The Financial Stability Board (FBS) held its plenary meeting in Seoul yesterday to discuss key elements of financial reforms in advance of the meeting of G20 Summit. The FSB was established to coordinate the work of national financial authorities and international standard setting bodies to promote the implementation of effective regulatory, supervisory and other financial sector policies in the interest of international financial stability. The meeting yesterday focused on certain elements of the financial regulatory reform program agreed to by the G20 members that were coordinated by the FSB, including:
- Approval of the Basel Committee’s recently reported global bank capital standards, with liquidity standards to follow;
- Establishing a policy framework for addressing systematically important financial institutions (SIFIs) that will call for jurisdictions to put in place a variety of measures, including requirements that SIFIs have “higher loss absorbency capacity” and be subject to “supplementary prudential and other requirements to reduce the probability and impact of SIFI failure” and “updated standards for more robust core market infrastructures, including central counterparties in the OTC derivatives market”;
- Increasing the intensity and effectiveness of financial supervision by detecting problems proactively and intervening early and ensuring that supervisors have “unambiguous mandates, sufficient independent and appropriate resources” and the “full suite of powers necessary for early intervention”;
- Implementing central clearing and trade reporting of over-the-counter derivatives, including increasing “the proportion of the market that is standardized” and centrally cleared; and
- Establishing principles for reducing supervisory authorities’ and financial institutions’ reliance on credit rating agency ratings, specifically related to prudential supervision, policies of investment managers and institutional investors, central bank operations, private sector margin requirements, and disclosure requirements for securities issuers.