The Financial Stability Board (FSB) has published a letter that it has sent to G20 finance ministers and central bank governors outlining its priorities for financial reforms.
The FSB believes that the remaining core elements of the global financial regulatory reforms agreed by G20 leaders at the St Petersburg summit can be completed during the Australian G20 Presidency. These elements are
- building resilience of financial institutions;
- ending too-big-to-fail;
- transforming shadow banking to transparent and resilient market-based financing; and
- making derivatives markets safer.
In relation to making derivatives markets safer, the FSB notes that national implementation of agreed G20 objectives for over-the-counter (OTC) derivatives reform is overdue but that substantial progress is being made. It notes that by the Brisbane summit:
- the OTC Derivatives Regulators Group will provide in April 2014 a list of remaining cross-border implementation issues;
- the FSB will publish in September 2014 a report on jurisdictions’ established processes to enable them to defer to each other’s rules in cross-border contexts where these achieve similar outcomes;
- standard setters will complete the capital standards for treatment of banks’ central counterparty exposures and issue finalised guidance on the recovery and resolution of financial market infrastructures; and
- the FSB will report on how information from trade repositories can be aggregated and shared among authorities.
Post Brisbane summit
The FSB also states in the letter that the G20’s approach beyond the Brisbane summit will determine the openness of the global financial system and consequently the strength and sustainability of global growth. The FSB calls on the G20 to commit to an approach that includes the following characteristics:
- global standards for the resolution of global systemically important institutions to ensure that failures of cross-border institutions will be handled fairly, predictably and smoothly;
- deferring to each other’s market regulatory regimes where they achieve equivalent outcomes;
- peer reviews and impact assessments to ensure consistent implementation and knowing when measures are right or wrong dependent on the given circumstances; and
- enhanced co-operation to avoid domestic measures that fragment the global system.