FSB published fifth annual report on the implementation and effects of the G20 financial regulatory reforms. The report includes a color-coded dashboard that summarizes the status of implementation across FSB jurisdictions for priority reform areas. Also published were the annual survey responses by the FSB member jurisdictions on implementation of other areas of reform, along with the summary tables and jurisdiction profiles on implementation progress. Taken together, these reports provide a holistic picture of the implementation of the G20 reforms.
The report, which has been delivered to the G20 meeting this week, concludes that implementation of the reforms called for by the G20 after the global financial crisis is progressing. Large banks are better capitalized, less leveraged, and hold more liquidity. Implementation of the too-big-to-fail reforms is also advancing, including the establishment of effective resolution regimes for banks. The aspects of non-bank financial intermediation that contributed to the financial crisis, including various forms of structured finance, have declined significantly and generally no longer pose financial stability risks. This is contributing to an open and resilient financial system that supports the efficient provision of financing to the real economy. The global financial system has continued to grow and the supply of financial services has become more diversified, partly via the expansion in non-bank financial intermediation and fintech innovations. Yet it is critical to maintain momentum and avoid complacency, to fully achieve the goal of greater resilience as vulnerabilities are evolving.
The report notes that some remaining policy work needs to be completed, particularly for the insurance sector and central counterparties. Despite continued progress, the implementation of reforms is not complete and remains uneven. More work is needed to implement the final Basel III reforms; to operationalize resolution plans for banks and build effective resolution regimes for insurers and central counterparties; and to make OTC derivatives trade reporting more effective;. Work is also needed to further strengthen the non-bank financial intermediation oversight and implement the agreed reforms, including policies to address asset management vulnerabilities. Rapid structural and technological change require continued vigilance to maintain a sound and efficient financial system. FSB continues to monitor and assess the resilience of evolving market structures. These include the resilience of financial markets in stress and the growth of non-bank financial intermediation and cyber risks.
An open and resilient financial system, grounded in agreed international standards, is crucial to support sustainable growth. FSB has identified several areas for further work on approaches and mechanisms to enhance the effectiveness and efficiency of international cooperation and to help mitigate any negative effects of market fragmentation on financial stability. The report in particular recommends that:
- Regulatory and supervisory bodies should lead by example in promoting the timely, full, and consistent implementation of the remaining reforms. This will support a level playing field and avoid regulatory arbitrage.
- Frameworks for cross-border cooperation between authorities should also be enhanced to build trust, allow sharing of information, and preserve an open and integrated global financial system.
- Authorities should evaluate whether the reforms are achieving their intended outcomes, identify any material unintended consequences, and address these consequences without compromising on the objectives of the reforms.
- Financial stability authorities should continue to contribute to the monitoring of emerging risks and stand ready to act if such risks materialize.
Keywords: International, Banking, Insurance, Securities, G20, Basel III, OTC Derivatives, CCPs, Fintech, Regulatory Reforms, Too Big to Fail, Financial Intermediation, FSB
FCA and PRA in the UK, FED in the US, and the authorities in Singapore have fined Goldman Sachs for risk management failures in connection with the 1Malaysia Development Berhad (1MDB).
BCBS announced that OSFI and the Bank of Canada hosted the 21st International Conference of Banking Supervisors (ICBS) virtually on October 19-22, 2020.
FCA proposed guidance on how firms should continue to seek to help customers who hold insurance and premium finance products and may be in financial difficulty because of COVID-19, after October 31, 2020.
EBA issued an opinion on prudential treatment of the legacy instruments as the grandfathering period nears an end on December 31, 2021.
ESRB published the fifth issue of the EU Non-bank Financial Intermediation Risk Monitor 2020 (NBFI Monitor).
HM Treasury announced that the new Financial Services Bill has been introduced in the Parliament.
APRA announced that it has increased the minimum liquidity requirement of Bendigo and Adelaide Bank for failing to comply with the prudential standard on liquidity.
PRA published the consultation paper CP17/20 to propose changes to certain rules, supervisory statements, and statements of policy to implement elements of the Capital Requirements Directive (CRD5).
US Agencies adopted a final rule that applies to advanced approaches banking organizations and aims to reduce interconnectedness in the financial system as well as to reduce contagion risks associated with the failure of a global systemically important bank (G-SIB).
US Agencies (FDIC, FED, and OCC) adopted a final rule that implements the net stable funding ratio (NSFR) for certain large banking organizations.