Background

The term “standards and codes” refers to sets of provisions relating to the institutional environment—the “rules of the game”—within which economic and financial policies are devised and implemented. Countries whose institutions are well-regulated and transparent tend to demonstrate better economic performance and greater financial stability. It is thus in countries’ own interest to adopt and implement internationally-recognized standards.

The IMF and the World Bank’s work on standards and codes is a prominent component of the efforts to strengthen the international financial architecture that followed the emerging market crises of the 1990s. The development, dissemination, and adoption by countries of international standards aim to assist countries in strengthening their economic institutions, inform market participants to allow for more effective market discipline, and inform IMF surveillance and the World Bank’s country assistance strategies. The ultimate goal is to promote greater economic and financial stability at both the domestic and international levels.

In March 2011, a review of the IMF and World Bank’s work on standards and codes concluded that this work has been useful for countries in identifying gaps, setting the reform agenda, strengthening institutions, and enhancing transparency. It also identified scope to adapt standards to a changing environment, better prioritize assessments across countries and policy areas, enhance integration of the Report on the Observance of Standards and Codes(ROSC) findings into the IMF’s surveillance and technical assistance, and improve the availability of ROSCs. The IMF and World Bank’s Executive Boards supported the Financial Stability Board’s decision to combine the accounting and auditing standards under one policy area and introduce a new policy area on crisis resolution and deposit insurance, including the standard on the Core Principles for Effective Deposit Insurance Systems.

International standards

The IMF and the World Bank have recognized international standards in 12 policy areas, which may be divided into three groups:

(1) Policy Transparency: These standards were developed by the IMF:

• Data Dissemination: IMF’s Special Data Dissemination Standard (SDDS), General Data Dissemination System (GDDS), and Special Data Dissemination Standard Plus (SDDS Plus).

• Fiscal Policy Transparency: IMF’s Code of Good Practices on Fiscal Transparency, complemented bythe Guide on Resource Revenue Transparency.
• Monetary and Financial Policy Transparency: IMF’s Code of Good Practices on Transparency in Monetary and Financial Policies.

(2) Financial Sector Regulation and Supervision: Efforts to promote financial system soundness rely on standards developed by specialized institutions.

• Banking Supervision: Basel Committee on Banking Supervision’s Core Principles for Effective Banking Supervision.
• Securities Regulation: International Organization of Securities Commission’s Objectives and Principles of Securities Regulation.
• Insurance Supervision: International Association of Insurance Supervisors’ Insurance Supervisory Principles.
• (3) Institutional and Market Infrastructure: Standards in these areas have been developed by various institutions, including the World Bank:
• Crisis Resolution and Deposit Insurance: International Association of Deposit Insurers’ Core Principles for Effective Deposit Insurance Systems. The standard for crisis resolution has not yet been determined.
• Insolvency and Creditor Rights: A standard based on the World Bank’s Principles for Effective Insolvency and Creditor Rights Systemsand the United Nations Commission on International Trade Law’s Legislative Guide on Insolvency Law is being finalized in consultation with IMF staff.
• Corporate Governance: Organization of Economic Cooperation and Development’s Principles of Corporate Governance.
• Accounting and Auditing: International Accounting Standards Board’s International Financial Reporting Standards and International Federation of Accountants’ International Standards on Auditing.
• Payment, Clearing and Settlement: Committee on Payments and Settlements Systems’ Core Principles for Systemically Important Payment Systems, complemented by Recommendations for Securities Settlement Systems for countries with significant securities trading and Recommendations for Central Counterparties.
• Market Integrity: Financial Action Task Force’s (FATF) 40+9 Recommendations on Anti-Money Laundering and Combating Terrorist Financing (AML/CFT).

Assessing observance

A member’s observance of standards and codes is assessed, at its request, by the IMF and/or World Bank (or by the FATF or FATF-style regional bodies in the case of AML/CFT). Financial standards are typically assessed in the context of the Financial Sector Assessment Program (FSAP). Results of these independent assessments are summarized in a ROSC. Findings of an initial detailed assessment might be updated from time to time via reassessments, which comprise a new assessment of the jurisdiction, or a risk-based, targeted assessment, whereby only selected principles are reassessed based on identified criteria. A mission could also choose to undertake a factual update, which focuses on the status of implementation of the recommendations stated in the initial assessment. In the case of AML/CFT all the principles have to be reassessed. Countries are responsible for implementing the recommendations in a ROSC or FSAP. Many developing countries request technical assistance from the IMF and other international bodies in doing so.

Participation in the standards and codes initiative through the request for ROSCs is voluntary, and the publication of the ROSCs is voluntary, but presumed. As of end-December 2011, most of the IMF’s 188 member countries had completed one or more ROSC modules. A total of 1,273 ROSCs have been produced, of which about 63 percent were published.