With net credit creation being largely reliant on bond finance, such a reallocation could generate a sharp deterioration in credit conditions for corporates and the risk may be particularly pronounced for cross-border flows to emerging markets. But what, beyond talking about it, can be done about this risk? Managing the risks in markets will require global co-ordination. The FSB provides the platform for authorities to monitor, analyse and address risks in a timely way. It brings all the relevant bodies together to develop this substantial body of work. Anticipating and managing market risk channels will be core to the future financial reform agenda. This point is relevant to work, currently underway, to develop a framework for identifying globally systemic non-bank non-insurer financial institutions. The fund management industry has become more concentrated, with the top 10 firms now accounting for almost one fifth of assets under management. However, size will not necessarily be the best indicator of systemic importance. It seems plausible that large unlevered funds with little maturity mismatch could pose few systemic risks. At the same time, smaller funds could be systemic if clusters of them conduct similar activities that do pose risks. Those activities include concentrated investments in illiquid assets, the potential for large short-term redemptions, and leverage, whether financial or embedded. As such, there may be merit in this activity-based systemic risk assessment over and above a purelyfirm-focussed approach to systemic designation. Of course, identifying systemic firms is just the first step in managing risks to global stability.
The alternative is the inefficient imposition of multiple regulatory regimes on the same markets and institutions. In this regard, the way is being led in OTC derivatives regulation where progress has been made in establishing that regulators should defer to each other, based on an assessment of whether their regulatory regimes deliver similar outcomes. Urgency is needed in applying that principle if we are to alleviate reductions in market liquidity and FSB members should begin to consider whether and where more widespread adoption of flexible approaches to regulating could be exploited. The FSB is fully committed to supporting continued openness of the global system and to pursuing a new phase of global financial reform. To ready itself for its new roles, it has agreed changes to the structure of its representation, strengthened the inclusiveness of its working procedures and taken steps to increase the transparency of its operations.26 Currently emerging economies are on track, by the middle of the century, to account for the majority of G20 GDP and equity market capitalisation. It is essential that their increasingly important role in the global economy is reflected in the FSB and other international organisations. The changes we have made to increase the number of seats held by emerging markets will allow us to reflect that while maintaining effectiveness in decision making. 26  12  FSB (2014d) reports on the changes to the structure of FSB representation.