Strengthening Capital Markets--National Progress and Gaps

Departmental Papers, June 29, 2022

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Discusses progress on post-global financial crisis (GFC) reforms and emerging challenges in capital markets regulation and supervision, drawing on analysis and insights from the IMF’s Financial Sector Assessment Program (FSAP).
FSAP analyses shed light on implementation of post-GFC reforms to strengthen prudential and conduct supervision of capital markets.
Highlights new regulatory and supervisory challenges arising from: the growth of bond markets, benchmark transition, digitalization, and climate change.
Key takeaway: significant progress in oversight of market intermediaries and infrastructures, alongside a case for further action to address vulnerabilities from high and rising interconnectedness of the asset management sector with the global economy, especially to foster stronger liquidity risk management.
Emerging priority areas: ensuring adequacy of issuer disclosures and quality of auditing; examining and appropriately calibrating the regulatory perimeter in light of market developments; and proactively safeguarding the operational independence of supervisory authorities and adequacy of their resources to implement fit-for-purpose regulatory frameworks.

Significant progress with respect to oversight of market intermediaries and infrastructures.
Need for further regulatory and supervisory action to address vulnerabilities arising from:
- High and rising interconnectedness of the asset management sector with the global economy.
- Liquidity risk management shortcomings in asset management.

Growth of bond markets.
Benchmark transition.
Digitalization.
Climate change.
Implications include the need to:
- Ensure adequacy of issuer disclosures.
- Improve quality of auditing.
- Re-examine and calibrate the regulatory perimeter.
- Safeguard operational independence and resource adequacy of supervisory authorities.

Foster stronger liquidity risk management in the asset management sector.
Ensure issuer disclosures are adequate and auditing quality is high.
Examine and appropriately calibrate the regulatory perimeter in light of market developments.
Proactively safeguard the operational independence of supervisory authorities.
Ensure supervisory authorities have adequate resources for implementation of regulatory frameworks that are fit-for-purpose given market developments and evolution.