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FSB's Co-ordination Framework for Financial Reform

Thursday, November 10, 2011

A Coordination Framework for Monitoring the Implementation of Agreed G20/FSB Financial Reforms – Financial Stability Board Report, 18 October 2011 The Financial Stability Board (FSB) has created a co-ordination framework for implementation monitoring (CFIM) to improve the co-ordination and monitoring of G-20 financial reforms and reporting. In particular, Basel III, over-the-counter (OTC) derivatives and compensation practices are expected to benefit from this initiative.1 The FSB was established in its current form following the Leaders' Statement at the G-20 summit in London in April 2009; it was previously known as the Financial Stability Forum. Its role is to co-ordinate at an international level the work of national financial authorities and standard setting bodies (SSBs) such as the Basel Committee on Banking Supervision, the International Organization of Securities Commissions, and the Committee on Payment and Settlement Systems.

CFIM Role & Objectives

The CFIMs will promote "effective and prioritised monitoring by facilitating ongoing consultation and collaboration between the FSB and SSBs." Additionally, it will help in the allocation of resources between these bodies. Currently, the FSB believes that monitoring mechanisms that have developed in differing and independent ways "lack an overarching coordination framework." The CFIM's objectives are to:
  • Ensure "comprehensive, rigorous and timely" implementation monitoring with "overall coherence" and "consistency of implementation;"
  • Provide "comprehensive and consistent information" on progress to allow for reporting to the G-20 and public;
  • Identify and minimise obstacles to implementation through political commitment and peer pressure; and
  • Make use of lessons learnt on the "effectiveness" of reforms and standards.
The CFIM will focus on the regulatory, supervisory and financial sector reforms agreed to by the G-20/FSB in the wake of the financial crisis. It will not cover the implementation of other financial policies (e.g., International Monetary Fund article IV surveillance, unless specifically asked to do so).

Reporting

The reporting structure largely reflects existing FSB mechanisms for progress reports and peer reviews, whereby information is gathered on national implementation and is filtered up through the FSB to the G-20 and to the public in general. The FSB's Standing Committee on Standards Implementation (SCSI), comprised of representatives from SSBs and other international organisations, and which runs the peer review programme, is to have an important co-ordination role under the CFIM. The SCSI also oversees the Implementation Monitoring Network (IMN) that collects information for the FSB and acts as its "portal" to national implementation. The IMN will play an increasingly important role, especially in non-priority areas by reviewing information on national implementation and helping to prepare the G-20's main report on implementation. The SCSI (and other FSB committees as appropriate) will review progress on implementation based on progress reports and peer reviews from FSB working groups (e.g., the OTC Derivatives Working Group (ODWG)) and SSBs. In turn, it will identify key issues and make recommendations, as necessary, to the G-20. The FSB's implementation monitoring work will be undertaken in close liaison with relevant SSBs. Where helpful there will be a division of responsibilities. In this regard, for "periodic progress reporting," SSBs will lead if the matter falls entirely within their sphere of responsibility and providing they have the "commitment and capacity." However, the SSB should consult the SCSI to ensure that its approach is consistent with G-20/FSB information reporting requirements, which are discussed below. Otherwise, periodic progress reporting will be carried out by the FSB itself. The reporting process is similarly for thematic peer reviews, although where a SSB is primarily responsible, it must consult the SCSI on objectives, scope, methodology and timescales. In cases where the FSB carries out a peer review (e.g., where the relevant standard has been developed by the FSB itself such as on compensation practices2), it will co-ordinate with relevant SSBs as appropriate. The purpose of these reviews is "to evaluate the consistency in cross-country implementation of the relevant standard . . . and to assess its effectiveness in achieving the intended results."3

Information Requirements

The CFIM will prioritise implementation monitoring of key areas as determined by the FSB Plenary or board. This is not to say that other financial regulatory reforms must not be implemented in full, rather to focus limited resources on the most important. Information in progress reports for priority areas should:
  • Be collected and reported on at least once a year;
  • Provide details of implementation in each country including process and time scales;
  • Provide other information pertinent to assessing implementation (e.g., the impact of reforms and feedback from industry and public);
  • Highlight any issues or lessons learned; and
  • Make recommendations to address major issues over implementation.
The information received will be considered by the FSB and key information passed to the G-20. Much of it will also be made public to ensure transparency and accountability. In this way, it is intended to help create a "race to the top" internationally. The findings from periodic progress reports will in due course lead to thematic peer reviews by a SSB or the FSB. Outside priority areas information requirements to monitor the progress of reforms will be less demanding.

Process

The actual CFIM process to be employed will differ from area to area of financial reform and the responsibilities of the bodies involved. However, it should be flexible, efficient and allow ongoing collaboration between the FSB and SSBs. On progress reporting, the SCSI and the SSBs will decide who is responsible for what aspect. The main FSB progress report will, as now, be prepared by the FSB Secretariat together with the IMN, subject to approval by the SCSI and FSB Plenary.4 In addition, the FSB Secretariat will provide a "scoreboard" showing global progress on implementing reforms with separate reports by FSB working groups or SSBs on distinct areas. For thematic peer reviews the process is set out in the "Handbook for FSB Peer Reviews." Where a SSB is preparing a report it will first discuss with the SCSI any changes required by the area in question to the standard process. — Case Study For OTC derivatives, the SCSI together with the ODWG will decide what process should be followed in line with the CFIM requirements. National authorities will in the first place provide information on their implementation of reforms and SSBs on the role of international policies and standards. This data will be analysed by the ODWG before drawing up the progress report and providing information to the IMN. The SCSI (and a steering committee) will consider progress on implementation toward G-20 goals identifying any issues to be brought to the attention of the G-20. The FSB board will discuss the conclusions of the SCSI and, if appropriate, give its approval to key messages for inclusion in the FSB's main G-20 report and the ODWG's progress report for the G-20 and for publication. DisclaimerThis document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. The Bureau of National Affairs, Inc. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy.©2014 The Bureau of National Affairs, Inc. All rights reserved. Bloomberg Law Reports ® is a registered trademark and service mark of The Bureau of National Affairs, Inc.

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