FSB published the annual report that examines the implementation progress and the impact of G20 financial regulatory reforms across jurisdictions. The report includes an implementation dashboard that summarizes the status of implementation across FSB jurisdictions for priority reform areas. It also contains a table that shows the changes in implementation status by FSB jurisdiction across priority areas since September 2019. Overall, the report finds that the G20 reforms after the 2008 financial crisis have served the financial system well during the COVID-19 pandemic. Greater resilience of major banks at the core of the financial system, combined with the bold and decisive actions by authorities, has helped to sustain the supply of credit to the real economy and to maintain global financial stability. However, given the pandemic, there has been limited additional progress in implementing the G20 reforms during the last year.
Acknowledging the extraordinary circumstances, FSB and the standard-setting bodies have extended implementation deadlines for certain international reforms to provide additional capacity for firms and authorities to respond to the COVID-19 shock. The report highlights that regulatory adoption of several core Basel III elements has generally been timely to date, although there have been delays in implementing other Basel III standards. Implementation of over-the-counter (OTC) derivatives reforms is also well-advanced. Furthermore, work is progressing to develop a global insurance capital standard. IAIS is developing a global risk-based Insurance Capital Standard (ICS) for internationally active insurance groups. In November 2019, the IAIS Executive Committee agreed on ICS version 2.0, which will be used for confidential reporting to supervisory colleges in a five-year monitoring period. However, substantial work remains to operationalize resolution plans for systemically important banks and to implement effective resolution regimes for insurers and central counterparties. Work is also ongoing at the international level to enhance central counterparty resilience, recovery, and resolution and to make trade reporting truly effective. The implementation of non-bank financial intermediation reforms continues but it is at an earlier stage than other reforms.
The pandemic represents the first major global test of the post-crisis financial system and an opportunity to examine whether reforms have worked as intended. The pandemic not only provides an opportunity to assess the effectiveness of the reforms but also underscores the importance of global regulatory cooperation with G20 support. FSB and the standard-setting bodies will carry out further work to identify potential lessons learned for international standards. The question of whether the flexibility provided by authorities is actually used by financial institutions may require particular attention and will inform discussions of future policy adjustments, including on the eventual exit from temporary measures. The extraordinary central bank interventions and policy measures taken in response to the financial market turmoil in March, however, raise issues for further consideration including on their longer-term consequences. More work is needed to assess interconnections in the global financial system, the nature of vulnerabilities in non-bank financial intermediation in relation to the liquidity stress, and how central bank liquidity facilities have affected market conditions and market participant expectations. FSB and the standard-setting bodies will continue to promote approaches to deepen international cooperation, coordination, and information-sharing, underpinned by the FSB principles for the COVID-19 response, with the support of the G20.
Keywords: International, Banking, Insurance, Securities, Basel, ICS Version 2, Derivatives, COVID-19, Financial Stability, G20, FSB
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous ArticleEBA Publishes Methodology and Draft Templates for 2021 Stress Tests
The Hong Kong Monetary Authority (HKMA) revised the Supervisory Policy Manual module CG-5 that sets out guidelines on a sound remuneration system for authorized institutions.
The European Banking Authority (EBA) published the final guidelines on the monitoring of the threshold and other procedural aspects on the establishment of intermediate parent undertakings in European Union (EU), as laid down in the Capital Requirements Directive (CRD).
In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.
The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.
The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.
The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.
The European Securities and Markets Authority (ESMA) published recommendations from the Working Group on Euro Risk-Free Rates (RFR) on the switch to risk-free rates in the interdealer market.
The European Central Bank (ECB) published a paper as well as an article in the July Macroprudential Bulletin, both of which offer insights on the assessment of the impact of Basel III finalization package on the euro area.
The International Swaps and Derivatives Association (ISDA) published a paper that explores the impact of the Fundamental Review of the Trading Book (FRTB) on the trading of carbon certificates.
The Prudential Regulation Authority (PRA) published the remuneration policy self-assessment templates and tables on strengthening accountability.