Shadow banking: towards better identification, measurement and transparency?

• ACCA (the Association of Chartered Certified Accountants) says today’s publication by the European Commission of its Communication on shadow banking together with the proposal for a Regulation on Money Market Funds (MMF) is a step in the right direction, but fails to fully acknowledge the role of regulation in both creating and  tackling the ‘dark corners’ of the financial system.-

Emmanouil Schizas, Senior Economic Analyst at ACCA says: “The main thrust of the Commission’s Shadow Banking Communication is around identification, measurement and transparency of shadow banking flows. This is admirable, although it may be a while before the data gaps can truly be filled. Some quick(er) wins are possible, however. We are pleased that the Commission has hailed as ‘essential’ private initiatives on the labelling of asset-backed securities, such as the Prime Collateralised Securities (PCS) label. ACCA’s work with UEAPME and AFME has emphasised the value of such tools and we hope to see them refined further in the future.”

Similarly, the global accountancy body welcomes the Commission’s suggestion that the European Banking Authority (EBA) should review the definitions and identification of credit institutions in the member states. This would not only help ensure a level playing field, but also ensure that shadow banking would not be localised disproportionately in jurisdictions where it enjoys a regulatory advantage.

Emmanouil Schizas nevertheless warns that “the Communication, sharing as it does the G20’s intention to ‘eliminate the dark corners’ of the financial system, fails to properly acknowledge the fact that it is financial regulation itself, more than any other influence, that determines the size and shape of shadow banking. Extending capital rules to this sector needs to be carefully thought out, or it could end up creating no more than a new set of arbitrage opportunities.”

“Part of this sector exists only in order to take advantage of different regulation for economically equivalent transactions. To really control shadow banking, we need better regulations“, Emmanouil Schizas adds.

ACCA believes that the timing of the Communication, coinciding with the Financial Stability Board (FSB)’s recommendations on shadow banking, is evidence of much-needed international co-operation in this area.

“Europe can benefit greatly from the FSB’s global perspective. For instance, as the FSB’s research has clearly shown, the US’s share of the global shadow banking system is clearly shrinking (from 44% in 2005 to 35% in 2011), while that of the EU, and particularly the UK, is growing.[1] This trend is in line with faster deleveraging in the States, and has nonetheless coincided with a stronger recovery,” Emmanouil Schizas concludes.

[1] Source: FSB (2012) http://www.financialstabilityboard.org/publications/r_121118c.pdf

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For more information, please contact:

Cecile Bonino

Cecile.bonino@accaglobal.com

+32(0) 2 286 11 37 

1.      ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. We aim to offer business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management.

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