Don't Freeze the Frame: The Next Phase of Global Financial Oversight

Global regulators have already diagnosed the risks shifting across modern financial systems. The real challenge is no longer risk discovery - it’s designing oversight that evolves as fast as the market it watches.

1. A System That Doesn't Sit Still

It's tempting to frame this as a discovery: financial intermediation in India looks structurally different from the US, UK, and EU. It doesn't need discovering - regulators say so themselves, clearly and often. The IMF's 2025 Financial Sector Assessment Program (FSAP) for India benchmarks the country's ~60% bank-asset share directly against global peers (International Monetary Fund [IMF], 2025a). The RBI's Deputy Governor devoted an entire speech, "No more a shadow (of a) bank," to explaining why India's non-bank financial companies (NBFCs) shouldn't be read through the Western "shadow banking" lens (Rao, 2024). The FSB's Global Monitoring Report differentiates the composition of NBFI growth in emerging markets from that in advanced economies (Financial Stability Board [FSB], 2025a). The Bank of England has built its leverage and liquidity toolkit around the specific structure of UK market-based finance (Bank of England [BoE], 2025a).

The genuinely interesting question sits one level deeper: financial intermediation isn't a fixed thing regulators can eventually "finish" mapping - it's constantly acquiring new instruments, new technology, and new channels (co-lending, AI-driven underwriting, private credit, real-time payment rails). So the fair test of a regulatory response isn't just "did it name the risk correctly," but "is it built to keep evolving at the same speed as the system it watches, or does it freeze the moment it's issued?" This piece looks at several places where regulators have done real, credible work - and a few where the response is still working to keep pace with a fast-evolving system.

2. The Backdrop, Briefly

Globally, non-bank financial intermediation (NBFI) grew 9.4% in 2024 - roughly double the banking sector's 4.7% - and now accounts for 51% of global financial assets, or $256.8 trillion (FSB, 2025a, 2025b). The "narrow measure" of NBFI activity capable of bank-like systemic risk rose 12% to $76.3 trillion (FSB, 2025b). In the US, UK and EU, this growth is concentrated in leveraged, market-based finance - private credit, hedge funds, and structured vehicles. US private credit alone stands at roughly $1.3–1.75 trillion, with an addressable market McKinsey estimates could exceed $30 trillion (Creative Planning, 2026; McKinsey & Company, 2026; Mordor Intelligence, 2026). UK banks' exposure to NBFIs, including leveraged hedge funds, has grown to over 20% of total bank assets, and hedge fund gilt repo borrowing hit a record £77 billion in 2025, 90% concentrated among a handful of funds (BoE, 2025a,c). In India, banks still hold ~60% of system assets, NBFC credit-to-GDP is a comparatively modest ~12.6%, and the more transformative shift has been digital: UPI processed roughly ₹314 lakh crore (~$3.7 trillion) across 24,162 crore transactions in FY 2025–26 (IMF, 2025a; Press Information Bureau [PIB], 2026a; Rao, 2024).

Each jurisdiction has, to its credit, built real tools in response - India's scale-based NBFC regulation, the UK's Contingent NBFI Repo Facility (CNRF), the EU's tightened counterparty credit risk guidelines, and the FSB's global leverage framework (BoE, 2025b; European Systemic Risk Board, 2025; FSB, 2025c; RBI, 2025). The question below isn't whether these tools were the right idea - most clearly were - but whether they're designed to stay current as the underlying system keeps shifting.

3. India: A Payments Rail Built for Scale, Still Working Out How to Share the Load

UPI is genuinely world-leading digital public infrastructure - the IMF has recognised it as the world's largest real-time payments system, handling an estimated 49% of global real-time transactions (PIB, 2026b). Its one structural soft spot is well understood by its own regulator: heavy concentration among two private third-party app providers sitting atop a single national payment rail.

NPCI proposed a 30% volume cap per app back in 2020 (MediaNama, 2025). Rolling it out has proven harder than expected, and the deadline has been pushed back three times - most recently to December 2026 - as NPCI works through genuine enforcement complexity in a system processing tens of billions of transactions a month (CoinGeek, 2025; MediaNama, 2025). PhonePe and Google Pay together still account for roughly 80–83% of UPI volume (Oxigen Wallet, 2026). This is a case where the underlying rail is a real success story, and where the remaining work - building an enforceable, technically workable path to a more distributed provider base, alongside published operational-resilience testing for the two dominant apps - is well within reach, provided the next deadline comes with a firm mechanism rather than another extension.

4. India: Bank–NBFC Links, Fast Innovation Meeting an Evolving Rulebook

A second area where India's regulator has been notably proactive is bank–NBFC interconnectedness through co-lending, direct assignment, and securitisation. The RBI's own December 2025 Financial Stability Report found that banks acquire around 80% of these assets through a limited number of NBFCs, and flagged this concentration as a channel for correlated stress (Business Standard, 2025b). It also found that acquired loan pools at public-sector banks have underperformed those banks' own originations (Business Standard, 2025b) - useful, early information precisely because the RBI is actively monitoring the channel.

The response has been fast by regulatory standards: new Co-Lending Arrangements Directions (August 2025) and new Investment in AIF Directions (July, 2025), both binding from January 2026, directly address exposure limits and provisioning after the RBI first flagged growing bank–NBFC–AIF interlinkages in its December 2023 FSR (Cyril Amarchand Blogs, 2025; K&S, 2025; Law.asia, 2025). The two-year span between first flagging the risk and the rules taking binding effect is not unusual for prudential rulemaking anywhere in the world - but because co-lending and securitisation structures continue to innovate, the more durable fix is less a one-time rulebook and more a standing, originator-level exposure map that updates as new structures emerge, rather than a periodic reset every few years.

5. A Shared Frontier: AI Oversight Built for Today's Use Cases, Not Yet for Tomorrow's

Every major regulator now has a live AI workstream, and each is reasonably matched to the AI use cases most visible in its own market today. India's 2025 "Framework for Responsible and Ethical Enablement of AI" (FREE-AI) is built to keep AI-driven credit scoring and customer-service tools transparent, accountable, and free of bias (The Policy Edge, 2026) - a sensible starting point given how AI is currently used in Indian retail lending. The Bank of England, FSB, and IMF are focused on a different, currently more visible risk in their markets: correlated, procyclical AI-driven decision-making in capital markets, and the possibility that a handful of common AI model or data providers could concentrate risk across otherwise independent institutions (BoE, 2025d; FSB, 2024; International Monetary Fund, 2026).

As AI-driven underwriting spreads further across NBFCs and digital lenders - many of which already draw on overlapping alternative-data providers and credit-scoring models - the correlation-risk lens the BoE and FSB have built for capital markets is likely to become just as relevant to Indian retail credit, and the FREE-AI framework is well positioned to extend into that territory as adoption deepens. The forward-looking move for every jurisdiction here, not just India, is to build AI oversight as a living framework - one that adds a systemic-correlation lens alongside conduct and bias monitoring as usage patterns evolve, rather than treating either lens as a one-time deliverable.

6. Advanced Economies: Fast-Growing Markets, Data Infrastructure Evolving Alongside Them

The FSB has, in successive Global Monitoring Reports, flagged persistent limitations in the availability of regulatory data for private credit (FSB, 2025b), a market that has grown quickly even as the reporting gap has been repeatedly noted. Interconnectedness between banks and private credit vehicles has also grown fast: credit lines from the largest US banks to private credit vehicles rose about 145% between 2020 and 2024, to roughly $95 billion (Creative Planning, 2026). The FSB's July 2025 "Leverage in NBFI" report and the Bank of England's CNRF, live since January 2025, are concrete, welcome responses (BoE, 2025b; Global Regulation Tomorrow, 2025) - the kind of infrastructure that gives authorities real options in a stress event. The natural next step, and one several regulators are already moving toward, is pairing these backstops with faster, more granular private credit reporting, so the tools and the visibility into what they're meant to backstop can develop on the same timeline.

7. Where Things Stand

Risk area	First flagged	Where the response stands today
UPI provider concentration (India)	2020 (NPCI 30% cap proposed)	Rolling out in phases; deadline extended to Dec 2026 while enforcement mechanics are finalised
Bank–NBFC correlated exposure via co-lending/AIFs (India)	Dec 2023 FSR	New Directions issued mid-2025, binding from Jan 2026
AI-driven correlation risk in retail/NBFC lending (India)	Emerging; not yet a distinct focus area	FREE-AI (2025) covers bias/transparency; well placed to extend to correlation monitoring as usage grows
Private credit data gaps (US/global)	Flagged in successive FSB reports	Reporting infrastructure still being built out; FSB actively working the issue
NBFI leverage concentration (UK)	Long-standing FPC focus; record £77bn hedge fund gilt repo borrowing in 2025	CNRF backstop live since Jan 2025; not yet tested in a full stress event
AI-driven market correlation in capital markets (UK/global)	BoE, FSB, IMF, 2024–2026	Actively studied; oversight approach still being designed

8. What Keeping Pace Could Look Like

None of this calls for a wholesale rethink - the diagnostic work across all four jurisdictions has genuinely been strong. What would help most is building the next round of responses to update themselves as the system evolves, rather than resetting only when the next report flags a new gap:

1. Give the UPI concentration cap a firm, technically detailed glide path, paired with interim operational-resilience and failover disclosures from the dominant apps - so the next deadline is a step in a visible plan rather than another pause.

2. Turn the new Co-Lending and AIF Directions into a living, originator-level exposure map across banks, updated as new structures emerge, rather than a fixed rulebook revisited only at the next FSR cycle.

3. Extend AI governance frameworks - FREE-AI and its counterparts elsewhere - to add a correlation lens alongside conduct and bias oversight, on a rolling basis as adoption patterns shift, rather than as a one-off framework.

4. Set a fixed, phased timeline for building out private credit reporting, starting with the largest managers, so leverage limits and backstops like the CNRF can be calibrated against real-time exposure as the market keeps growing.

5. Run (and where possible publish) regular stress tests of newer backstops like the CNRF, on an ongoing cycle rather than waiting for the first real stress event to reveal their limits.

   
   

9. Conclusion

Every risk discussed here has already been named, in writing, by the regulator closest to it - often well ahead of when this piece is written, which is itself a genuine strength of the current system. The real opportunity now is less about spotting new risks and more about designing the response mechanisms - data infrastructure, exposure mapping, AI oversight - to evolve continuously alongside a financial system that will keep changing shape, in India, the US, the UK and the EU alike. That shift, from periodic fixes to standing, adaptive capacity, is well within reach given how much groundwork regulators in all four jurisdictions have already laid.

Disclaimer: The views and opinions expressed in this article are solely those of the author and do not reflect the official policy or position of any affiliated institution or organization.

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