Jaime Caruana, General Manager of BIS, spoke about the supervisory policy implementation in the current macro-financial environment, at a conference of the Financial Stability Institute Conference in Basel, Switzerland. He highlighted the importance of effective implementation of the post-crisis global regulatory reforms. He then discussed the three dimensions of policy implementation: adopting new standards in a proper, consistent and timely way; assessing whether standards, once implemented, achieve their objectives; and putting in place supervisory frameworks that maximize the benefits of new standards.
Since the early stages of designing the current reforms, there have been significant efforts to assess their potential impact. As these reforms are being implemented, more valuable information is becoming available to assess whether the new rules are working as intended and whether they generate adverse unintended effects. These can include the excessive shift of risks toward less regulated areas, the reduced liquidity in some securities markets, or the retrenched provision of correspondent banking services to some countries. Such assessments require a comprehensive and inter-sectoral approach to grasp the whole range of effects that the new standards could generate. The comprehensive analysis should build on the extensive impact assessments conducted by each standard-setter. The next logical step is to systematically conduct and generalize these types of assessments. FSB, in cooperation with the relevant standard-setters, has recently launched a methodological framework for the evaluation of the post-crisis reforms. In this context, two elements seem to be critical.
To maximize the benefits of new standards, supervisors must take a more comprehensive approach to address the build-up of vulnerabilities at financial institutions. Mr. Caruana explains that supervisory intervention needs to be more proactive and highlights that supervisory priorities and practices are becoming more forward-looking. He also discussed the need for policy interventions (by conduct of business supervisors and prudential supervisors), arising from developments in the area of financial technology (fintech). He then cited the example of the recent Basel Committee public consultation on the implications of fintech for the financial sector. The effectiveness of policy actions can only be achieved through international cooperation among national authorities. One key aspect of this cooperation is the exchanges of practices and experiences among regulators and supervisors to help ensure that sound policy approaches are adopted worldwide. He believes that FSI can support the standard-setters in this regard and should continue to play a key role in promoting the adoption of good policy practices across jurisdictions. This work goes well beyond the dissemination of standards. It also includes, as the FSI is now doing, facilitating information-sharing and providing analysis that helps financial sector authorities to identify the appropriate policy approaches.
Related Link: Speech (PDF)
Keywords: International, Banking, Securities, Insurance, Policy Implementation, Post-Crisis Reforms, Financial Stability, BIS
Previous ArticleIOSCO Publishes Report on the Fourth Hedge Fund Survey
PRA published a set of questions and answers (Q&A) covering common queries regarding residential and commercial property valuations, for the purpose of the Capital Requirements Regulation (CRR), during the period of disruption caused by COVID-19 pandemic.
EBA published a report on convergence of supervisory practices in 2019.
EBA published a consultation paper on the draft amended regulatory technical standards on own funds and eligible liabilities.
EBA published guidelines on loan origination and monitoring, which bring together prudential standards and consumer protection obligations, along with the anti-money laundering and the Environmental, Social, and Governance (ESG) considerations.
IOSCO proposed updates to its principles for regulated entities that outsource tasks to service providers.
MAS announced that the first phase of the Veritas initiative will commence with the development of fairness metrics in credit risk scoring and customer marketing.
BoE published the Statistical Notice 2020/4 to update the buy-to-let (BTL) Phase 2 and Phase 3 definitions for the Interest Rate Type data item.
FSI published a brief note that examines challenges facing the banking sector as a result of the payment deferral programs put in place to support borrowers affected by the COVID-19 pandemic.
RBNZ published the financial stability report for May 2020. This review of the financial system in the country highlights that the economic disruption associated with COVID-19 will present challenges to the financial system.
PRA published the policy statement PS14/20, which contains the supervisory statement SS1/20 and the feedback to responses to the consultation paper CP22/19 on expectations for investment by firms in accordance with the Prudent Person Principle, or PPP, as set out in the Investments Part of the PRA Rulebook.