FSB Plenary meets in Paris

7 November 2019

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Ref no: 38/2019

The Financial Stability Board (FSB) Plenary met in Paris today to review vulnerabilities in the global financial system, discuss FinTech developments and ongoing work, and agree its work programme for 2020.

Current vulnerabilities in the global financial system

The Plenary discussed the financial stability implications of structural changes in the interest rate environment that have been occurring over a number of years. Such an environment over the longer term could give rise to financial stability challenges.

Members discussed a report assessing vulnerabilities associated with leveraged loans and collateralised loan obligations (CLOs). Several factors suggest that such vulnerabilities have grown since the global financial crisis, although there have been some mitigating developments. Available data indicates that banks globally have the largest direct exposures to leveraged loans and CLOs, concentrated among a limited number of large global banks, with a significant cross-border dimension. A number of non-bank investors are also exposed to these markets. A comprehensive assessment of the system-wide implications of the exposures of financial institutions to leveraged loans and CLOs is challenging, and more work is needed to close data gaps. The full report will be published by the end of the year.

The resilience of the financial system has improved as a result of regulatory reforms. Yet banks in some jurisdictions may find it challenging to raise capital at a reasonable cost in the event of negative economic and financial shocks. This may reflect pressure on their profitability in the presence of lower interest rates and, in some instances, concerns around the quality of their assets.

Most financial markets have continued to operate well despite recent episodes of short-lived stress. Widely reported outflows from funds managed by two managers did not have systemic implications. However, a future more widespread deterioration in market liquidity, or increase in volatility, could test market resilience.

In October 2018, the FSB Plenary agreed on the importance of authorities building resilience, and some countries have since increased macroprudential buffers or taken other steps. Given rising global vulnerabilities, authorities should continue to assess whether existing buffers are adequate to support resilience, taking into account their domestic conditions and cyclical position.

FSB surveillance framework

FSB members reviewed progress on the development of a new surveillance framework. The framework will support the comprehensive, methodical and disciplined review of vulnerabilities by the FSB, and thereby help to identify and address new and emerging risks to financial stability. The Plenary discussed the key parameters of the new framework, which the FSB plans to complete in mid-2020.

FinTech developments

The Plenary discussed developments in crypto-asset markets. Members endorsed an augmented framework for monitoring potential financial stability risks in those markets to take account of the development of so-called ‘global stablecoin’ systems, recognising that these are developing rapidly. In parallel, the FSB is examining regulatory and supervisory issues raised by global stablecoins, with a view to advising on additional multilateral responses as needed. The FSB will publish a consultative report on regulatory issues of stablecoins in April 2020.

Members also discussed the FSB’s ongoing work on market developments and potential financial stability implications from the entry of BigTech firms into finance and from third-party dependencies in cloud services. The FSB will publish initial reports on these key topics in the coming weeks.

Insurance holistic framework

The Plenary discussed key elements of the International Association of Insurance Supervisors (IAIS) holistic framework for the assessment and mitigation of systemic risk in the insurance sector and welcomed its completion. The IAIS will publish the final version of the framework, which follows earlier stakeholder consultation, next week.

Evaluating the effects of financial reforms

Members took stock of progress with the FSB’s ongoing evaluation of too-big-to-fail reforms for systemically important banks. The FSB will publish a consultation report in June 2020 and complete the work by end-2020.

The FSB’s evaluation of the effects of financial regulatory reforms on the financing of small and medium-sized enterprises is nearing completion. The final report, incorporating revisions in response to the public consultation, will be published in November.

Members agreed that the next evaluation will be on the effects of money market fund reforms, as the first of a number of future evaluations on non-bank financial intermediation. The evaluation will be launched in mid-2020 and completed by end-2021.

FSB work programme

Members discussed the FSB’s work programme for 2020, including deliverables to Saudi Arabia’s Presidency of the G20, which starts in December. Main priorities for the FSB work programme are (i) addressing new and emerging vulnerabilities in the financial system, including through further work on how to harness the benefits of financial innovation while containing risks; (ii) finalising and operationalising post-crisis reforms; and (iii) monitoring the implementation and evaluating the effects of the reforms. The FSB work programme for 2020 will be published around the end of this year.

Strengthening outreach and the effectiveness of the FSB process

The Plenary agreed to a set of recommendations for enhancing the effectiveness of its Regional Consultative Groups (RCGs), through which the FSB reaches out to approximately 70 additional jurisdictions. The measures will encourage greater input from non-member authorities into the FSB’s work and agenda and further strengthen the effectiveness of RCG meetings.

The Plenary also agreed to streamline the FSB’s working group structure. This streamlining will help to ensure that the resources of the members are used effectively and reinforce the FSB’s ability to adapt flexibly to a constantly changing financial landscape and respond quickly to new vulnerabilities as they arise.

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

FSB Americas group discusses regional vulnerabilities, non-bank financial intermediation, stablecoins and cyber incidents

31 October 2019

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Ref no: 37/2019

The Financial Stability Board (FSB) Regional Consultative Group (RCG) for the Americas met today in Mexico City at a meeting hosted by the Bank of Mexico.

Members discussed global and regional financial vulnerabilities, including elevated debt levels for many private and public sector borrowers in an environment where “lower for longer” interest rates are expected in advanced economies. Members noted that the low interest rate environment may stimulate demand for riskier financial assets and create challenges in meeting longer-term expectations of savers. They stressed the importance of authorities designing integrated policy responses.

Members received an update on the FSB’s ongoing work and its plans for 2020. As part of this update, RCG members heard about the FSB’s evaluations of the effects of implemented post-crisis regulatory reforms. They discussed the FSB’s work to reform interest-rate benchmarks and agreed on the importance of sustained effort by firms in many jurisdictions to transition away from LIBOR.

The group discussed work by the RCG’s working group on non-bank financial intermediation (NBFI), which compiles annual data on the size of NBFI activity in the region and discusses associated policy issues.

Members discussed stablecoins and their implications for financial stability. They agreed that stablecoin projects, particularly those of potentially global reach and magnitude, need to meet the highest regulatory standards and be subject to appropriate prudential supervision and oversight. They looked forward to the results of the FSB’s project to take stock of existing supervisory and regulatory approaches and emerging practices and advise on possible multilateral responses, if necessary.

The group discussed the FSB’s ongoing work to develop effective practices for cyber incident response and recovery, on which the FSB will consult in early 2020. Members expressed concern at the increased frequency and sophistication of cyber attacks, discussed supervisors’ and firms’ actions to strengthen resilience in the region and stressed the need for coordination and communication.

The group expressed support for a set of recommendations that have been developed by a working group of FSB and RCG members for enhancing the effectiveness of RCGs as an outreach and feedback mechanism. The recommendations will be reviewed by the FSB Plenary for adoption in November.

The FSB RCG for the Americas is co-chaired by Alejandro Díaz de León-Carrillo, Governor, Bank of Mexico and Cindy Scotland, Managing Director, Cayman Islands Monetary Authority. Membership includes financial authorities from Argentina, Bahamas, Barbados, Bermuda, Bolivia, Brazil, British Virgin Islands, Canada, Cayman Islands, Chile, Colombia, Costa Rica, Guatemala, Honduras, Jamaica, Mexico, Panama, Paraguay, Peru, Trinidad and Tobago, the United States of America and Uruguay.

Notes to editors

The FSB has six Regional Consultative Groups, established under the FSB Charter, to bring together financial authorities from FSB member and non-member countries to exchange views on vulnerabilities affecting financial systems and on initiatives to promote financial stability.[1] Typically, each Regional Consultative Group meets twice each year.

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

For further information on the FSB, visit the FSB website, www.fsb.org.

[1] The FSB Regional Consultative Groups cover the following regions: Americas, Asia, Commonwealth of Independent States, Europe, Middle East and North Africa, and Sub-Saharan Africa.

Best Practices on Beneficial Ownership for Legal Persons

24 October 2019

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The results of FATF mutual evaluations indicate that jurisdictions find it challenging to achieve a satisfactory level of transparency regarding the beneficial ownership of legal persons. The best practice paper aims to provide solutions, supported by cases and examples of best practices from across countries, in response to challenges in implementing FATF Recommendation 24 on transparency and beneficial ownership of legal persons.

The paper identifies the most common challenges that countries face in ensuring that the beneficial owner(s) of legal persons is identified, and suggests key features of an effective system. It also suggests options for jurisdictions to obtain beneficial ownership information of overseas entities.

The paper highlights that a multi-pronged approach using several sources of information is often more effective than using a single mechanism. This helps in preventing the misuse of legal persons for criminal purposes and implementing measures that make the beneficial ownership of legal persons sufficiently transparent. The variety and availability of sources also increases transparency and access to information, and helps mitigate accuracy problems with particular sources.

Supervisory guidelines on the integration of ESG factors in the investment and risk management of pension funds

22 October 2019

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The IOPS supervisory guidelines propose, inter alia, that pension supervisory authorities should clarify to a pension fund governing body or the asset managers that the explicit integration of ESG factors into pension fund investment and risk management process is in line with their fiduciary duties and require that entities involved in the development and implementation of the pension fund’s investment policy integrate ESG factors, along with all substantial financial factors, into their investment strategies.

The IOPS encourages supervisory authorities to voluntarily adopt and implement the guidelines. The guidelines are non-binding and mean to provide guidance and serve as a reference point for supervisory authorities. The guidelines do not intend to induce pension funds into ESG investment. They also introduce the principle of proportionality, i.e. taking into account the size and capacities of particular pension funds, and are flexible enough to take into consideration all local circumstances.

Regulatory issues of stablecoins

18 October 2019 | PDF full text (227 KB)

This note sets out regulatory issues of stablecoins. The paper was delivered to G20 Finance Ministers and Central Bank Governors for their meeting in Washington D.C in mid-October. It responds to the G20 Leaders’ Osaka Declaration, which noted the importance of monitoring developments in crypto-assets and remaining vigilant to existing and emerging risks, and asked the FSB and other standard‑setting bodies to advise on additional multilateral responses as needed.

The launch of stablecoin-type arrangements for domestic and cross-border retail payments with the potential to reach global scale could alter the current assessment that crypto-assets do not pose a material risk to financial stability.

At the same time, the emergence of global stablecoins that could be used for cross-border payments and remittances by a large number of users in different countries could provide benefits to the financial system and the broader economy.

Harnessing those potential benefits, while containing associated risks for the financial system, requires adequate and comprehensive regulatory and oversight arrangements to ensure that any potential risks to financial stability and market functions can be identified and adequately addressed.

An effective regulatory and supervisory approach needs to be able to identify, monitor and address potential risks in a reasonable range of scenarios and use cases. In order to implement the G20 mandate, and building on earlier work by the G7, the FSB will:

  • Take stock of existing supervisory and regulatory approaches and emerging practices in this field, with a focus on cross-border issues and taking into account the perspective of emerging markets and developing economies.

  • Based on the stocktake, consider whether existing supervisory and regulatory approaches are adequate and effective in addressing financial stability and systemic risk concerns that could arise from the individual components of a stablecoin arrangement or their interaction as an ecosystem as a whole.

  • Advise on possible multilateral responses, if deemed necessary, including developing regulatory and supervisory approaches to addressing financial stability and systemic risk concerns at the global level.

The FSB will submit a consultative report to G20 Finance Ministers and Central Bank Governors in April 2020, and a final report in July 2020.

FSB sets out work to consider regulatory issues of stablecoins

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Ref no: 36/2019

The Financial Stability Board (FSB) today published an issues note on regulatory issues of stablecoins.  The paper was delivered to G20 Finance Ministers and Central Bank Governors for their meeting in Washington D.C this week. It responds to the G20 Leaders’ Osaka Declaration, which noted the importance of monitoring developments in crypto-assets and remaining vigilant to existing and emerging risks, and asked the FSB and other standard‑setting bodies to advise on additional multilateral responses as needed.

The launch of stablecoin-type arrangements for domestic and cross-border retail payments with the potential to reach global scale could alter the current assessment that crypto-assets do not pose a material risk to financial stability.

At the same time, the emergence of global stablecoins that could be used for cross-border payments and remittances by a large number of users in different countries could provide benefits to the financial system and the broader economy.

Harnessing those potential benefits, while containing associated risks for the financial system, requires adequate and comprehensive regulatory and oversight arrangements to ensure that any potential risks to financial stability and market functions can be identified and adequately addressed.

An effective regulatory and supervisory approach needs to be able to identify, monitor and address potential risks in a reasonable range of scenarios and use cases. In order to implement the G20 mandate, and building on earlier work by the G7, the FSB will:

  • Take stock of existing supervisory and regulatory approaches and emerging practices in this field, with a focus on cross-border issues and taking into account the perspective of emerging markets and developing economies.

  • Based on the stocktake, consider whether existing supervisory and regulatory approaches are adequate and effective in addressing financial stability and systemic risk concerns that could arise from the individual components of a stablecoin arrangement or their interaction as an ecosystem as a whole.

  • Advise on possible multilateral responses, if deemed necessary, including developing regulatory and supervisory approaches to addressing financial stability and systemic risk concerns at the global level.

The FSB will submit a consultative report to G20 Finance Ministers and Central Bank Governors in April 2020, and a final report in July 2020.

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

Implementation and Effects of the G20 Financial Regulatory Reforms: Fifth Annual Report

16 October 2019 | PDF full text (2 MB)

This is the fifth annual report on the implementation and effects of the G20 financial regulatory reforms.

The report, which was delivered to the G20 meeting in October, sets out that implementation of the reforms called for by the G20 after the global financial crisis is progressing. This is contributing to an open and resilient financial system that supports the efficient provision of financing to the real economy.

Yet it is critical to maintain momentum and avoid complacency, in order to fully achieve the goal of greater resilience as vulnerabilities are evolving. Rapid structural and technological change require continued vigilance to maintain a sound and efficient financial system.

An open and resilient financial system, grounded in agreed international standards, is crucial to support sustainable growth. It requires the support of the G20 in implementing the agreed reforms and reinforcing global regulatory cooperation.

The report in particular recommends that:

  • Regulatory and supervisory bodies should lead by example in promoting the timely, full and consistent implementation of remaining reforms. This will support a level playing field and avoid regulatory arbitrage.

  • Frameworks for cross-border cooperation between authorities should also be enhanced in order to build trust, allow the sharing of information, and preserve an open and integrated global financial system.

  • Authorities should evaluate whether the reforms are achieving their intended outcomes, identify any material unintended consequences, and address these without compromising on the objectives of those reforms.

Financial stability authorities should continue to contribute to the FSB’s monitoring of emerging risks and stand ready to act if such risks materialise.

The report includes a colour-coded dashboard that summarises the status of implementation across FSB jurisdictions for priority reform areas.

Implementation of reforms in priority areas by FSB jurisdictions

Click the image to see in full-size.

Together with the report the FSB published annual survey responses by its member jurisdictions on implementation of other areas of reform together with summary tables and jurisdiction profiles on implementation progress. Taken together, these reports provide a holistic picture of the implementation of the G20 reforms.

FSB publishes annual report on implementation and effects of financial regulatory reforms

Press enquiries:
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Ref no: 36/2019

The Financial Stability Board (FSB) today published its 2019 annual report on the implementation and effects of the G20 financial regulatory reforms.

The report, which has been delivered to the G20 meeting this week, sets out that implementation of the reforms called for by the G20 after the global financial crisis is progressing. This is contributing to an open and resilient financial system that supports the efficient provision of financing to the real economy.

Yet it is critical to maintain momentum and avoid complacency, in order to fully achieve the goal of greater resilience as vulnerabilities are evolving. Rapid structural and technological change require continued vigilance to maintain a sound and efficient financial system.

An open and resilient financial system, grounded in agreed international standards, is crucial to support sustainable growth. It requires the support of the G20 in implementing the agreed reforms and reinforcing global regulatory cooperation.

The report in particular recommends that:

  • Regulatory and supervisory bodies should lead by example in promoting the timely, full and consistent implementation of remaining reforms. This will support a level playing field and avoid regulatory arbitrage.

  • Frameworks for cross-border cooperation between authorities should also be enhanced in order to build trust, allow the sharing of information, and preserve an open and integrated global financial system.

  • Authorities should evaluate whether the reforms are achieving their intended outcomes, identify any material unintended consequences, and address these without compromising on the objectives of those reforms.

  • Financial stability authorities should continue to contribute to the FSB’s monitoring of emerging risks and stand ready to act if such risks materialise.

Notes to editors

This report includes an implementation dashboard that summarises, in a colour-coded table, the status of implementation across FSB jurisdictions for priority reform areas. As part of its reporting, the FSB also published today the latest annual survey responses by its member jurisdictions on implementation of other areas of reform together with summary tables and jurisdiction profiles on implementation progress. Taken together, these reports provide a comprehensive picture of the implementation of the G20 financial regulatory reforms.

As part of its ongoing evaluation work, the FSB published a consultation paper in June 2019 that examined the effects of the post-crisis financial regulatory reforms on the financing of small and medium-sized enterprises. The FSB will publish its finalised report on this topic next month, taking account of public comments.

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

OTC Derivatives Market Reforms: 2019 Progress Report on Implementation

15 October 2019 | PDF full text (2 MB)

This annual progress report on the implementation of the agreed G20 reforms to over-the-counter (OTC) derivatives markets concludes that overall there has been limited additional implementation of the reforms. The report notes the following progress:

  • Trade reporting: 23 out of 24 member jurisdictions have comprehensive requirements in force, an increase of one during the reporting period. Jurisdictions report efforts to reduce reporting barriers and masking relief, wider use of the legal entity identifier in trade reporting, and streamlining reporting processes and trade repository operations. Authorities are increasingly aggregating data from multiple trade repositories.

  • Central clearing: Eighteen jurisdictions have in force comprehensive standards/criteria for determining when standardised OTC derivatives should be centrally cleared. In a few of these 18 jurisdictions, a wider range of products is now subject to mandatory clearing. Central counterparties (CCPs) have been active, with some CCPs filing for authorisation to clear transactions involving new asset classes in a number of jurisdictions, and other CCPs withdrawing from certain market segments.

  • Margin requirements: Sixteen jurisdictions have in force comprehensive margin requirements for non-centrally cleared derivatives, which represents an increase of one during the reporting period. Estimates of collateralisation rates are available in 10 of these 16 jurisdictions and continue to increase, particularly in credit and equity derivatives.

  • Higher capital requirements for non-centrally cleared derivatives: Interim higher capital requirements for non-centrally cleared derivatives are in force in 23 of the 24 FSB member jurisdictions. Only seven jurisdictions (albeit four more than at end-November 2018) have implemented the final capital requirements, both due to have been implemented by January 2017.

  • Platform trading: Comprehensive platform trading requirements are in force in 13 jurisdictions, a number which has remained unchanged during the reporting period.

  • Cross-border coordination and issues: one jurisdiction started exercising deference during the reporting period with regard to foreign jurisdictions’ regimes. Several other jurisdictions extended deference to further jurisdictions.

FSB reports on implementation of OTC derivative reforms

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Ref no: 35/2019

The Financial Stability Board (FSB) today published its annual progress report on the implementation of the agreed G20 reforms to over-the-counter (OTC) derivatives markets. Overall there has been limited additional implementation of the reforms between end-November 2018 and end-September 2019. The report notes the following progress:

  • Trade reporting: 23 out of 24 member jurisdictions have comprehensive requirements in force, an increase of one during the reporting period. Jurisdictions report efforts to reduce reporting barriers and masking relief, wider use of the legal entity identifier in trade reporting, and streamlining reporting processes and trade repository operations. Authorities are increasingly aggregating data from multiple trade repositories.

  • Central clearing: Eighteen jurisdictions have in force comprehensive standards/criteria for determining when standardised OTC derivatives should be centrally cleared. In a few of these 18 jurisdictions, a wider range of products is now subject to mandatory clearing. Central counterparties (CCPs) have been active, with some CCPs filing for authorisation to clear transactions involving new asset classes in a number of jurisdictions, and other CCPs withdrawing from certain market segments.

  • Margin requirements: Sixteen jurisdictions have in force comprehensive margin requirements for non-centrally cleared derivatives, which represents an increase of one during the reporting period. Estimates of collateralisation rates are available in 10 of these 16 jurisdictions and continue to increase, particularly in credit and equity derivatives.

  • Higher capital requirements for non-centrally cleared derivatives: Interim higher capital requirements for non-centrally cleared derivatives are in force in 23 of the 24 FSB member jurisdictions. Only seven jurisdictions (albeit four more than at end-November 2018) have implemented the final capital requirements, both due to have been implemented by January 2017.

  • Platform trading: Comprehensive platform trading requirements are in force in 13 jurisdictions, a number which has remained unchanged during the reporting period.

  • Cross-border coordination and issues: One jurisdiction started exercising deference during the reporting period with regard to foreign jurisdictions’ regimes. Several other jurisdictions extended deference to further jurisdictions.

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