Financial Stability Board Charts Role Ensuring Globally Consistent Financial Regulation

Armed with a mandate from the G-20 to promote globally consistent financial regulation, the Financial Stability Board has reorganized to better carry out is critical mission as the US and the EU prepare major reform legislation. There will be three standing committees designed to ensure consistent cross-border high quality financial regulation and avoid regulatory arbitrage. The Obama Administration’s plan for regulatory reform also endorsed the Financial Stability Board’s role as coordinator of consistent cross-border financial regulation and arrangements for international cooperation on supervision of global financial firms through establishment of supervisory colleges. The Administration also urged the Board to restructure, as it is now doing.

The Board’s Standing Committee for Regulatory Cooperation will address coordination issues that arise among regulators, and will raise any need for policy development that arises in this regard. It will set guidelines and oversee the effective functioning of supervisory colleges and advise on best practice in meeting regulatory standards with a view to ensure consistency, cooperation and a level playing field across jurisdictions. It will work on contingency planning for cross-border crisis management at major financial institutions. Current UK FSA Chair Adair Turner will chair the committee. A cross-border crisis management working group has been set up under this committee. The working group will establish a framework to implement the Board’s principles for cross-border cooperation on crisis management.

The Standing Committee for Standards Implementation will report on members’ commitments and progress in implementing international financial standards and other initiatives. More broadly, the Committee will propose a framework to strengthen adherence to prudential regulatory standards by relevant jurisdictions. Tiff Macklem, Associate Deputy Minister of the Department of Finance of Canada, will chair this Committee.

The Standing Committee for Vulnerabilities Assessment will assess and monitor vulnerabilities in the financial system and propose to the FSB actions needed to address them. It will be chaired by Jaime Caruana, General Manager of the Bank for International Settlements.

The FSB also noted significant progress in implementing the G20 recommendations, including strengthening international accounting standards; developing a macro prudential systemic risk approach to financial regulation; oversight for hedge funds and credit rating agencies ; and sound compensation practices.

The IASB plans to improve and simplify accounting for financial instruments, loan loss provisioning and hedge accounting. The IASB also indicated that the changes to simplify and address impairment in certain financial assets would be decided in time to be implemented for the 2009 annual accounts. The FSB stressed the need to achieve convergence of accounting standards and take into account their procyclicality effects, and encouraged the IASB to enhance its dialogue with regulators.

The FSB welcomed the publication by IOSCO of Principles for Hedge Funds Regulation, and work by the Joint Forum on hedge funds oversight from a prudential and financial stability perspective. The FSB stressed the need for coherent national implementation. The FSB also praised IOSCO’s work on developing recommendations on regulatory approaches to securitization and credit default swap markets. It looks forward to publication of the final IOSCO report in September 2009.