Classification by Economic Functions Exhibit 1 Economic Function Definition Typical entity types Management of collective investment EF1 vehicles with features that make them Fixed income funds mixed funds, credit susceptible to runs hedge funds, real estate funds Finance companies, leasing companies, EF2 Loan provision that is dependent on short term funding factoring companies, consumer credit Intermediation of market activities that is EF3 dependent on short-term funding or on Broker-dealers secured funding of client assets Facilitation of credit creation Credit insurance companies, financial guarantors, monolines Securitisation-based credit intermediation Securitisation vehicles and funding of financial entities Non-bank financial entity types typically classified into the five economic functions include certain entities that are susceptible to runs(EF1), lending dependent on short-term funding (EF2), market intermediation dependent on short-term funding or secured funding of client assets(EF3), facilitating credit creation(EF4), and securitisation-based intermediation(EF5) The measure of shadow banking based on economic functions presented in this report covers 26 jurisdictions. As part of the shadow banking information-sharing exercise, as described in the FSBs Policy Framework, these jurisdictions considered the business models, activities and associated shadow banking risks of non-bank financial entities and classified these entity types into the five economic functions. Classification was generally based on the guidance provided in the Policy Framework and through the information-sharing among FSB members with respect to shadow banking activities and risks. In this regard, the classification allows for supervisory judgment regarding which non-bank financial entities'activities give rise to shadow banking risks. While such judgment was permitted, the classification choice benefited from discussions with other participating authorities at workshops organised by the fsb to better understand and improve the consistency of each other's approach to identifying entities by economic functions. Given the element of supervisory judgment and also developments in business models and risk profiles, it may be the case that entity classifications change over time based on shifts in entity types'activities or risks, and supervisors' judgment of the materiality of such risks. Since this is the first year that the classification of non-bank financial entities by economic functions has been implemented by all FSB jurisdictions, the choice of whether particular entity types are classified as shadow banking can differ across jurisdictions. Further refinement of the classification process will take place going forward 21 The FSb Policy Framework acknowledges that shadow banking may take different form jurisdictions due to ifferent legal and regulatory settings as well as the constant innovation and dynamic nat non-bank financial sector. It also enables authorities to capture new structures or innovations that create shade ks, by looking through to the underlying economic function and risks of these new innovative structures he entity types listed should be taken as typical examples 88 Classification by Economic Functions Exhibit 1 Economic Function Definition Typical entity types21 EF1 Management of collective investment vehicles with features that make them susceptible to runs Fixed income funds, mixed funds, credit hedge funds, real estate funds EF2 Loan provision that is dependent on short￾term funding Finance companies, leasing companies, factoring companies, consumer credit companies EF3 Intermediation of market activities that is dependent on short-term funding or on secured funding of client assets Broker-dealers EF4 Facilitation of credit creation Credit insurance companies, financial guarantors, monolines EF5 Securitisation-based credit intermediation and funding of financial entities Securitisation vehicles Non-bank financial entity types typically classified into the five economic functions include certain entities that are susceptible to runs (EF1), lending dependent on short-term funding (EF2), market intermediation dependent on short-term funding or secured funding of client assets (EF3), facilitating credit creation (EF4), and securitisation-based intermediation (EF5). The measure of shadow banking based on economic functions presented in this report covers 26 jurisdictions. As part of the shadow banking information-sharing exercise, as described in the FSB’s Policy Framework, these jurisdictions considered the business models, activities, and associated shadow banking risks of non-bank financial entities and classified these entity types into the five economic functions. Classification was generally based on the guidance provided in the Policy Framework and through the information-sharing among FSB members with respect to shadow banking activities and risks. In this regard, the classification allows for supervisory judgment regarding which non-bank financial entities’ activities give rise to shadow banking risks. While such judgment was permitted, the classification choice benefited from discussions with other participating authorities at workshops organised by the FSB to better understand and improve the consistency of each other’s approach to identifying entities by economic functions. Given the element of supervisory judgment and also developments in business models and risk profiles, it may be the case that entity classifications change over time based on shifts in entity types’ activities or risks, and supervisors’ judgment of the materiality of such risks. Since this is the first year that the classification of non-bank financial entities by economic functions has been implemented by all FSB jurisdictions, the choice of whether particular entity types are classified as shadow banking can differ across jurisdictions. Further refinement of the classification process will take place going forward. 21 The FSB Policy Framework acknowledges that shadow banking may take different forms across jurisdictions due to different legal and regulatory settings as well as the constant innovation and dynamic nature of the non-bank financial sector. It also enables authorities to capture new structures or innovations that create shadow banking risks, by looking through to the underlying economic function and risks of these new innovative structures. Thus, the entity types listed should be taken as typical examples