By Huw Jones

LONDON (Reuters) - Regulators should keep on open mind when writing rules for the world's $239 trillion "non-bank" financial sector to avoid one-size fits all approaches, the EU's top securities watchdog said.

Non-banks, a sector which includes hedge funds, real estate funds, insurers and private investments and now account for about half of the world's financial sector, are firmly in the regulatory limelight.

This follows redemption-related stresses among money market funds (MMFs) during a "dash for cash" when economies went into pandemic lockdowns in March 2020, and last year with liability-driven investment (LDI) funds in Britain.

European Securities and Markets Authority (ESMA) chair Verena Ross said regulators are closely examining non-banks' leverage, liquidity and their connectivity with banks.

"We must not equate non-banks with investment funds, it's important to keep an open mind," Ross told Reuters on Thursday, adding: "Each sector must be looked at quite specifically."

Pressure for action rose after the U.S. Federal Reserve had to inject liquidity into markets to help MMFs in March 2020. The Bank of England then had to intervene after LDI funds struggled to meet collateral calls in 2022.

The U.S. Financial Stability Oversight Council(FSOC) this month published a framework for analysing risks in non-banks.

Meanwhile, the BoE has called for tougher liquidity rules for MMFs, but sterling-denominated funds are listed in European Union countries such as Ireland and Luxembourg, where the rules are written by the 27-member bloc.

MMFs come under UCITS or AIFMD rules, recently updated to bolster resilience, Ross said.

There are also separate bespoke EU rules for the sector

"MMFs have been identified as one area there is clearly a need to act, but that need to wait for the next Commission. We still believe it's important to pick that up, " Ross said.

Although ESMA has already recommended changes to MMFs to bolster their resilience in stressed markets, a new European Commission will not be in place until next autumn, meaning reform is unlikely before 2025.