Guidance for a risk-based approach for trust and company service providers

26 June 2019

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The FATF risk-based approach (RBA) Guidance for trust and company service providers (TCSPs) aims to support the implementation of the RBA by the profession. The Guidance highlights the need for a sound assessment of the ML/TF risks that TCSPs face so that the policies, procedures and initial and ongoing client due diligence measures can mitigate these risks.

The Guidance is aimed at TCSP practitioners, countries and their competent authorities, including supervisors of TCSPs. In particular, it explains the obligation for TCSPs to identify and verify beneficial ownership information and provides examples of simplified, standard and enhanced CDD measures. 

The Guidance contains a section for supervisors of TCSPs. It explains the risk-based approach to supervision, as well as the supervision of the risk-based approach. The Guidance highlights the importance of supervision of beneficial ownership requirements in relation to a trust or other legal arrangement so that such information is maintained and available in a timely manner. 

FSB Chair’s letter to G20 Leaders meeting in Osaka

25 June 2019 | PDF full text (397 KB)

This letter from the FSB Chair Randal K. Quarles to G20 Leaders ahead of their Summit in Osaka on 28-29 June 2019 sets out progress by the FSB over the past year in enhancing global financial stability and furthering the G20’s goals in a number of key themes:

  • Addressing new and emerging vulnerabilities – the FSB will remain vigilant in identifying emerging risks. Potential vulnerabilities persist and, in some cases, have built up further. Corporate and public debt levels have continued to rise. The FSB is closely monitoring leveraged loan and collateralised loan obligation markets in order to obtain a fuller picture of the pattern of exposures to these assets globally.

  • Harnessing the benefits of financial innovation while containing risks – a deep and early understanding of how technological innovation may transform financial institutions and markets is key for harnessing benefits while containing risks. One example is crypto-assets. A wider use of new types of crypto-assets for retail payment purposes would warrant close scrutiny by authorities to ensure that that they are subject to high standards of regulation. The FSB and standard-setting bodies will monitor risks very closely and in a coordinated fashion, and consider additional multilateral responses as needed.

  • Completing implementation of the agreed reforms and ensuring that the reforms work as intended – the implementation progress report published together with the letter shows that the new financial regulatory framework called for by the G20 is now largely in place. However, despite continued progress, implementation is not complete and remains uneven across reform areas. G20 Leaders’ continued support in implementing the agreed reforms is needed. Finalising post-crisis reforms and monitoring their effective implementation remains a focus of FSB work.

  • Promoting an integrated global financial system – an open and resilient financial system, grounded in agreed international standards, is crucial to support sustainable growth. The FSB’s report on market fragmentation identified several areas where further work may help to strengthen mechanisms and approaches to address market fragmentation through more efficient and effective cooperation going forward. This includes mechanisms to avoid future fragmentation.

  • Strengthening the FSB’s outreach and accountability – reaching out beyond its membership is key for the FSB to achieve its mandate of promoting global financial stability. The FSB is taking steps to improve communication and transparency, to facilitate wider input to the FSB’s work and increase understanding of what it does.

FSB Chair reports to G20 Leaders ahead of Osaka Summit

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Ref no: 27/2019

The Financial Stability Board (FSB) today published FSB Chair Randal K. Quarles’ letter to G20 Leaders ahead of their Summit in Osaka on 28-29 June, together with a progress report on implementation of the G20 financial regulatory reforms.

The letter provided a number of key themes:

  • Addressing new and emerging vulnerabilities – the FSB will remain vigilant in identifying emerging risks. Potential vulnerabilities persist and, in some cases, have built up further. Corporate and public debt levels have continued to rise. The FSB is closely monitoring leveraged loan and collateralised loan obligation markets in order to obtain a fuller picture of the pattern of exposures to these assets globally.

  • Harnessing the benefits of financial innovation while containing risks – a deep and early understanding of how technological innovation may transform financial institutions and markets is key for harnessing benefits while containing risks. One example is crypto-assets. A wider use of new types of crypto-assets for retail payment purposes would warrant close scrutiny by authorities to ensure that that they are subject to high standards of regulation. The FSB and standard-setting bodies will monitor risks very closely and in a coordinated fashion, and consider additional multilateral responses as needed.

  • Completing implementation of the agreed reforms and ensuring that the reforms work as intended – the implementation progress report published together with the letter shows that the new financial regulatory framework called for by the G20 is now largely in place. However, despite continued progress, implementation is not complete and remains uneven across reform areas. G20 Leaders’ continued support in implementing the agreed reforms is needed. Finalising post-crisis reforms and monitoring their effective implementation remains a focus of FSB work.

  • Promoting an integrated global financial system – an open and resilient financial system, grounded in agreed international standards, is crucial to support sustainable growth. The FSB’s report on market fragmentation identified several areas where further work may help to strengthen mechanisms and approaches to address market fragmentation through more efficient and effective cooperation going forward. This includes mechanisms to avoid future fragmentation.

  • Strengthening the FSB’s outreach and accountability – reaching out beyond its membership is key for the FSB to achieve its mandate of promoting global financial stability. The FSB is taking steps to improve communication and transparency, to facilitate wider input to the FSB’s work and increase understanding of what it does.

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 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.

Progress in implementation of G20 financial regulatory reforms

| PDF full text (701 KB)

This summary implementation progress report was delivered to G20 Leaders ahead of their Summit in Osaka from 28-29 June 2019.

The report finds that the new financial regulatory framework called for by the G20 is now largely in place. Implementation is well underway, including further progress since the 2018 Summit. These reforms make the financial system more resilient, and thereby reduce the likelihood and severity – and associated public cost – of future financial crises. However, despite continued progress, implementation is not complete and remains uneven across reform areas. The challenges in meeting the agreed dates relate to domestic legislative or rule-making processes; concerns over the pace of implementation in other jurisdictions; and difficulties faced by regulated entities in adjusting to the new requirements. It is critical to maintain momentum and avoid complacency, in order to achieve the goal of greater resilience. The report calls for G20 Leaders’ continued support in implementing the agreed reforms. 

Implementation progress across the four core reform areas is as follows:

  • Building resilient financial institutions – Regulatory adoption of core Basel III elements has generally been timely, though implementation of some standards is behind schedule.

  • Ending too-big-to-fail – Implementation of the policy framework has advanced the most for global systemically important banks. However, substantial work remains in achieving effective resolution regimes and operationalising plans for systemically important banks and non-bank financial institutions.

  • Making derivatives markets safer – Overall good progress has been made to date across over-the-counter derivatives market reforms, though only one jurisdiction has reported further implementation progress since 2018.

  • Enhancing resilience of non-bank financial intermediation (NBFI) – Implementation of reforms to strengthen oversight and regulation of NBFI remains at an earlier stage than in other areas, in part reflecting later implementation deadlines.

The FSB continues to evaluate the effects of reforms and will identify and deliver adjustments where appropriate, without compromising on financial resilience.

Implementing the FSB Principles for Sound Compensation Practices and their Implementation Standards: Sixth progress report

17 June 2019 | PDF full text (1 MB)

This progress report assesses the implementation of the FSB’s Principles and Standards for sound compensation practices (P&S) and how compensation practices have evolved since 2009.

The report finds that FSB jurisdictions have implemented the P&S for sound compensation for all banks considered significant for the purposes of the P&S. While most banks have put in place practices and procedures which reduce the potential for inappropriate risk-taking, their effectiveness is still being tested. At most banks, further work is required to validate that practices and procedures operate effectively and cover all compensation related risks. International supervisory dialogue has facilitated increased attention to compensation design and implementation, contributing to better practice. Authorities remain focused on compensation practices, with many now incorporating assessment of compensation practice as part of ongoing supervisory review processes. The report highlights that for significant banks a number of changes have taken place:

  • Boards appear more active and engaged and compensation processes are now conducted with greater oversight.

  • Compensation arrangements now have longer time horizons, include mechanisms that better align them with effective risk management practices and include a wider range of financial and non-financial risk assessment criteria.

  • In recent years, there has been an increased focus on compensation as a tool to address conduct risk and there is now greater emphasis on how results are achieved.

  • The next challenge is developing frameworks for assessing the effectiveness of compensation policies and practices in balancing risk and reward. Compensation systems should be monitored and reviewed to ensure that they operate as intended.

The P&S are intended to apply to financial institutions that are significant for the purposes of compensation standards including banks, insurers and asset managers. In most jurisdictions, identified institutions are mainly in the banking sector. Fewer jurisdictions have implemented the requirements for the insurance and asset management sectors.

As supervisors continue to monitor compensation practices at financial institutions that are significant for the purpose of the P&S, they will need to ensure that compensation remains aligned with prudent risk taking, and fully reflects evolving risks and new areas of vulnerabilities as they emerge.

FSB publishes compensation progress report

Press enquiries:
+41 61 280 8138
[email protected]
Ref no: 26/2019

The Financial Stability Board (FSB) today published a progress report on the implementation of its Principles and Standards for sound compensation practices in financial institutions. The report assesses how compensation practices have evolved since the Principles and Standards were published in 2009.

The report confirms the finding of the previous progress report in June 2017 that all FSB jurisdictions have implemented the Principles and Standards for sound compensation for all banks considered significant for the purposes of the Principles and Standards. While most banks have put in place practices and procedures which reduce the potential for inappropriate risk-taking, their effectiveness is still being tested. At most banks, further work is required to validate that practices and procedures operate effectively and cover all compensation-related risks. International supervisory dialogue has facilitated increased attention to compensation design and implementation, contributing to better practice. Authorities remain focused on compensation practices, with many now incorporating assessment of compensation practice as part of ongoing supervisory review processes. The report highlights that for significant banks a number of changes have taken place:

  • Boards appear more active and engaged and compensation processes are now conducted with greater oversight.

  • Compensation arrangements now have longer time horizons, include mechanisms that better align them with effective risk management practices and include a wider range of financial and non-financial risk assessment criteria.

  • In recent years, there has been an increased focus on compensation as a tool to address conduct risk and there is now greater emphasis on how results are achieved.

  • The challenge now is developing frameworks for assessing the effectiveness of compensation policies and practices in balancing risk and reward. Compensation systems should be monitored and reviewed to ensure that they operate as intended.

The Principles and Standards are intended to apply to financial institutions that are significant for the purposes of compensation standards, including banks, insurers and asset managers. In most jurisdictions, identified institutions are mainly in the banking sector. Fewer jurisdictions have implemented the requirements for the insurance and asset management sectors.

As supervisors continue to monitor compensation practices, they will need to ensure that compensation remains aligned with prudent risk-taking, and fully reflects evolving risks and new areas of vulnerabilities as they emerge.

Notes to editors

The Principles for Sound Compensation Practices and the Implementation Standards for the FSB Principles for Sound Compensation Practices were published in 2009. This is the FSB’s sixth progress report on the implementation of the Principles and Standards; the fifth progress report was published on 4 July 2017. In 2018 the FSB published Supplementary Guidance to the FSB Principles and Standards on Sound Compensation Practices and Recommendations for national supervisors: Reporting on the use of compensation tools to address potential misconduct risk as part of its 2015 workplan on measures to reduce misconduct risk.  

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 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 RCG for Asia discusses the design and use of crisis simulation exercises, SME financing and climate-related financial risks

14 June 2019

Press enquiries:
+41 61 280 8138
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Ref no: 25/2019

The Financial Stability Board (FSB) Regional Consultative Group (RCG) for Asia met in Kuala Lumpur today at a meeting hosted by Bank Negara Malaysia.

Members of the FSB RCG for Asia considered vulnerabilities and regional financial stability issues. Meeting participants discussed risks from global trends, including the resumption of upward prices in risky assets, a loosening of credit standards and increases in the cost of credit. At the same time, they noted that resilience in the global financial system appears to have increased, financial markets are functioning robustly and financial conditions in emerging markets have stabilised. In spite of these positive trends, they agreed that efforts must continue to minimise the probability of another financial crisis, particularly given the increasing level of interconnectedness in the global financial system.

The group received an update on the FSB’s work programme, and in particular on market fragmentation, financial innovation and FinTech credit, as well as cyber incident response and recovery. Discussions on market fragmentation centred around the FSB’s recently published report on the subject and instances where reducing market fragmentation might have a positive impact on financial stability, or improve market efficiency without any detrimental effect on financial stability.

Members discussed the design and use of financial sector crisis simulation exercises. Members noted that such exercises could help to assess how well the crisis management framework works and scope for improvements. Challenges in their design, including cross-border aspects, were also considered. Members were briefed on lessons learnt from simulation exercises in Hong Kong SAR and Singapore, and exchanged views on how a regional exercise could be conducted.

RCG members discussed the growth of non-bank financial intermediation in the region. They noted that a significant portion of the growth is the result of an increase in intermediation by “other financial intermediaries” such as investment funds, captive financial institutions and moneylenders, broker-dealers and money market funds. Against this backdrop, members considered the challenges associated with the oversight and monitoring of the sector given its size and interconnectedness.

Financing to small and medium-sized enterprises (SMEs) and the impact of post-crisis reforms was also discussed. SMEs form the backbone of many Asian economies and account for a large share of value added and employment. Members exchanged views on the impact of the reforms on SME financing and in this context, observed that the FSB’s recently published consultation report does not identify material and persistent negative effects on SME financing in general, although there is some differentiation across jurisdictions. Members also discussed the benefits of FinTech credit for SME financing while at the same time noting the challenges that it poses for authorities and ensuring its positive impact on productivity.

Members also discussed the financial risks, both physical and transition, resulting from climate change. They exchanged views on the roles of financial institutions, central banks and supervisors and recommendations put forward by the Network for Greening the Financial System.1

The meeting included a discussion on ways to improve the effectiveness of the RCGs as part of the FSB’s broader effort to enhance engagement with stakeholders. The discussion will feed into the FSB’s ongoing work to consider ways in which jurisdictions that are not members of the FSB can more effectively contribute to and benefit from the FSB’s work.

The FSB RCG for Asia is co-chaired by Philip Lowe, Governor, Reserve Bank of Australia and Nor Shamsiah Yunus, Governor, Bank Negara Malaysia. Membership of the RCG Asia comprises financial authorities from Australia, Brunei Darussalam, Cambodia, China, Hong Kong SAR, India, Indonesia, Japan, Korea, Malaysia, New Zealand, Pakistan, Philippines, Singapore, Sri Lanka, Thailand and Vietnam.

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.2 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, 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.

  1. The Central Banks and Supervisors Network for Greening the Financial System (NGFS) is a group of Central Banks and Supervisors willing, on a voluntary basis, to exchange experiences, share best practices, contribute to the development of environment and climate risk management in the financial sector, and to mobilise mainstream finance to support the transition toward a sustainable economy. In April 2019, the NGFS issued its first comprehensive report A call for action: Climate change as a source of financial risk. [←]
  2. 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. [←]