assets and markets finalised by July this year. This will include its recommendations regarding global stablecoin arrangements.

“The combination of near record-high levels of debt, rising debt service costs and stretched asset valuations in some key markets could pose serious threats to financial stability.”

Klaas Knot

For non-bank financial intermediation, the FSB says that a key priority is the addressing of its vulnerabilities and the enhancement of its resilience more generally. The FSB’s report on financial stability aspects of commodity markets points to a number of vulnerabilities – such as the concentration of activities and the widespread use of leverage.

The report also warns about “the opacity of activities across physical and derivatives commodities markets”, which “hampers the assessment of vulnerabilities and make it difficult to quantify financial stability transmission channels”.

Strengthen global finance

Beside these key priorities, the FSB will also be focusing on enhancing cyber and operational resilience. A revised report on ‘achieving greater convergence in cyber incident reporting’ will be delivered to the G20 in April and appears to be closely aligned with a recent focus by the ECB on cyber risk.

Another point of focus is “climate-related financial risks through enhancements to disclosures, data and analysis of climate-related vulnerabilities”.

“Our ambitious workplan for 2023 highlights the various areas in which progress will be made to further strengthen the global financial system, from climate risks to cross-border payments, crypto-assets to investment funds”, commented Klaas Knot.