US regulators flag risks at non-bank financial firms
US watchdog worried about potentially risky practices at firms not subject to banks' rules
The US financial risk watchdog has raised red flags about new, potentially risky practices by asset managers and non-bank mortgage servicers, which it said were not regulated as carefully as banks.
The Financial Stability Oversight Council highlighted those sectors in a report published on Wednesday.
The group watches out for market risks and imposes additional regulation on big "systemic" firms, the collapse of which could harm the financial system.
Regulators said they are concerned some traditional bank activities are moving to non-bank firms that are not subject to capital and liquidity requirements.
At issue are indemnifications that asset managers offer some clients involved in securities lending activities to guard against the risk of borrower defaults.
Although asset managers receive collateral in exchange for the securities they lend, the report raises concerns that indemnifications could leave asset managers at risk because they are not required to set aside capital.