Tuesday, July 03, 2012

G-20 Calls for Globally Consistent Regulation of OTC Derivatives

In their final communiqué from the Los Cabos Summit, the G-20 leaders reaffirmed their commitment to internationally consistent derivatives regulations so that all standardized OTC derivative contracts are traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties by the end of 2012. OTC derivative contracts should be reported to trade repositories, said the declaration, and non-centrally cleared contracts should be subject to higher capital requirements.

The communiqué referenced the four safeguards to central clearing of derivatives enunciated by the Financial Stability Board: 1) fair and open access to central counterparties; 2) consistent cross-border regulation and oversight of central counterparties; 3) resolution regimes ensuring that core functions of central counterparties are maintained during a crisis; and 4) liquidity arrangements for central counterparties. Now that substantial progress has been achieved in the four safeguards for a resilient and efficient global framework for central clearing, noted the G-20, jurisdictions should rapidly finalize their decision-making and put in place the needed legislation and regulations to meet the commitment for central clearing.

The G-20 acknowledged the progress made to develop the key principles to promote internationally consistent minimum standards for the margining of non-centrally cleared derivatives and encourage international standard setters to finalize the proposed global margin standards by the end of this year, to match the implementation deadline for other OTC derivatives reforms and for the Basel capital framework.

The G-20 also reiterated its commitment to make national resolution regimes consistent with the FSB’s Key Attributes of Effective Resolution Regimes so that no bank or other financial institution is too big to fail. To this end, G-20 supports the ongoing elaboration of recovery and resolution plans and institution-specific cross-border cooperation agreements for all globally systemically important financial institutions. The G-20 reiterated its commitment to strengthen the intensity and effectiveness of the supervision of SIFIs and asked the FSB to report on further progress in this area to the November 2012 G-20 Finance Ministers and Central Bank Governors’ meeting.

On other issues, the G-20 called for accelerated progress by national authorities and standard setting bodies in ending the mechanistic reliance on credit ratings and encouraged steps that would enhance transparency of and competition among credit rating agencies. The G-20 also supports continuing work to achieve convergence to a single set of high-quality accounting standards. Finally, the communiqué welcomed IOSCO’s report on the functioning of the credit default swap markets and asked IOSCO to report on next steps by the November 2012 Finance Ministers and Central Bank Governors’ meeting.