G20 leaders agree actions: At last week’s London Summit, G20 leaders agreed several priorities for financial regulatory reform:
- to establish a "Financial Stability Board" to succeed the Financial Stability Forum and have increased powers. The new FSB would include the G20 countries and FSF members, Spain and the European Commission;
- FSB should work closely with the International Monetary Fund on early warning mechanisms of risks and to consider actions to address the risks;
- to change regulatory systems so regulators identify and take account of macro-prudential risks;
- regulation should cover all systemically important financial institutions, instruments and markets. Specifically, this will include hedge funds;
- to endorse and implement FSF’s principles on pay and compensation;
- to improve the quality, quantity and international consistency of capital in the banking system; specifically to prevent excessive leverage and require banks to build up capital buffers in good times. However, not to take measures until recovery is assured;
- to use whatever action necessary, including sanctions, against non-co-operative jurisdictions, including tax havens;
- to ensure accounting standard setters and regulators work together to improve valuation and provisioning standards and to produce a single set of high-quality global accounting standards; and
- to impose registration and oversight on Credit Rating Agencies so they meet international best practice principles, especially in relation to prevention of unacceptable conflicts of interest.
There was wide support for the communiqué. The European Commission said it was much more ambitious than expected and the BBA said the communiqué would allow for the building of a strong financial system. IOSCO welcomed G20’s endorsement of its current initiatives.