Makhlouf: Growth of non-bank sector leaves regulators 'concerned'

The non-bank financial institutions comprise of investment funds, insurance companies, pension funds among other financial intermediaries

Gabriel Makhlouf said: 'My number one area for potentially having new rules is with non-banks, where the non-bank sector has grown significantly in size.' File picture: Shane O'Neill, Coalesce

The non-bank financial intermediation sector has grown “significantly in size” to the point where regulators around the world are “concerned”, the Governor of the Central Bank has said, adding that it is his “number one area” for potentially bringing in new rules.

The non-bank financial intermediation (NBFI) sector comprises a number of different financial activities with non-bank financial institutions comprising investment funds, insurance companies, pension funds among other financial intermediaries.

According to the Financial Stability Board — an international body that monitors and makes recommendations relating to global financial systems — these institutions are playing an increasingly important role in financing the real economy and are an alternative to bank financing.

Speaking to media at the Central Bank’s Financial System Conference, Gabriel Makhlouf said: “My number one area for potentially having new rules is with non-banks, where the non-bank sector has grown significantly in size.

Ireland is one of the global centres for non-bank financial intermediation. 

Mr Makhlouf said they have already introduced some rules to regulate non-banks in Ireland but the “direction we have to move in with non-banks is on a global basis”.

"We had specific concerns that were particular to Ireland, and we have addressed them. So, for example, we were concerned at the exposure of property funds and over-leveraged property funds in the Irish market. We introduced some new rules, which kick in in 2027.

"In September 2022, the sort of crisis that came out of the UK's budget with sterling-denominated Liability Driven Investment funds and we also then worked with the Luxembourg authorities and UK authorities to put in place rules to help manage that particular exposure,” he said.

In July, the Financial Stability Board published a series of recommendations to help address the financial stability risks created by non-bank financial intermediation leverage. Under its approach, regulatory authorities should identify such risks and have appropriate policy measures in place to address the risks they identify.

Mr Makhlouf said he cannot say how exactly the industry is going to develop, but even if it doesn't develop, it's “pretty clear across the globe, from the Financial Stability board's recommendations, that it's grown enough for regulators around the world to be concerned about it and feeling that we need to do something about how we manage it”.