Shadow Banking

AFME’s actively engages with regulators on shadow banking issues.

Shadow Banking

The term ‘shadow banking’ is commonly used to refer to non-bank entities that undertake bank‐like activities, although a term such as ‘parallel banking’ probably provides a more appropriate description of these services because it does not imply that the activities are somehow hidden.

In November 2011, at the Seoul Summit, the G20 Leaders requested that the Financial Stability Board (FSB), in collaboration with other international standard setting bodies, develop recommendations to strengthen oversight and regulation of shadow banking.

The FSB has broadly defined shadow banking as credit intermediation involving entities and activities outside the regular banking system that results in systemic risk or regulatory arbitrage.

Since October 2011, the FSB and other international bodies have undertaken work on five shadow banking workstreams identified by the FSB:

Workstream 1: Interactions of banks with shadow banking entities (led by the Basel Committee)

Workstream 2: Money Market Funds (IOSCO)

Workstream 3: Other shadow banking entities (FSB)

Workstream 4: Securitisation (IOSCO)

Workstream 5: Securities lending and repo (FSB)

In parallel, European regulators are actively progressing work on shadow banking: The Commission released a green paper in March 2012 and the ECON published its own initiative report on shadow banking in October 2012.


The final Securities Financing Transaction Regulation text was adopted by the European Council and Parliament on 16 November 2015. AFME has developed key positions on Level 2 issues, and has met with the European Commission and others to discuss these issues. 

In March 2016, the European Securities and Markets Authority (ESMA) issued a Discussion Paper on the rules under SFTR, to which AFME responded.  Following that, in September 2016 ESMA issued a Consultation Paper on the draft technical standards implementing the SFTR, to which AFME also responded. 

EMIR – Margin rules for uncleared derivatives

In March 2016, the Joint Committee of the European Supervisory Authorities (consisting of the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and ESMA ) published the final draft Regulatory Technical Standards (RTS) outlining the framework of the European Market Infrastructure Regulation (EMIR), which set out margin rules for non-centrally cleared derivatives.

On 4 October 2016, the European Commission adopted a final draft text of implementing legislation under EMIR that will require parties to uncleared derivative transactions to exchange variation margin, beginning 1 March 2017. The AFME PB group, along with many other stakeholders and associations, did not believe that the industry would necessarily be able to fully comply by the 1 March deadline.  Therefore, the GFMA (along with The International Swaps and Derivatives Association (“ISDA”), The Investment Association (“IA”), Financial Services Roundtable (“FSR”), The ABA Securities Association (“ABASA”), and The American Council of Life Insurers (“ACLI”) wrote a letter to a number of national and international regulators and policymakers requesting forbearance from the 1 March 2017 compliance date for a prescribed period of time.  In addition, the AFME PB group wrote a separate letter (which explicitly supported the letter written by the GFMA, et. Al) which also requested forbearance based on concerns that are specific to prime brokerage.

At least partly as a result of these efforts, European, US and other regulators have generally agreed to some form of forbearance from the 1 March 2017 compliance date.


AFME continues to hold discussions, as well as educational and advocacy efforts, with respect to reuse/rehypothecation, both in a general sense, and specifically with respect to related reporting requirements under SFTR and other regulatory frameworks.