At the end of each month, the SAFE Regulatory Radar highlights a selection of important news and development on financial regulation at the national and EU level.
Private credit: FSB identifies key vulnerabilities
On 6 May 2026, the Financial Stability Board (FSB) published a report on financial stability vulnerabilities in private credit. The report narrowly defines private credit as non-bank direct lending to medium-sized companies negotiated on a bilateral basis. The global market for private credit was estimated at 1.5-2.0 trillion USA dollars at the end of 2024. For background on the growth of non-bank financial intermediaries and related financial stability channels, see SAFE White Paper No. 114.
The FSB does not characterize private credit as an imminent risk but stresses that the market has not been tested at its current size, scope, and sectoral concentration in a severe economic downturn. The report concentrates on four areas of vulnerability:
- Bank interlinkages: Direct bank lending to private credit funds remains small in aggregate (below 0.5% of total bank assets where separately identified) but estimates of total bank lending to private credit funds range from 220 billion to 500 billion USD.
- Borrower credit quality and valuation practices: Private credit borrowers typically lack public ratings; where rated, ratings cluster around the single B segment and often show higher leverage than comparable borrowers in broadly syndicated loan markets. Outright default rates remain at around 1% but rise to approximately 5% when selective defaults and distressed exchanges are included. Valuations are typically updated quarterly and involve significant discretion, with a growing reliance on private credit ratings provided by smaller, less established rating agencies.
- Liquidity, concentration, and retailization: Closed-end vehicles – funds that lock investors in for the fund's lifetime – still dominate, but around 20% of euro area private credit funds are open-ended (i.e., investors can request their money back periodically), three-quarters of which allow monthly or more frequent investor redemptions; semi-liquid and evergreen – funds that offer periodic withdrawal windows and have no fixed end-date – structures are also expanding in the United Kingdom and the United States. Sectoral concentration is high in technology, healthcare, and services, and private credit is materially contributing to financing artificial intelligence (AI)-related capital expenditure (estimated at 800 billion US dollars of the projected 1.5 trillion US dollars in external AI infrastructure funding over 2025–28).
- Data gaps: Regulatory reporting frameworks generally do not identify private credit as a separate category. In the EU, Alternative Investment Fund Managers Directive (AIFMD) reporting lacks granular fund- and loan-level data, look-through to indirect exposures, and standard identifiers (such as ISINs or LEIs) for many loan positions, which limits the assessment of multi-layered leverage, borrower-level total indebtedness and cross-sector interconnections.
To enhance monitoring of private credit across jurisdictions, the FSB proposes an initial list of "core" metrics that authorities should track in a comparable way, with the aim of supporting cross-border vulnerability assessment and reducing duplicative reporting for funds active in multiple jurisdictions. The FSB notes that further work is needed to prioritize the metrics, define calculation methods and thresholds, and clarify jurisdictional responsibilities.
ESMA advances integrated reporting for funds and a “report once” framework for transactions
On 4 May 2026, the European Securities and Markets Authority (ESMA) published a Final Report on the integrated collection of funds’ data and an Interim Report on the holistic review of transaction reporting. Both are part of ESMA’s simplification and burden-reduction agenda and aim to reduce duplicative reporting while improving the consistency, quality, and usability of supervisory data. The SAFE Policy Letter No. 109, outlines a similar proposal for auto securities explaining how simplification can rely on usage of pre-existing data and reporting fields.
- Integrated funds reporting: The final report has been submitted to the European Commission under Article 69a(2) of the AIFMD and Article 20b of the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive. ESMA proposes a single, modular, and dynamic reporting template, supported by a common regulatory data dictionary, aligned data semantics, centralized validation and common analytics. Under a hybrid operational model, data collection would remain at national level through national competent authorities (NCAs), while validation, storage, analytics, and data sharing are organized through a centralized EU data hub. Reporting would be proportionate to fund type, size, complexity, investment strategy, and risk profile: simpler funds would face fewer modules, and event-based modules (including “crisis response modules”) would be activated only when supervisory-relevant events occur. The first implementation phase would consolidate AIFMD and UCITS reporting; a second phase would extend the framework to other fund reporting obligations, including under the Money Market Funds Regulation (MMFR). The affected entities include Alternative Investment Fund Managers (AIFMs), UCITS management companies and other fund managers, as well as NCAs, national central banks, the European Central Bank (ECB) and ESMA.
- Transaction reporting: The Interim Report consolidates feedback from more than 100 respondents to the 2025 Call for Evidence and confirms that overlapping requirements, fragmented reporting channels, dual-sided reporting and unsynchronized regulatory changes are the main drivers of costs and complexity for market participants. ESMA will further assess two main avenues: First, an instrument-based approach, which would allocate reporting obligations according to the type of financial instrument while preserving the data needed by supervisors, and second, a longer-term “report once” framework spanning the European Market Infrastructure Regulation (EMIR), the Markets in Financial Instruments Regulation (MiFIR) and the Securities Financing Transactions Regulation (SFTR), under which the same transaction would not be reported multiple times. Medium-term measures under consideration include simplifying dual-sided reporting, reviewing reporting channels, assessing reduced reporting frequencies and improving proportionality. Final recommendations, including a cost-benefit analysis, are expected by mid-2026, following an open hearing which took place on 28 May 2026.
Updates
- On 11 May 2026, the European Commission published a report on the adequacy of the Money Market Funds Regulation (MMFR), together with frequently asked questions (FAQs) on minimum liquidity levels and the use of liquidity buffers. The Commission concludes that the MMF framework continues to function well overall. The FAQs clarify that regulatory liquidity thresholds are minimum requirements, not ceilings, and that MMFs may need to hold higher liquidity levels depending on investor concentration and stress-test results. They also confirm that MMFs with constant or low-volatility net asset value may temporarily use liquidity buffers under stressed conditions without automatically activating liquidity management tools. For earlier SAFE coverage of MMFR reform discussions, see the SAFE Regulatory Radar in April 2021.
- On 6 May 2026, ESMA published a statement presenting the results of its 2024 Common Supervisory Action on how investment firms integrate sustainability into suitability assessments and product governance under the Markets in Financial Instruments Directive (MiFID II). ESMA finds uneven practices across firms and member states and sets out interim supervisory expectations on sustainability preferences, product categorization, portfolio suitability, and target market assessment. Pending the review of the wider sustainable finance framework, ESMA calls on NCAs to apply proportionate supervision during the transition period, focusing on dialogue with firms except in cases of clear breaches or misselling. For previous SAFE coverage of sustainability preferences under MiFID II, see the SAFE Regulatory Radar in August 2022.
- On 8 May 2026, ECB Banking Supervision updated its compendium of good practices for climate and nature-related risk management and its report on climate and nature-related risk stress testing. The updated materials draw on practices already applied by more than 60 supervised institutions and focus on remaining gaps in areas such as physical risk, prudential transition planning, scenario analysis, and nature-related risks. This supervisory focus on climate and nature-related risk management relates to the Sustainability Standards Conference 2026, jointly organized by SAFE on 18 May 2026, which addressed the road to common sustainability standards and the real-world impact of sustainability disclosure, and a working paper on biodiversity stress testing by SAFE Bridge Professor Tobias Berg and co-authors.
Public consultations
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Author Sara Fadavi is Financial Policy Analyst in the SAFE Policy Center.
