While speaking at the Eurofi Forum in Helsinki, the FSB Secretary General Dietrich Domanski discussed three priorities for international regulatory and supervisory cooperation: implementation, integration, and innovation. He highlighted that FSB is pivoting from post-crisis policy design to reinforcing the resilience of the global financial system. This pivot reflects these evolving priorities for international regulatory and supervisory cooperation.
The following are the key highlights of his remarks:
- Implementation of post-crisis reforms. The annual report of FSB to G20 Leaders shows that implementation progress of post-crisis reforms remains uneven, both across reform areas and across jurisdictions. The remaining work includes implementing the final Basel III reforms; operationalizing resolution plans for cross-border banks, building effective resolution regimes for insurers and central counterparties, improving effectiveness of OTC derivatives trade reporting, and further strengthening the oversight and regulation of nonbank financial intermediation. He also added that an end to the period of very low interest rates and search for yield seems out of sight, which heightens the importance of effective supervision that includes a macro-prudential perspective. Thus, it is important that quick, analytically robust, assessments of risks can be shared by authorities and, where necessary, acted on. To this end, FSB is reviewing its surveillance framework to ensure that it can provide such assessments, said Mr. Domanski.
- Integration of financial markets. A second priority is to preserve the benefits of integrated financial markets. To this end, FSB had embarked on work on market fragmentation and published a report on the topic in June. Mr. Domanski emphasized that the relationship between market fragmentation and financial regulation is complex. The challenge is to identify and address harmful fragmentation. Thus, the FSB report lays out approaches and mechanisms that may enhance the effectiveness and efficiency of international cooperation and help to mitigate any negative effects of market fragmentation on financial stability. This includes steps to consider issues around market fragmentation at different stages: as policies are developed; as they are implemented; and when they are being evaluated. G20 Leaders welcomed the FSB work on market fragmentation and committed to address the related unintended, negative effects; this is a strong signal about the importance of preserving integrated market and the important role that international cooperation plays in this regard. Work is being taken forward on deference processes in derivatives markets; prepositioning of capital and liquidity by international banks; and as part of the FSB evaluation of too-big-to-fail reforms.
- Financial innovation. The third priority concerns financial innovation. Authorities need to find ways to harness the benefits of digital innovation while containing risks. New technologies such as distributed ledger technology could lead to a more decentralized financial system—by eliminating, or reducing the role, of intermediaries that have traditionally been involved in the provision of financial services. Decentralization may pose challenges for financial regulatory and supervisory frameworks focused on centralized financial institutions, including question around the location of financial assets or records. A more decentralized financial system may reinforce the importance of an activity-based approach to regulation, particularly where it delivers financial services that are difficult to link to specific entities and/or jurisdictions. New entrants into the financial services space, including fintech firms and large, established technology companies (bigtech), could materially alter the universe of financial services providers. This could present both benefits and risks for financial stability. A recent example are proposals to use new types of crypto-assets for retail payment purposes on a broad, potentially global scale. In the Osaka Summit Declaration, G20 Leaders have called on the FSB to assess the implications of such new developments and advise on multilateral response as appropriate.
Mr. Domanski concluded that these priorities "reinforce the case for international cooperation—because of the intrinsically global nature of key financial markets and technological innovation and because of the potential global impact of financial instability." For the FSB, this means means working with all stakeholders to understand the challenges that lie ahead and find solutions that support sustained economic growth and financial stability.
Related Link: Speech (PDF)
Keywords: International, Banking, Basel III, Financial Stability, Market Fragmentation, Fintech, Regtech, Suptech, International Cooperation, FSB
Previous ArticleBoE Publishes Update on Meeting of Working Group on Risk-Free Rates
EBA issued a revised list of validation rules with respect to the implementing technical standards on supervisory reporting.
EBA published its response to the call for advice of EC on ways to strengthen the EU legal framework on anti-money laundering and countering the financing of terrorism (AML/CFT).
NGFS published a paper on the overview of environmental risk analysis by financial institutions and an occasional paper on the case studies on environmental risk analysis methodologies.
MAS published the guidelines on individual accountability and conduct at financial institutions.
APRA published final versions of the prudential standard APS 220 on credit quality and the reporting standard ARS 923.2 on repayment deferrals.
SRB published two articles, with one article discussing the framework in place to safeguard financial stability amid crisis and the other article outlining the path to a harmonized and predictable liquidation regime.
FSB hosted a virtual workshop as part of the consultation process for its evaluation of the too-big-to-fail reforms.
ECB updated the list of supervised entities in EU, with the number of significant supervised entities being 115.
OSFI published the key findings of a study on third-party risk management.
FSB is extending the implementation timeline, by one year, for the minimum haircut standards for non-centrally cleared securities financing transactions or SFTs.