Greater standardisation, simplification and transparency within the shadow banking sector could increase the use of alternative financing vehicles and support economic growth, according to the CFA Institute.
A study conducted by the CFA suggests that with limited credit available from banks, capital provided by alternative markets-based lenders could enable successful businesses to thrive, which, in turn, would boost the global economy.
The CFA has called for greater clarity around securitisation, particularly policy initiatives that focus on increasing standardisation and simplification of issuance structures.
According to the CFA, standardisation of legal frameworks across markets “would also improve the ease and certainty of enforcing ownership rights and creditor protections”.
A robust framework surrounding the reuse of collateral, has also been called for, which the CFA believes would mitigate the build-up of excessive leverage. Key elements include greater transparency for securities financing transactions via reporting transaction data to trade repositories and to investors.
Rhodri Preece, head of capital markets policy EMEA at the CFA Institute and author of the study, said non-bank finance could benefit global as well as European financial markets in Europe if the right measures were put in place to “stimulate demand and justify investor confidence”.
He added: “Amid the myriad of shadow banking policy initiatives, the challenge facing regulators is to achieve coherence in the implementation of these measures and to minimise regulatory gaps and overlaps.
“Shadow banking feeds directly into the capital markets union agenda because there is a desire from the policy perspective for markets-based finance to flourish and deepen the sources of finance available for European companies.”