Global policymakers have a lot of work to do to enhance oversight of the so-called “shadow banking” sector, according to report from the Financial Stability Board (FSB) published on Wednesday.

The FSB peer review of the progress that various countries have made implementing its approach to strengthening the oversight and regulation of shadow banking firms in the wake of the financial crisis conclude that implementation “remains at a relatively early stage”.

“More work is needed to ensure that jurisdictions can comprehensively assess and respond to potential shadow banking risks,” the FSB says in a statement.

Among other things, the peer review found: differences and inconsistencies in the classification and assessment of shadow banking risks; existing data reporting and disclosure arrangements are not usually designed for collecting specific shadow banking information, so they may not be adequate for identifying risks; and policy tools available to address shadow banking risks may not be sufficient.

It peer review also notes that investment funds represent the majority of shadow banking assets, and have seen the fastest growth in recent years. “This underscores the growing importance that securities regulators play in promoting financial stability,” the FSB says.

For Canada, the peer review notes that federal banking regulators lack a legal mandate to collect data from non-federally regulated financial institutions, and there are gaps in the availability of data for assessing shadow banking risks. It also says there are no formal channels for sharing of data between securities regulators and other financial regulators, and policy tools, especially for investment funds and finance companies, are “limited but no additional tools are deemed to be currently necessary.”

The peer review makes a number of recommendations to enable countries to fully implement the FSB policy framework. Countries should: establish a systematic process to assess shadow banking risks; address data gaps; remove impediments to co-operation and information-sharing between authorities; and bolster public disclosures from shadow banking firms to help shed light on the risks posed by these firms.

“Important steps have been taken in recent years to establish frameworks to assess the risks posed by non-bank financial entities. But much work is still needed, both by member authorities and by the FSB, to ensure effective implementation of the policy framework,” says Carolyn Wilkins, senior deputy governor of the Bank of Canada, who chaired the FSB peer review team, in a statement.

The FSB will continue to monitor implementation of the policy framework, including the recommendations released today, the regulator says. It will also conduct follow-up work to: enhance consistency across jurisdictions; develop approaches to help jurisdictions better monitor and assess risks due to interconnectedness and cross-border activities of shadow banks; and facilitate the sharing of information on policy tools and public disclosures.

“Transforming shadow banking into resilient market-based finance is a key priority for the FSB. The objective is not to curtail non-bank credit intermediation, but to monitor and mitigate financial stability risks arising from such activities. The findings of the peer review provide a good baseline to monitor future developments, and its recommendations will maintain the momentum for reform,” adds Ravi Menon, managing director of the Monetary Authority of Singapore (MAS) and chairman of the FSB committee that oversaw the review.