Standards and Codes:
The Role of the IMF
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Standards and codes are benchmarks of good practices. The IMF and the World Bank have recognized international standards in 12 areas related to their work. In assessing countries' observance of these standards, and helping them implement reforms where needed, the IMF and World Bank aim to improve the functioning of the economy as well as investor's decisions, and ultimately to promote greater financial stability and help prevent financial crises. |
What are "standards and codes" and why are they important?
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 where the institutional environment is 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 is expected to assist countries in strengthening their economic institutions, inform market participants so as 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 financial stability at both the domestic and international levels.
The Standards and Codes Framework
The IMF and the World Bank have recognized international standards in 12 areas, which may be divided into three groups:
(1) Policy Transparency: Standards in these areas were developed, and are assessed, by the IMF:
- Data Transparency: IMF's Special Data Dissemination Standard (SDDS) and General Data Dissemination System (GDDS).
- Fiscal Transparency: IMF's Code of Good Practices on Fiscal Transparency, complemented by the 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: IMF efforts to promote financial system soundness rely on standards developed by a number of specialized institutions. These standards are typically assessed in the context of the joint IMF-World Bank Financial Sector Assessment Program (FSAP):
- Banking Supervision: Basel Committee on Banking Supervision's Core Principles for Effective Banking Supervision.
- Securities: International Organization of Securities Commission's Objectives for Securities Regulation.
- Insurance: International Association of Insurance Supervisors' Insurance Supervisory Principles.
- Payments Systems: Committee on Payments and Settlements Systems’ (CPSS) Core Principles for Systemically Important Payment System, complemented by Recommendations for Securities Settlement Systems (RSSS) for countries with significant securities trading.
- Anti-Money Laundering and Combating the Financing of Terrorism: Financial Action Task Force's (FATF) 40+9 Recommendations.
(3) Market Integrity: Standards in these areas have been developed by various institutions, including the World Bank. These are usually assessed by the World Bank:
- Corporate Governance: Organization of Economic Cooperation and Development's Principles of Corporate Governance.
- Accounting: International Accounting Standards Board's International Accounting Standards.
- Auditing: International Federation of Accountants' International Standards on Auditing.
- Insolvency and Creditor Rights: A standard based on the World Bank's Principles for Effective Insolvency and Creditor Rights Systems and the United Nations Commission on International Trade Law Legislative Guide on Insolvency Law is being finalized.
Assessing compliance with Standards and Codes
A country's observance of standards and codes in each of these 12 areas is assessed, at the request of the member, by the IMF and/or World Bank (or by the FATF—the only other standards "assessor" in the area of anti-money laundering and combating the financing of terrorism). The results of these assessments are summarized in a Report on the Observance of Standards and Codes (ROSC).
Assessments reflect the country's particular circumstances, including its stage of development and institutional capacity. No ratings or pass-fail grades are issued. In order to keep ROSCs current, the IMF and World Bank also conduct follow-up assessments. These range from brief factual updates to more detailed re-appraisals, where warranted. Countries themselves are responsible for implementing the recommendations contained in a ROSC or FSAP. Many developing countries, however, request technical assistance from the IMF and other international bodies in doing so.
While the IMF and World Bank encourage countries to publish these assessments, publication—like participation—is voluntary. As of February 28, 2008, nearly three-fourths of the IMF's 186 member countries had completed one or more ROSC modules, of which almost 76 percent have been published.
The most recent review of the IMF and World Bank's work on standards and codes concluded that more efforts are needed to better prioritize country participation in ROSCs, to make ROSCs clearer, to integrate ROSC findings better in IMF surveillance and technical assistance activities, and to do more cross country work based on ROSC findings.