FSB completes a review of its processes and transparency to maximise its effectiveness

27 November 2018

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Ref: 50/2018

The FSB has reviewed its processes and transparency to maximise its effectiveness for the next phase of its work focused on promoting global financial stability. The review confirmed the FSB’s existing strengths, and the FSB also found scope to enhance some of its work processes, reinforce the member-driven character of its work, further foster effective communication and strengthen engagement with external stakeholders. The FSB has already begun implementing these actions.

A decade ago, the G20 created the FSB to identify and address vulnerabilities that could threaten the stability of the global financial system. The G20 put the FSB on a firm institutional footing which has ensured its effectiveness in pursuing an ambitious set of cross-sectoral financial reforms to fix the fault lines that caused the crisis as well as to mitigate new and emerging risks. The FSB’s strength results from its multidisciplinary, consensus-based and member-driven approach. The FSB provides a unique forum for senior policy makers drawn from finance ministries, central banks and supervisors, as well as international organisations and standard-setting bodies, to promote global financial stability. It has maintained a lean and efficient approach, with its work supported by a small secretariat of only 30 people. The recent transition from policy development has meant that the number of FSB working groups has fallen by one third from its 2016 peak.

To ensure its effective operation as it moves to the next phase of its work, the FSB’s membership has undertaken a review of how the FSB works. In January 2018 a working group was established to review the FSB’s processes for: (i) identification, consideration and actions regarding its policy work and priorities to align with its core financial stability mandate; (ii) the organisation of work under the FSB’s Committee structure and the associated work processes as set out in the FSB Procedural Guidelines to increase efficiency; and (iii) the transparency and accountability of the FSB, including the information that the FSB makes public about its activities, and its current practices as regards consultation with stakeholders. The review was informed by a comprehensive survey of the FSB membership.

The working group consisted of Plenary members, reflecting the diversity of FSB membership. The group was chaired by Rob Stewart, Associate Deputy Minister of the Canadian Ministry of Finance.

The review found that the FSB Plenary members value the FSB’s strengths as a multi-disciplinary, consensus-based and member-driven body and unique forum for senior policy makers to discuss and address financial stability risks. These qualities should be maintained. While the review did not detect a need for any major changes in the manner in which the FSB is organised and operates, as part of the review, FSB Plenary members also identified a number of specific areas where the FSB’s processes and transparency can be further improved.

The FSB has agreed a set of concrete measures in these areas. Specific actions include: enhancing processes for policy prioritisation and developing future work programmes anchored in the FSB’s financial stability mandate; steps to further enhance the efficiency of senior-level meetings and the work processes of working groups and workstreams; and actions to improve communication and engagement with external stakeholders.

One specific recommendation relates to the FSB’s six Regional Consultative Groups (RCGs). The RCGs are an important mechanism for a wider range of authorities to exchange views on financial stability issues, including for non-FSB member authorities to provide feedback on the direction of the FSB’s work. The FSB has decided to conduct in 2019 a review, with the involvement of RCG members, of how to enhance the effectiveness of RCGs as an outreach and feedback mechanism.

The actions to improve communication and engagement with external stakeholders are as follows:

  • The FSB is standardising its public consultation processes, including through: an explicit expectation that documents that may materially affect external stakeholders are subject to a 60-day public consultation process; improving the visibility of consultation responses on the FSB’s website; and routinely publishing, for all public consultations in a consistent format, reports that summarise public comments and explain how they have been addressed in the final policy document.
  • To support its outreach the FSB will make more frequent use of stakeholder workshops, and also outreach to academia, consumer and other interest groups, including non-governmental organisations, and the general public, so as to ensure external engagement is not confined to the financial industry but encompasses all relevant stakeholders. Considering and deciding on appropriate forms of stakeholder engagement becomes an integral part of planning new initiatives.
  • The FSB will improve the accessibility of information to the general public by increasing website information on FSB meetings and structure; providing more information about the FSB’s work in language targeted at a non-technical audience; and more generally making the FSB’s website more user-friendly.

Commenting on the review’s proposals to improve communication and engagement with external stakeholders, FSB Chair Mark Carney said ‘The FSB’s strength results from its multidisciplinary, consensus-based and member-driven approach, and the unique forum it provides for senior policy makers drawn from across finance ministries, central banks and supervisors to discuss and address financial stability risks. After a review, the FSB has identified steps to build on these strengths by further improving our efficiency and how we communicate and engage with external stakeholders. This will help to ensure that the FSB remains fit for the future.’

The FSB has amended its Procedural Guidelines to reflect the outcomes of the review. The amended version is available on the FSB website.

The FSB will review its processes and transparency again, including the experience with implementing these recommendations, in 2021.

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 65 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Mark Carney, Governor of the Bank of England. Its Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

Appointment of new FSB Chair and Vice Chair

26 November 2018

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Ref no: 48/2018

The Plenary of the Financial Stability Board (FSB) today appointed Randal K. Quarles (Governor and Vice Chairman for Supervision at the US Federal Reserve) as its new Chair and Klaas Knot (President of De Nederlandsche Bank) as Vice Chair, for a three-year term starting on 2 December 2018. The Plenary also agreed that after three years on 2 December 2021 Mr Knot will take over as Chair for the next three-year term.

Plenary members unanimously welcomed these appointments, which were made at the recommendation of a specially constituted Nominations Committee.

FSB Plenary members expressed their gratitude to the current FSB Chair, Mark Carney for his exemplary leadership of the FSB over the past seven years.

Speaking about the appointments, Mark Carney said: “It has been an honour to serve these last seven years. I would like to commend the dedication and professionalism of the FSB Secretariat, and the commitment and wisdom of my fellow policymakers. Randy and Klaas will provide strong leadership and continuity as the FSB pivots towards the implementation and evaluation of post-crisis reforms, and to addressing emerging vulnerabilities in the global financial system. Their appointment demonstrates the FSB’s unique role as a member-led, international body for cooperation on global financial stability.”

Randal Quarles said: “Under Mark’s leadership, the FSB has played a central coordinating role in building a resilient global financial system in the aftermath of the financial crisis. Ten years on, the FSB’s work remains just as relevant. With its broad membership, it is uniquely placed to promote resilience and preserve an open and integrated global financial system in the future. I look forward to working with Klaas and all FSB members towards this goal.”

Klaas Knot, who as FSB Vice Chair will continue to serve as Chair of the FSB’s Standing Committee on Assessment of Vulnerabilities (SCAV), added: “I look forward to working with Randy and the FSB membership in promoting global financial stability through rigorous implementation of agreed reforms, and by addressing emerging vulnerabilities in the financial system.”

Notes to editors

Mark Carney’s term of office as FSB Chair ends on 1 December 2018. Randal K. Quarles has been appointed as Chair for a three-year term running from 2 December 2018 until 1 December 2021 with Klaas Knot as Vice Chair. Klaas Knot will succeed him as Chair from 2 December 2021 until 1 December 2024.

The FSB Chair is selected from representatives on the Plenary and appointed by the Plenary for a term of three years renewable once. The Plenary made the appointments during a conference call of the FSB earlier today, following a proposal by the Nominations Committee.

The process for appointing the FSB’s Chair is set out in the FSB’s Procedural Guidelines and the Charter. In line with the agreed procedures, the FSB Plenary established a Nominations Committee in January 2018. FSB members nominated candidates for the position of FSB Chair and the Nominations Committee consulted members about the nominated candidates.

The Nominations Committee was chaired by Jens Weidmann (President, Deutsche Bundesbank) and its other members were Ashley Alder (Chair, International Organization of Securities Commissions/CEO, Securities and Futures Commission of Hong Kong), Philip Lowe (Governor, Reserve Bank of Australia), David Malpass (Under Secretary of the Treasury for International Affairs, US Department of the Treasury) and Ismail Momoniat (Deputy Director-General, South African National Treasury).

Biographies

Randal K. Quarles took office as a member of the Board of Governors of the Federal Reserve System on 13 October 2017, to fill an unexpired term ending on 31 January 2018. He was reappointed to the Board and sworn in on 23 July 2018, for a term ending 31 January 2032. He was sworn in as Vice Chairman for Supervision on 13 October 2017. His term as Vice Chairman for Supervision ends on 13 October 2021. In this capacity, he is a member of the Financial Stability Board.

Prior to his appointment to the Board, Mr. Quarles was founder and managing director of the Cynosure Group, a Utah-based investment firm. Before founding the Cynosure Group, Mr. Quarles was a partner at The Carlyle Group, a private equity firm based in Washington, DC.

From September 2005 to November 2006, Mr. Quarles served as Under Secretary of the Treasury for Domestic Finance. Prior to serving as Under Secretary, from April 2002 to August 2005, Mr. Quarles was Assistant Secretary of the Treasury for International Affairs. During his tenure, Mr. Quarles served as policy chair of the Committee on Foreign Investment in the United States. Prior to joining the Department of the Treasury, Mr. Quarles served, from August 2001 to April 2002, as the U.S. Executive Director of the International Monetary Fund.

From January 1991 to January 1993, he served in the Treasury Department as a Special Assistant to the Secretary of the Treasury for Banking Legislation and as Deputy Assistant Secretary of the Treasury for Financial Institutions.

Prior to, and in between, his service at the Department of the Treasury, Mr. Quarles was a partner at Davis Polk & Wardwell, serving in their New York and London offices.

Klaas H.W. Knot has been President of De Nederlandsche Bank since 1 July 2011 and was reappointed for a second seven-year term on 1 July 2018. In this capacity he is a member of the Governing Council and the General Council of the European Central Bank, Governor of the International Monetary Fund, Governor of the Bank for International Settlements and also member of its Board of Directors, member of the European Systemic Risk Board, member of the Financial Stability Board and also chairman of its Standing Committee on the Assessment of Vulnerabilities.

Knot holds several secondary positions. He is chairman of the Supervisory Boards of the Teylers Museum and the CliniClowns Foundation. Since 2005, he has been honorary Professor of Economics of Central Banking at the University of Groningen and since 2015 he is also honorary Professor of Monetary Stability at the University of Amsterdam. Knot has published several articles in leading international journals in monetary and financial economics.

Before taking up DNB’s Presidency, Knot was Deputy Treasurer-General and Director of Financial Markets at the Dutch Ministry of Finance (2009-11). Between 1995 and 2009 he held several positions at DNB, the Pension and Insurance Authority (2003-04), and the International Monetary Fund (1998-99).

In 1991, he graduated with honours in general economics at the University of Groningen. In 1995, he obtained his PhD in economics.

The FSB

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and to develop and promote 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 65 other jurisdictions through its six regional consultative groups.

The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

Recommendations for national supervisors: Reporting on the use of compensation tools to address potential misconduct risk

23 November 2018

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The Recommendations are directed to the relevant national supervisory authorities for firms in all financial sectors. They build on national supervisory work and existing international efforts including Basel Committee Pillar III disclosures on compensation. They will help supervisors understand whether governance and risk management processes at financial institutions:

  • Appropriately include conduct considerations in the design of their compensation and incentive systems, including the setting of individual goals, ex ante performance measurement mechanisms and ex post compensation adjustments;

  • Support the effective use of compensation tools in combination with other performance management tools to help promote good conduct or to remediate misconduct;

  • Promote wider risk management goals, including for conduct issues, consistent with the firm’s strategy and risk tolerance; and

  • Support the effective identification of emerging misconduct risks and appropriate review of incentive systems and compensation decisions in response to conduct incidents to ensure alignment of incentives, risk and reward.

Recommendations for national supervisors: Reporting on the use of compensation tools to address potential misconduct risk

| PDF full text (357 KB)

These Recommendations set out the types of data that can support improved monitoring by supervisory authorities on the use of compensation tools to address misconduct risk in significant financial institutions.

The Recommendations are directed to the relevant national supervisory authorities for firms in all financial sectors. They build on national supervisory work and existing international efforts including Basel Committee Pillar III disclosures on compensation. They will help supervisors understand whether governance and risk management processes at financial institutions:

  • Appropriately include conduct considerations in the design of their compensation and incentive systems, including the setting of individual goals, ex ante performance measurement mechanisms and ex post compensation adjustments;

  • Support the effective use of compensation tools in combination with other performance management tools to help promote good conduct or to remediate misconduct;

  • Promote wider risk management goals, including for conduct issues, consistent with the firm’s strategy and risk tolerance; and

  • Support the effective identification of emerging misconduct risks and appropriate review of incentive systems and compensation decisions in response to conduct incidents to ensure alignment of incentives, risk and reward.

In recent years, supervisors and firms have directed significant attention to improving compensation governance and risk adjustment practices. They have focused more intensively on the impact compensation and related performance management mechanisms can have on incentives, and the role they can play in addressing misconduct risks, by providing both ex ante incentives for good conduct and ex post adjustment mechanisms that support appropriate accountability when misconduct occurs.

The FSB’s 2015 Workplan on Measures to Reduce Misconduct Risk  promoted incentives for good behaviour through:

The most recent update on progress under the overall Workplan on Measures to Reduce Misconduct Risk was delivered to the Hamburg G20 Summit in July 2017.

FSB publishes recommendations on compensation data reporting to address potential misconduct risk

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Ref no: 47/2018

The Financial Stability Board (FSB) today published its finalised Recommendations for national supervisors: Reporting on the use of compensation tools to address potential misconduct risk. The recommendations complement the FSB’s the Supplementary Guidance to the FSB Principles and Standards on Sound Compensation Practices by setting out the types of data that can support improved monitoring by supervisory authorities on the use of compensation tools to address misconduct risk in significant financial institutions.

The Recommendations are directed to the relevant national supervisory authorities for firms in all financial sectors. They build on national supervisory work and existing international efforts including Basel Committee Pillar III disclosures on compensation. They will help supervisors understand whether governance and risk management processes at financial institutions:

  • Appropriately include conduct considerations in the design of their compensation and incentive systems, including the setting of individual goals, ex ante performance measurement mechanisms and ex post compensation adjustments;

  • Support the effective use of compensation tools in combination with other performance management tools to help promote good conduct or to remediate misconduct;

  • Promote wider risk management goals, including for conduct issues, consistent with the firm’s strategy and risk tolerance; and

  • Support the effective identification of emerging misconduct risks and appropriate review of incentive systems and compensation decisions in response to conduct incidents to ensure alignment of incentives, risk and reward.

In recent years, supervisors and firms have directed significant attention to improving compensation governance and risk adjustment practices. They have focused more intensively on the impact compensation and related performance management mechanisms can have on incentives, and the role they can play in addressing misconduct risks, by providing both ex ante incentives for good conduct and ex post adjustment mechanisms that support appropriate accountability when misconduct occurs.

The Recommendations form part of the FSB’s action plan address misconduct risk, which also includes a toolkit for firms and supervisors for strengthening governance frameworks to mitigate misconduct risk.

The FSB today also published an overview of responses to its public consultation on the Recommendations launched in May. The overview summarises the issues raised in the public consultation and sets out the main changes that have been made to the Recommendations to address these comments.

Notes to editors

The FSB’s 2015 Workplan on Measures to Reduce Misconduct Risk promoted incentives for good behaviour through:

The most recent update on progress under the overall Workplan on Measures to Reduce Misconduct Risk was delivered to the Hamburg G20 Summit in July 2017.

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 Mark Carney, Governor of the Bank of England. Its Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

Recommendations for national supervisors: Reporting on the use of compensation tools to address potential misconduct risk: Overview of responses to the consultation

22 November 2018 | PDF full text (225 KB)

On 7 May 2018, the FSB published a consultative document on Recommendations for consistent national reporting of data on the use of compensation tools to address misconduct risk (“Recommendations”). The FSB received 11 responses from associations representing supervisors, banks, a research foundation, trade associations and a trade union.

This note summarises the main points from the responses, including to the specific questions set out in the consultation and provides an overview of the response to those comments, including changes made to the Recommendations.

Evaluation of the effects of financial regulatory reforms on infrastructure finance

20 November 2018 | PDF full text (3 MB)

The evaluation is among the first under the FSB framework for the post-implementation evaluation of the effects of the G20 financial regulatory reforms, and forms part of a broader FSB examination of the effects of reforms on financial intermediation. It focuses on infrastructure finance that is provided in the form of corporate and project debt financing (loans and bonds), for which the financial regulatory reforms are of immediate relevance.

The report concludes that the effect of the G20 reforms on infrastructure finance has been of a second order relative to factors such as the macro-financial environment, government policy and institutional factors. In particular, for the reforms that have been largely implemented and are most relevant for this evaluation – namely, the initial Basel III capital and liquidity requirements (agreed in 2010) and over-the-counter derivatives reforms – the analysis does not identify material negative effects on the provision and cost of infrastructure finance to date.

The evaluation further finds that:

  • The overall amount of infrastructure finance has grown in recent years after a temporary drop during the financial crisis. Market-based finance – mainly project and particularly corporate bond issuance as well as non-bank financing – has accounted for most of the growth in advanced economies in recent years.

  • Lending spreads for infrastructure finance have returned to lower levels in recent years following a spike during the crisis, but remain above pre-crisis levels.

  • There are some key differences in the provision of infrastructure finance in emerging market and developing economies (EMDEs) compared to advanced economies. EMDEs tend to rely more on bank loans, have a higher proportion of cross-border financing, and use local currency less for financing purposes.

  • The reforms have contributed to shorter average maturities of infrastructure loans by global systemically important banks. This effect is not necessarily unintended, given that reducing banks’ maturity mismatch was one of the objectives of the reforms.

  • While not analysing the ex post effects of reforms on financial resilience, the evaluation has found no results to suggest that the wider benefits to the financial system from enhanced resilience – as estimated at an aggregate level in ex ante impact assessment studies – do not apply in the narrower context of infrastructure finance.

The analysis points to some substitution in recent years of bank financing by market-based financing in advanced economies, and the G20 banking reforms may have been one of the drivers for this rebalancing.

Evaluation of the effects of financial regulatory reforms on infrastructure finance: Overview of responses to the consultation

| PDF full text (181 KB)

On 18 July 2018, the FSB published a consultative document on the Evaluation of the effects of financial regulatory reforms on infrastructure finance. The FSB received responses to the public consultation from banks, insurers, development banks and industry associations. Respondents generally welcomed the consultative document, noting the importance of this evaluation given the contribution of infrastructure finance to economic growth.

This document summarises the issues raised in the public consultation and sets out the main changes that have been made to the evaluation report in order to address them.

FSB report finds that effects of G20 financial reforms on infrastructure finance are of a second order relative to other factors

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Ref no: 46/2018

The Financial Stability Board (FSB) published today its final report on the Evaluation of the effects of financial regulatory reforms on infrastructure finance, following public consultation earlier this year.

The evaluation is among the first under the FSB framework for the post-implementation evaluation of the effects of the G20 financial regulatory reforms, and forms part of a broader FSB examination of the effects of reforms on financial intermediation. It focuses on infrastructure finance that is provided in the form of corporate and project debt financing (loans and bonds), for which the financial regulatory reforms are of most immediate relevance.

The report concludes that the effect of the G20 reforms on infrastructure finance has been of a second order relative to factors such as the macro-financial environment, government policy and institutional factors. In particular, for the reforms that have been largely implemented and are most relevant for this evaluation – namely, the initial Basel III capital and liquidity requirements (agreed in 2010) and over-the-counter derivatives reforms – the analysis does not identify material negative effects on the provision and cost of infrastructure finance to date.

The evaluation further finds that:

  • The overall amount of infrastructure finance has grown in recent years after a temporary drop during the financial crisis. Market-based finance – mainly project and particularly corporate bond issuance as well as non-bank financing – has accounted for most of the growth in advanced economies in recent years.

  • Lending spreads for infrastructure finance have returned to lower levels in recent years following a spike during the crisis, but remain above pre-crisis levels.

  • There are some key differences in the provision of infrastructure finance in emerging market and developing economies (EMDEs) compared to advanced economies. EMDEs tend to rely more on bank loans, have a higher proportion of cross-border financing, and use local currency less for financing purposes.

  • The reforms have contributed to shorter average maturities of infrastructure loans by global systemically important banks. This effect is not necessarily unintended, given that reducing banks’ maturity mismatch was one of the objectives of the reforms.

  • While not analysing the ex post effects of reforms on financial resilience, the evaluation has found no results to suggest that the wider benefits to the financial system from enhanced resilience – as estimated at an aggregate level in ex ante impact assessment studies – do not apply in the narrower context of infrastructure finance.

  • The analysis points to some substitution in recent years of bank financing by market-based financing in advanced economies, and the G20 banking reforms may have been one of the drivers for this rebalancing.

The FSB also published today an overview of responses to the public consultation, which summarises the issues raised in the public consultation and sets out the main changes that have been made in the evaluation report to address them. 

Notes to editors

The FSB published in July 2017 a Framework for Post-Implementation Evaluation of the Effects of the G20 Financial Regulatory Reforms that guides analysis of whether the reforms are achieving their intended outcomes, and help identify material unintended consequences that may have to be addressed, without compromising on the objectives of the reforms. The framework provides the basis for dynamic implementation, and ensures that reforms remain fit for purpose amidst changing circumstances.

The report published today forms part of the evaluation of the G20 financial regulatory reforms on financial intermediation. The second part of the evaluation examines the effects of reforms on the financing of small and medium-sized enterprises and will be delivered to the G20 during the Japanese G20 Presidency in 2019. The FSB will also undertake an evaluation on the effects to date of reforms to end too-big-to-fail; that evaluation will be launched in early 2019 and completed in 2020.

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 65 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Mark Carney, Governor of the Bank of England. Its Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

Trade reporting legal barriers: Follow-up of 2015 peer review recommendations

19 November 2018 | PDF full text (584 KB)

Trade reporting data provides important information for authorities as they seek to assess risks in OTC derivatives markets. However, where barriers to the full reporting of trade data and to authorities’ access to this information exist, this reduces the usefulness of this data. This document reports on FSB member jurisdictions have taken to address legal barriers to reporting and accessing trade data sets identified in a 2015 peer review. Four of these recommendations included implementation dates in 2018, while the other two did not have specific implementation dates. The progress report finds:

  • Barriers to full trade reporting: All but three of the FSB’s member jurisdictions have removed or addressed barriers to full trade reporting.

  • Masking Five FSB member jurisdictions allow masking of counterparty identifiers for some transactions. As reported by jurisdictions, the percentage of masked trades is relatively low, typically 5% or under, with several under 1%.

  • Regulators’ access to trade repository data: In twelve jurisdictions, changes have been made or are underway to address or remove barriers to access to trade repository data by foreign authorities and/or non-primary domestic authorities, including legal barriers which have only very recently been removed.

A number of supplementary recommendations have been made by the FSB. The FSB will continue to monitor implementation.