Public responses to consultation on Targets for Addressing the Four Challenges of Cross-Border Payments

20 July 2021

Summary of document history

Summary of document history

On 31 May 2021, the FSB published Targets for Addressing the Four Challenges of Cross-Border Payments: Consultative document. Interested parties were invited to provide written comments by 6 July 2021. The public comments received are available below.

Responses received

The FSB thanks those who took the time and effort to express their views. The FSB expects to publish the final targets in October 2021.

Lessons learnt from the COVID-19 pandemic from a financial stability perspective: Interim report

13 July 2021 | PDF full text (718 KB)

The COVID-19 pandemic presents a real-life test that may hold important lessons for financial policy, including the functioning of G20 reforms.

The COVID-19 pandemic is the first major test of the global financial system since the G20 reforms were put in place following the financial crisis of 2008. While significantly different in nature from the 2008 crisis, this real-life test may hold important lessons for financial policy, including the functioning of the G20 reforms.

The report identifies preliminary lessons for financial stability from the COVID-19 experience and aspects of the functioning of the G20 financial reforms that may warrant attention at the international level.

The report notes that, thus far, the global financial system has weathered the pandemic thanks to greater resilience, supported by the G20 reforms, and the swift, determined and bold international policy response. Authorities broadly used the flexibility within international standards to support financing to the real economy. Monitoring and coordination, guided by the FSB COVID-19 Principles, has discouraged actions that could distort the level playing field and lead to harmful market fragmentation.

The COVID-19 experience reinforces the importance of completing remaining elements of the G20 reform agenda. The financial stability benefits of the full, timely and consistent implementation of those reforms remain as relevant as when they were agreed. Those parts of the global financial system where implementation of the reforms is most advanced displayed resilience. The pandemic has highlighted the importance of effective operational risk management arrangements and the need to further enhance crisis management preparedness and promote resilience amidst rapid technological change.

The pandemic also highlighted differences in resilience within and across financial sectors. The March 2020 market turmoil has underscored the need to strengthen resilience in non-bank financial intermediation. The functioning of capital and liquidity buffers may warrant further consideration, while some concerns about excessive financial system procyclicality remain.

COVID-19 may yet test the resilience of the global financial system. Banks and non-bank lenders could face additional losses as support measures are unwound. Identifying systemic vulnerabilities early on remains a priority. One of the legacies of the pandemic may be a build-up of leverage and debt overhang in the non-financial sector. Addressing debt overhang, including by facilitating the market exit of unviable companies and by promoting the efficient reallocation of resources to viable firms, may be a key task for policymakers going forward.

The FSB will engage with external stakeholders on preliminary findings and issues raised in this report. The final report, which will incorporate this feedback and set out tentative lessons and next steps to address the identified issues, will be delivered to the G20 Summit in October.

FSB identifies preliminary lessons for financial stability from the COVID-19 experience

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Ref no: 19/2021

The Financial Stability Board (FSB) today published its Interim Report on the Lessons Learnt from the COVID-19 Pandemic from a Financial Stability Perspective. The report identifies preliminary lessons for financial stability and aspects of the functioning of the G20 financial reforms that may warrant attention at the international level.

The COVID-19 pandemic is the first major test of the global financial system since the G20 reforms were put in place following the financial crisis of 2008. Thus far, the financial system has weathered the pandemic thanks to greater resilience, supported by the G20 reforms, and the swift, determined and bold international policy response. Authorities broadly used the flexibility within international standards to support financing to the real economy. Monitoring and coordination, guided by the FSB COVID-19 Principles, has discouraged actions that could distort the level playing field and lead to harmful market fragmentation.

The COVID-19 experience reinforces the importance of completing remaining elements of the G20 reform agenda. Those parts of the global financial system where implementation of the reforms is most advanced displayed resilience. The functioning of capital and liquidity buffers may warrant further consideration, while some concerns about excessive financial system procyclicality remain.

The March 2020 market turmoil has underscored the need to strengthen resilience in non-bank financial intermediation. The FSB has developed a comprehensive work programme to enhance the resilience of the NBFI sector while preserving its benefits.

The pandemic has also highlighted the importance of effective operational risk management arrangements, the need to enhance further crisis management preparedness, and the importance of promoting financial resilience amidst rapid technological change more generally.

COVID-19 may yet test the resilience of the global financial system. Banks and non-bank lenders could face additional losses as support measures are unwound. Addressing debt overhang, including by facilitating the market exit of unviable companies and by promoting the efficient reallocation of resources to viable firms, may be a key task for policymakers going forward.

The FSB will engage with external stakeholders on preliminary findings and issues raised in this report. The final report, to be delivered to the G20 Summit in October, will set out tentative lessons and next steps to address the identified issues.

Notes to editors

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Governor and Vice Chair for Supervision, US Federal Reserve; its Vice Chair is Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

FSB Chair’s letter to G20 Finance Ministers and Central Bank Governors: July 2021

7 July 2021 | PDF full text (160 KB)

On the road to normality some risks to financial stability still remain elevated. The FSB also remains vigilant financial stability risks beyond COVID, including climate change and LIBOR transition.

The letter notes mounting evidence of global recovery, even if uneven across regions. However, some risks to financial stability remain elevated. The global financial system has weathered the COVID Event thus far, thanks to greater resilience brought about by the G20 financial regulatory reforms, and the swift, bold and determined international policy response. But there are areas where there is a need to understand better whether the reforms have functioned as intended, and others where the COVID Event has surfaced vulnerabilities that need to be addressed with urgency, notably in non-bank financial intermediation, including in money market funds.

The Chair’s letter stresses the need for coordinated action to address financial risks posed by climate change, noting the large, and growing, number of international initiatives underway. The FSB has submitted to the G20 for endorsement a comprehensive roadmap to address climate-related financial risks. The roadmap outlines the work underway and still to be done by standard-setting bodies and other international organizations over a multi-year period in four key policy areas: disclosures, data, vulnerabilities analysis, and regulatory and supervisory approaches.

The Chair’s letter also reiterates the importance of completing the transition way from LIBOR to robust alternative rates by end-2021 and strongly urges market participants to act now to complete the steps set out in the FSB’s Global Transition Roadmap.

FSB Roadmap for Addressing Climate-related Financial Risks

| PDF full text (1 MB)

There is a need to coordinate the large and growing number of international initiatives underway on addressing financial risks from climate change.

There is a growing focus on potential risks to financial stability from climate change. A large, and growing, number of international initiatives are underway on addressing financial risks from climate change. Ongoing work by official sector bodies, including the FSB, NGFS, BCBS, IAIS, IOSCO, OECD, IMF and World Bank, and a variety of private sector bodies on climate issues have been added to recently by the IFRS Foundation proposal to establish an International Sustainability Standards Board (ISSB), initially focused on climate-related reporting. More generally, climate topics are being given an important place in both the G20 and G7 agendas for 2021, and preparations are underway for COP26.

This roadmap for addressing climate-related financial risks, which has been prepared in consultation with standard-setting bodies (SSBs) and other relevant international bodies, supports international coordination in several ways.

  • It promotes relevant initiatives at standard-setting bodies, the NGFS and other international organisations.

  • By presenting relevant ongoing and planned international work in one place, it helps to identify gaps to be covered by further work, limit overlap and promote synergies.

  • It sketches out how the FSB can serve as a forum for discussing cross-sectoral and systemic issues and agreeing a way forward.

  • It provides input into broader international policy considerations by facilitating communication with the G20, G7 and COP26.

All this supports the consistency of actions to be taken over the coming years, enhances authorities’ ability to address financial stability risks and reduces the risk of harmful market fragmentation.

The roadmap focuses on work to assess and address financial risks of climate change through four main, interrelated areas: firm-level disclosures; data; vulnerabilities analysis and regulatory and supervisory tools.

The FSB roadmap sets out a comprehensive and coordinated plan for addressing climate-related financial risks, including steps and indicative timeframes needed to do so, and paves the way for implementation. It will be delivered to the G20 Finance Ministers and Central Bank Governors meeting in July 2021.

The Availability of Data with which to Monitor and Assess Climate-related Risks to Financial Stability

| PDF full text (818 KB)

Addressing data gaps will enhance the monitoring of climate-related financial risks and enable market participants to incorporate such risks more effectively in their decisions.

This report examines the availability of data with which to monitor and assess climate-related risks to financial stability. It is the latest in a series of FSB reports concerning climate change. Previous reports were the FSB’s stocktake of financial authorities’ experience in including climate risks as part of their financial stability monitoring, and The Implications of Climate Change for Financial Stability.

Risks to financial stability from climate change differ in their nature and magnitude from other risks to the financial system. Climate change is a global phenomenon and can impact financial systems across all jurisdictions. However, its impact differs substantially across entities, sectors and economies. Climate-related risks may be highly non-linear, and their effects on the financial system subject to substantial uncertainty and tail risk.

The specific nature of climate-related risks has a bearing on the data needed to monitor and assess their implications for financial stability. This data should:

  • Capture exposures of financial firms to climate-related risks, particularly those of a scale or concentration that might threaten financial stability.

  • Support a global comparison and aggregation of financial firms’ exposures to climate-related risks.

  • Support forward-looking assessments of climate-related risks to financial stability.

  • Capture climate-related risk transfer and mitigation.

The report outlines priority areas of work – some of which are already in progress – that should address important data gaps to improve the monitoring and assessment of climate-related risks to financial stability:

  • improving the availability and consistency of data on the underlying drivers of climate-related risks;

  • developing a baseline global sustainability reporting standard under robust governance and public oversight – the FSB welcomes the IFRS’s programme of work in this regard;

  • improving the quality and consistency of data on financial institutions’ exposures to climate-related risks arising from their exposures to non-financial counterparties

  • developing – including via engagement with private-sector providers of data – forward-looking metrics on climate-related risks, both at the level of individual firms and the financial system as a whole;

  • widening and harmonising data on the degree to which individual financial institutions’ exposures to climate-related risks are mitigated by insurance provision;

  • comparing authorities’ experiences of implementing scenario analysis as a means of assessing the resilience of the financial system to climate-related risks, and to identify relevant data gaps; and

  • the NGFS continuing to refine and develop scenarios, which financial authorities should make use of in their scenario analysis, as appropriate in order to align the data and methodologies used in such analysis.

Work in these areas should be undertaken in a manner appropriate to authorities’ mandates and domestic legal frameworks.

This report was prepared in close coordination with other international bodies and draws on a number of inputs. In particular, it has benefited from contributions from the BCBS, IAIS, IMF, IOSCO, OECD and the World Bank. It has also been informed by the work of the Task Force on Climate-related Financial Disclosures (TCFD).

The report complements the NGFS’s Workstream on Bridging Data Gaps. This NGFS workstream is undertaking a more comprehensive assessment of the availability of data, including to facilitate the scaling up of green finance.

Report on promoting climate-related disclosures

| PDF full text (640 KB)

Globally consistent and comparable disclosures by firms of their climate-related financial risks are increasingly important to market participants and financial authorities.

In an environment with a proliferation of third-party frameworks for climate-related disclosures, global alignment of practices will help deliver consistent and comparable disclosures and foster convergence. The implementation of climate-related disclosures, using a framework based on the TCFD Recommendations, would be an important step forward on the path towards convergence with anticipated international reporting standards on climate. Global alignment of practices would help deliver consistent and comparable disclosures and foster convergence. The FSB welcomes the IFRS Foundation’s programme of work to develop a baseline global sustainability reporting standard under robust governance and public oversight, built from the TCFD framework and the work of an alliance of sustainability standard-setters, involving them and a wider range of stakeholders closely, including national and regional authorities.

The FSB surveyed its members in H1 2021 to explore national/regional practices of financial authorities on promoting climate related disclosures. The survey identified gaps and challenges in the implementation of requirements or guidance based on the TCFD Recommendations. These relate to:

  1. the consistency of climate-related disclosures (including the use of TCFD Recommendations as the basis for frameworks and for coordination across jurisdictions and within each jurisdiction); and

  2. the reliability of climate-related disclosures (including the use of regulatory or supervisory mechanisms to drive progress and third-party verification).

The report sets high-level guidance, in the form of recommendations, to support financial authorities in their development of frameworks, as they consider appropriate to their wider public policy objectives, regulatory and legal frameworks. The report recommends that:

  • Financial authorities use a framework based on the TCFD Recommendations across all sectors for climate-related financial disclosures, in line with jurisdictions’ regulatory and legal requirements.

  • Financial authorities promote sharing of experiences, provide mutual support across jurisdictions on implementation of climate-related disclosure frameworks and accelerate international efforts to help build industry-wide awareness, technical knowledge and capabilities.

  • Financial authorities strongly coordinate in order to provide clear and consistent expectations, guidance or requirements to firms across all sectors on climate-related disclosures.

  • as disclosure practices continue to evolve and improve over time, in the longer term, authorities can help to improve the reliability of climate-related disclosures if they were to require, as appropriate, some form of third-party verification or assurance on such disclosures made by firms.

Continued coordination among financial authorities at the jurisdiction level and global coordination across jurisdictions and with relevant organisations is paramount to support the call for an acceleration in progress.

FSB Chair presents a comprehensive roadmap for addressing climate-related financial risks

Press enquiries:
+41 61 280 8477
[email protected]
Ref no: 18/2021

The Financial Stability Board (FSB) today published a letter from its Chair, Randal K. Quarles, to G20 Finance Ministers and Central Bank Governors ahead of their 9-10 July meeting.

The letter notes mounting evidence of global recovery, even if uneven across regions. However, some risks to financial stability remain elevated. The global financial system has weathered the COVID Event thus far, thanks to greater resilience brought about by the G20 financial regulatory reforms, and the swift, bold and determined international policy response. But there are areas where there is a need to understand better whether the reforms have functioned as intended, and others where the COVID Event has surfaced vulnerabilities that need to be addressed with urgency, notably in non-bank financial intermediation, including in money market funds.

  • On 30 June, the FSB published a consultation report on policy proposals to enhance money market fund resilience.

  • On 13 July, the FSB will publish an interim report on the overall lessons learnt from the COVID Event from a financial stability perspective.

The Chair’s letter stresses the need for coordinated action to address financial risks posed by climate change, noting the large, and growing, number of international initiatives underway. The FSB has submitted to the G20 for endorsement a comprehensive roadmap to address climate-related financial risks. The roadmap outlines the work underway and still to be done by standard-setting bodies and other international organizations over a multi-year period in four key policy areas: disclosures, data, vulnerabilities analysis, and regulatory and supervisory approaches. In total, the FSB is publishing today three climate-related reports:

The Chair’s letter also reiterates the importance of completing the transition way from LIBOR to robust alternative rates by end-2021 and strongly urges market participants to act now to complete the steps set out in the FSB’s Global Transition Roadmap.

  • On 6 July, the FSB published its latest progress report on LIBOR transition.

Notes to editors

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Vice Chairman, US Federal Reserve; its Vice Chair is Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

Press release available as: PDF

Progress report to the G20 on LIBOR transition issues: Recent developments, supervisory issues and next steps

6 July 2021 | PDF full text (3 MB)

The publication of the majority of LIBOR settings will cease in less than half a year

With the end of 2021 getting ever nearer, the transition away from LIBOR is a significant priority for the FSB. Continued engagement from the private sector, in conjunction with a significant commitment by the official sector, remains critical in order to support this transformational effort and to support financial stability on a sustainable basis.

The majority of LIBOR panels will cease at the end of the year, with a number of key US dollar settings continuing until end-June 2023 to support the rundown of legacy contracts only. With clear cessation dates now confirmed, progress needs to accelerate in order to achieve a timely transition. A smooth and orderly transition requires, at a minimum, steps to stop issuance of new products linked to LIBOR and efforts to transition away from LIBOR in legacy contracts wherever feasible.

Since its first benchmark transition report in 2014, the FSB has continually highlighted the structural post-financial crisis decline in liquidity in the interbank unsecured funding markets underpinning IBOR benchmarks. For example, published data show that LIBOR rates are largely reliant on judgement-based submission rather than on market transactions, demonstrating that interbank unsecured funding markets are an unsustainable reference source.

Loan markets remain an area of concern, with much new lending still linked to LIBOR, increasing the stock of contracts affected by its discontinuation.  The report stresses that the tools necessary to complete the transition are currently available, and have been for some time. Market participants must not wait for the development of additional tools.  Over the past several years, market participants have established mechanisms to use compounded risk-free rates (RFRs) not only in derivative markets, where use of RFRs was already common, but also in the cash markets. The FSB recognises that in some cases there may be a role for RFR-derived term rates.

On the international front, the report stresses that collaboration and coordination remain crucial in expediting transition progress. The FSB encourages authorities to set globally consistent expectations and milestones that firms will rapidly cease the new use of LIBOR, regardless of where those trades are booked or in which currency they are denominated.

The report points to the FSB’s recently updated Global Transition Roadmap, which, drawing on national working group recommendations, summarises the high-level steps firms will need to take now and over the course of 2021 to complete the transition away from LIBOR. Given the limited available until end-2021, the FSB strongly urges market participants to act now to complete the steps set out in the roadmap.