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, via the consultation paper CP12/20, proposed changes to its rules, supervisory statements, and statements of policy to implement certain elements of the Capital Requirements Directive (CRD5).
EIOPA published the financial stability report that provides detailed quantitative and qualitative assessment of the key risks identified for the insurance and occupational pensions sectors in the European Economic Area.
EBA published its risk dashboard for the first quarter of 2020 together with the results of the risk assessment questionnaire.
EBA announced that the next stress testing exercise is expected to be launched at the end of January 2021 and its results are to be published at the end of July 2021.
PRA published the consultation paper CP11/20 that sets out its expectations and guidance related to auditors’ work on the matching adjustment under Solvency II.
MAS published a statement guidance on dividend distribution by banks.
APRA updated its capital management guidance for banks, particularly easing restrictions around paying dividends as institutions continue to manage the disruption caused by COVID-19 pandemic.
FSB published a report that reviews the progress on data collection for macro-prudential analysis and the availability and use of macro-prudential tools in Germany.
EBA issued a statement reminding financial institutions that the transition period between EU and UK will expire on December 31, 2020; this will end the possibility for the UK-based financial institutions to offer financial services to EU customers on a cross-border basis via passporting.
SRB published guidance on operational continuity in resolution and financial market infrastructure (FMI) contingency plans.