Introduction

Finance Ministers and Central Bank Governors from the influential Group of 20 (G20) recently gathered in Shanghai to issue a joint communique announcing the Financial Stability Board's priorities for 2016. They are as follows:

  1. supporting the full and consistent implementation of post crisis reforms with an eye to unintended consequences;
  2. addressing new and emerging vulnerabilities in the financial system;
  3. promoting robust financial infrastructure;
  4. developing effective macroprudential policies and measures to sustain resilience; and
  5. assessing systemic implications of financial technology innovations and operational disruptions.

Each of the above priorities is discussed in more detail under the relevant heading below.

1. Supporting the implementation of post-GFC reforms

The Financial Stability Board (FSB) intends to support G20 progress with implementing post-GFC reforms by assessing shortcomings and challenges in implementation, as well as any unintended effects of the reforms. The FSB and standard setting bodies are constantly working together to analyse the effects of the globally agreed reforms, and will organise a workshop in May 2016 to share experiences.

The FSB will deliver a second annual report on the reforms and their effects in time for the upcoming Hangzhou Summit to be held in September 2016.

2. Addressing new and emerging vulnerabilities in the financial system

The FSB is currently investigating three emerging challenges in the financial system:

  • developments affecting market liquidity and the role that reforms might have played;
  • particular challenges facing emerging market and developing economies; and
  • signs of fragmentation in the global financial system,

and intends to report on these issues in its 2016 annual report.

In addition, the FSB is focussed on addressing:

  • risks associated with market-based finance and asset management activities: in particular, (i) liquidity mismatch in funds; (ii) leverage in funds; (iii) operational risks in transferring investment mandates; and (iv) securities lending activities of asset managers and funds;
  • misconduct risks: in particular, reducing misconduct risk by exchanging best practices on governance framework and developing a supervisory toolkit with the assistance of the International Organisation of Securities Commissions (IOSCO);
  • correspondent banking: in particular, clarifying regulatory expectations and engaging in domestic capacity building to address the decline in correspondent banking; and
  • climate-related financial risks: in particular, the FSB has established an industry-led task force chaired by Michael Bloomberg to develop voluntary and consistent climate-related financial disclosures for use by companies.

3. Promoting robust financial infrastructure

While the use of central counterparties (CCPs) to clear standardised over-the-counter derivatives transactions is a key element of the G20's efforts to reduce systemic risks, the FSB has identified that it must also now ensure that the CCPs themselves are not too-big-too-fail.

With the assistance of IOSCO and the Committee on Payments and Market Infrastructures (CPMI), the FSB will continue to publish guidance on too-big-too-fail issues in relation to CCPs.

4. Developing macroprudential policies and measures to sustain resilience

The International Monetary Fund (IMF), FSB and Bank for International Settlements (BIS) will work together to inform authorities of key aspects of macroprudential policy-making, including systemic risk analysis, cross-border dimensions of policies, and coordination mechanisms.

As far as measures to sustain resilience, the FSB has identified that the Basel III framework, and global agreement on Total Loss-Absorbing Capacity, have resulted in a largely settled international regulatory and resolution framework for banks. There are no plans to increase overall capital requirements across the banking sector and there will be no Basel IV in the near future.

5. Assessing implications of financial technology innovations and operational disruptions

The FSB is planning on discussing the findings of its ongoing investigation into the financial stability implications of emerging financial technology innovation  at its upcoming March 2016 Plenary meeting. The FSB also intends to issue a report for authorities in this area by April 2016.