MEXICO CITY/LONDON International watchdogs, working to tighten-up global regulation after the financial crisis, are moving ahead with plans to extend their reach to "shadow banks" such as money-market funds that handle trillions of dollars in short-term investments.
Policymakers have already tightened regulation for mainstream banks but are keen to stop higher-risk activities shifting to less supervised areas such as off-balance sheet units, hedge funds and money-market funds, which contributed to the crisis.
This is a clear signal there will be no let up for the financial sector despite warnings that introducing too many rules could hinder global economic recovery.
The Financial Stability Board (FSB), a task force from the world's top 20 economies (G20), told the group's finance ministers gathered in Mexico on Monday the new rules for what some also call "parallel" banks would be ready in September.
"The approach is designed to be proportionate to financial stability risks," FSB Chairman Mark Carney wrote to G20 finance ministers. He said the aim was to focus on activities that were material to the financial system and to make use of lessons from the last crisis.
He wants to reduce the susceptibility of money market funds to "runs" as seen in the early part of 2007-2009. The FSB will publish draft rules for consultation shortly.
The FSB is struggling to keep on track implementation of a whole series of rules already agreed by the G20 and some deadlines are slipping.
"The key determinant of the effectiveness of reforms is whether they are implemented in a timely, consistent and complete manner," Carney said.
For example, the world's top 28 banks will get another six months to June 2013 to show how they can be wound down in a crisis without wreaking the havoc caused by the collapse of Lehman Brothers in 2008.
This delay was due to "uneven headway" made so far, highlighting the difficulties regulators face in following through on pledges the G20 made in the aftermath of Lehman.
Also, the United States and European Union are set to miss a January deadline to implement new bank capital rules - known as Basel III, the G20's main response to the financial crisis.
Progress is also slow on cutting the financial sector's reliance on credit ratings for investment decisions or for calculating how much capital banks should hold.
As a result, the FSB has tried to speed things up by telling global banking regulators to identify proposals by the end of this year to trim the use of ratings and implement them by January 2016. National supervisors must implement alternatives to ratings by the end of 2015.
The G20 is still trying to stop banks becoming "too big to fail", which covers banks the markets believe would be bailed out in a crisis.
Carney, also governor of the Bank of Canada, suggested that G20 ministers could request a full assessment next September on whether further action was needed on this issue.
The FSB also set out a timetable for extra scrutiny of second tier banks and big insurers.
Important domestic banks will have to hold more capital from 2016, if required by regulators, while insurers deemed to be "systemically important" in 2017 will have to hold extra capital from 2019.
(Reporting by Huw Jones. Editing by Jane Merriman)