February Global Regulatory Brief: Risk, capital, and financial stability

Recent periods of financial stress and the proliferation of risks across the financial system are fueling the development of regulatory initiatives to strengthen requirements and promote international best practice. The following policy developments represent a sample of wider regulatory and policy coverage available to Bloomberg Terminal customers. Run REGS <GO> to find out more or contact your Bloomberg representative to learn more:

• India: RBI consults on review of framework on Credit Derivatives
• Singapore: MAS consults on updates to liquidity risk management guidelines for FMCs
• EU: ECB publishes recommendations to streamline EU banking rules
• New Zealand: The RBNZ announces changes in bank capital rules

RBI consults on expanded credit derivatives framework introducing TRS and credit index products

The Reserve Bank of India (RBI) has issued a draft direction proposing a consolidated and significantly expanded framework for India’s credit derivatives market across OTC and exchange-traded venues. The draft introduces Total Return Swaps (TRS) and enables credit index derivatives (including index CDS and futures on credit indices), alongside stronger participation rules, settlement governance and trade reporting requirements.

Detail

• New product: Total Return Swaps (TRS): The draft permits TRS as a credit derivative where the total return payer transfers the full economic performance of a reference asset (income + price movement) in exchange for a fixed or floating benchmark-linked payment. TRS may be offered by market-makers to resident entities (excluding individuals) without purpose restrictions, while TRS to non-residents is restricted to hedging.
• Credit index-based instruments enabled: The framework allows the underlying for CDS/TRS to be an index comprising eligible debt instruments, subject to index publication by an authorised benchmark administrator (RBI-authorised or SEBI-authorised, with RBI-authorised administrators required where indices include money market instruments). Exchange-traded products can include CDS on credit indices and futures on credit indices.
• Expanded eligible reference instruments: Eligible reference obligations/assets include money market debt instruments (e.g., CP/CD/NCD ≤1 year), rated INR corporate bonds/debentures, and unrated INR bonds issued by infrastructure SPVs. Securitised/structured obligations and various structured/credit-enhanced instruments remain excluded.
• Participant framework and guardrails: Market-maker eligibility is restricted to specified banks, large NBFCs/HFCs/SPDs meeting net owned fund thresholds (with RBI approval), and select DFIs, with a requirement that at least one party to every transaction be a market-maker or RBI-authorised CCP. Users are classified as retail vs non-retail, with retail users limited largely to hedging and (for OTC CDS) mandatory physical settlement plus notional/tenor constraints linked to underlying exposure.
• Settlement governance via determinations committee: FIMMDA must establish a Credit Derivatives Determinations Committee to make binding determinations on credit/substitution/succession events and to develop procedures for cash and auction settlement (including conducting auctions to set settlement reference prices).
• Enhanced reporting and oversight: Market-makers must report OTC trades to CCIL’s trade repository within 30 minutes, and also report amendments, novations, settlements and relevant events. The RBI also reserves powers to restrict entities from participation for violations.
• FPI participation and limits in exchange-traded products: FPIs may participate in exchange-traded CDS, and in credit index futures subject to conditions—e.g., long positions counting toward corporate debt investment limits, caps on gross short positions, and restrictions where indices include money market instruments.

What’s next

The draft Directions would apply to new credit derivative contracts once finalised, while existing contracts would continue under earlier directions until maturity. Consultation feedback is open until 27 February 2026.

MAS consults on updates to liquidity risk management guidelines for FMCs

Overview

The Monetary Authority of Singapore (MAS) has launched a consultation to update its guidelines on liquidity risk management (LRM) practices for fund management companies (FMCs). The revisions aim to align Singapore’s framework with international standards set by IOSCO and the Financial Stability Board (FSB), and to strengthen liquidity preparedness for collective investment schemes (CIS).

Context

The current LRM guidelines were introduced to ensure FMCs manage liquidity risks effectively. The proposed changes reflect IOSCO’s May 2025 recommendations on liquidity risk management for CIS and FSB’s December 2024 report on liquidity preparedness for margin and collateral calls. MAS also intends to update the Code on Collective Investment Schemes (CIS Code) to reinforce liquidity standards for money market funds.

Key takeaways

• Scope adjustment:
  • Exchange-traded funds (ETFs) will be excluded from the LRM guidelines.
• Redemption alignment:
  • Open-ended CIS established in Singapore and authorised by MAS must ensure redemption terms are consistent with the liquidity profile of underlying assets.
• Diversified liquidity tools:
  • FMCs should adopt a mix of liquidity management tools, including anti-dilution tools (ADTs) alongside quantitative measures such as suspension or gating.
  • At least one ADT is mandatory for funds investing primarily in less liquid assets.
• Cost incorporation:
  • Redemption costs must include explicit and implicit costs, such as market impact during asset sales, to protect investors during stress periods.
• Governance and disclosure:
  • Strengthened governance requirements and enhanced disclosures on the design and use of liquidity management tools.
• Holistic risk assessment:
  • FMCs must consider all potential liquidity risk sources, including margin calls during adverse market movements and operational delays in converting assets to cash, and integrate these into their LRM framework.
• CIS code update:
  • Introduces expectations on eligible deposits placed with financial institutions to strengthen portfolio liquidity in money market funds.

Next steps

• Consultation Deadline: Feedback is due by 28 February 2026.
• Implementation Timeline: Revised guidelines and CIS Code updates will take effect six months after publication.
• MAS encourages FMCs to begin preparations early, as some firms have already adopted these practices.

ECB publishes recommendations to streamline EU banking rules

The European Central Bank’s (ECB) High-Level Task Force on Simplification (HLTF) has issued 17 recommendations to simplify the EU’s prudential regulatory, supervisory and reporting framework for banks. The aim is to reduce complexity while preserving prudential resilience and harmonisation across the Single Market. The recommendations will directly inform the European Commission’s forthcoming Report on the banking system in the Single Market, expected in Q3 2026.

Context

The HLTF was created in March 2025 by the ECB’s Governing Council to identify ways to simplify the prudential rulebook without compromising financial stability. The recommendations will support the Commission’s evaluation of competitiveness and regulatory burden, following a public consultation planned for H1 2026.

Key takeaways

• The 17 recommendations abide by the following principles:
  • Resilience should be maintained; simplification is not deregulation
  • Effectiveness in meeting prudential objectives needs to be maintained
  • European harmonisation and financial integration should be fostered
  • International cooperation should be upheld
• The recommendations to simplify the regulatory framework are:
  • Reduce number of capital stack elements
  • Adjust design or role of capital instruments
  • Dedicated, prudent and simpler regime for smaller banks
  • Automatic macroprudential reciprocation
  • Align MREL and TLAC frameworks more closely
  • Refocus from directives to regulations and streamline level 2/3 acts
  • Simplify EU stress test
  • Take a holistic view on overall level of capital
  • Finalise savings and investment union and banking union
• The recommendations to simplify the supervisory framework are:
  • Increase the risk focus of supervision by changing the level of prescriptiveness of regulation governing supervisory processes
  • Strengthen and complete the EU Single Rulebook to simplify and harmonise supervisory practices
• The recommendations to simplify the reporting framework are:
  • Request once: step up coordination and data sharing among key stakeholders
  • Report once: establish an integrated reporting system applicable across domains
  • Resubmit less: reduce the number of data resubmissions required from banks
  • More transparency: regular and structured publication of reporting initiatives
  • Review regularly: a coordinated, periodic review of reporting requirements
  • Reform public disclosure: increase consistency between European reporting and disclosure requirements and extend the Pillar 3 Data Hub

Process & implementation considerations

• The ECB’s Governing Council has approved the recommendations. Any move to implementation will require collaboration among the Commission, ESCB, SRB, ESRB, EBA and ECB, with consideration for non-SSM countries. Reporting simplification work will continue with ESAs, SRB, national competent authorities, NCBs and the Joint Bank Reporting Committee.

Next steps

• Commission’s competitiveness report expected Q3 2026.
• Further proposal development by EU authorities before any formal legislative or supervisory changes.

Reserve Bank of New Zealand announces outcome of capital review

Following the completion of a review commissioned by the Board of the Reserve Bank of New Zealand (RBNZ) in March, the central bank announced ‘modernised capital rules that will support an efficient and resilient financial system’.

Detail

Between 2017 and 2019, the RBNZ completed an extensive review of New Zealand’s capital framework. This resulted in the decision to significantly improve the quantity and quality of capital that banks are required to hold to improve the resilience of the banking system. These requirements were set to gradually phase in until 2028.

Given that the environment had changed since the capital settings were decided in 2019, the RBNZ considered 2025 to be an appropriate time to reassess key capital settings: there had been changes in the legislative and broader environments since it had last reviewed capital requirements between 2017 and 2019. In addition, stakeholders had expressed views that the bank capital requirements were unreasonably conservative and undermining competition and growth in the New Zealand economy.

In August of this year, the central bank published a consultation paper seeking feedback on its proposals for key capital settings of deposit takers. It received submissions from 43 submitters.

The announced key decisions on capital settings for deposit takers include:

• The introduction of Loss Absorbing Capacity (LAC) for the largest deposit takers – a new tool that can help recapitalise a distressed deposit taker.
• A variety of technical adjustments summarised in the decision document, and following Australia in eliminating Additional Tier 1 (AT1) capital.
• Greater proportionality into capital requirements relative to current settings, particularly by introducing more granular and lower risk weights in the standardised approach used by mid-sized and smaller deposit takers.

Stated RBNZ Governor Anna Breman: “These new settings will reduce the overall cost of deposit takers’ funding, which we expect to see passed on as benefits to New Zealanders through increased lending and reduced rates, which we will monitor closely”.

Next steps

• More detailed information will be published in February 2026, including a response to submissions.
• The final decisions on key capital settings will be incorporated into the Capital Standard under the Deposit Takers Act 2023, which is scheduled to take effect in 2028.
• The RBNZ plans to consult on an exposure draft of the Capital Standard alongside other standards in 2026.
• It intends to introduce some changes, in particular, changes to risk weights, earlier in 2026.
• It will not proceed with any further increases under the 2017 to 2019 Capital Review implementation schedule.