Experimental Reports on Observance of Standards and Codes

Experimental IMF Reports on Observance of Standards and Codes Overview And Invitation to Comment
September 21, 1999

Reports on the Observance of Standards
and Codes (ROSCs): An Update

Prepared by the Staffs of
The International Monetary Fund and the World Bank

March 30, 2000


  1. Background
  2. Collaborative Arrangements
  3. Areas Subject to Assessment
  4. Assessments Underway


  1. ROSC Modules Published
  2. Developing International Standards: Current Status
Figure 1. Tentative Framework for Assessing Observance of International Standards


I.  Background

1.  When discussing International Standards and Fund Surveillance--Progress and Issues (EBS/99/158, hereafter, Progress and Issues) in September 1999, the IMF Executive Board requested the preparation of a third round of experimental case studies on members' observance of international standards.1 It was agreed that these studies, Reports on the Observance of Standards and Codes (ROSCs), should be conducted over a longer time period than the previous two rounds. Fund staff will report to the Board on the experience with the three rounds of ROSCs before the 2000 Annual Meetings. The Board also sought a short report on progress with the third round of studies before the spring meeting of the International Financial and Monetary Committee. This paper responds to that request.

2.  During the September 1999 discussion, the Fund Executive Directors indicated a preference for a shared ownership approach to preparing ROSCs and invited the World Bank to experiment in preparing particular modules.2 The Bank has welcomed this invitation, given its focus on assisting countries in strengthening the underpinnings for successful financial integration, and intends to experiment with undertaking assessments of standards in the areas of corporate governance and accounting.

3.  Reflecting the cooperation between the Bank and Fund on the preparation of ROSCs, this update has been prepared jointly by Fund and Bank staff. The structure of the paper is as follows. Section II describes progress in involving the wider international community in assessing the observance of standards. Section III indicates areas in which the Fund and Bank are conducting assessments, touching briefly on some of the modalities adopted in conducting the assessments. Section IV reports on the countries that have volunteered for the third round.

II.  Collaborative Arrangements

4.  In recent years it has become increasingly clear that economic and financial stability can be affected by developments in a range of areas. In this light, the international community has emphasized the development and implementation of international standards as part of the ongoing efforts to strengthen the architecture of the international financial system. In that regard, it has also called for experimentation with the preparation of "transparency reports"--assessments of the degree to which an economy observes international standards. Assessments of the extent to which standards are observed can help identify weaknesses that may contribute to economic and financial vulnerability. They can provide a guide to help countries determine reform and development priorities. In addition, they can provide further impetus for improved transparency and disclosure and help create incentives to adhere to standards.

5.  In previous discussions, the Fund's Executive Board indicated that staff needed to have an understanding of issues arising in non-traditional areas3 in order to conduct effective surveillance. The Fund's Board made clear, though, that the knowledge required to provide independent assessments of whether standards are actually observed was likely to be different from that required for effective surveillance. To undertake assessments requires detailed knowledge of the relevant standards and the expertise to use this information to benchmark individual country practices. The use of assessments involves an appreciation of how country practices could impact on macro-economic and financial stability. At the same time, the Bank's Executive Board and the Development Committee have stressed that the Bank's focus should be to assist countries strengthen their domestic financial and economic systems. In that regard, they welcomed the progress in the joint Bank/Fund program of financial sector assessments as well as the proposed enhanced collaboration with the IMF in assisting interested countries to assess their progress in implementing a range of international norms and good practices. The Fund and the Bank are cooperating in assessing the observance of standards, whereby each institution takes primary responsibility for preparing assessments in various areas consistent with their respective mandates and expertise.

6.  While Fund surveillance can provide the basis and organizing framework for assessments, and overall observance of a wide range of standards can be reviewed and discussed with national authorities in the context of Article IV surveillance, assessing a comprehensive range of standards requires involving other international financial organizations and standard-setting bodies, as well as national authorities. It is recognized that the standard-setting bodies are unlikely to be able, in the very near term, to take responsibility for assessments in their areas of expertise due to limits to their resources and the priority they are placing on further developing standards and assessment methodologies.

7.  In the case of the financial sector, the joint Bank-Fund Financial Sector Assessment Program (FSAP) has proven effective for bringing the expertise of members of the standard-setting bodies to the assessment process. The FSAP is a collaborative effort involving expert support provided by a range of national and standard setting bodies (including the International Organization of Securities Commissions (IOSCO) and the International Association of Insurance Supervisors (IAIS)). While the primary focus of the FSAP exercise is to assess financial sector vulnerabilities and identify developmental priorities, one element of this work is an assessment of observance of various financial sector standards.

8.  Assessments of standards will have to be complemented by the provision of technical assistance in some member countries. Assessments will identify where institutional change is needed and will thus provide a key input to programs of technical assistance to improve observance of standards and codes. The technical assistance programs of IFIs involved in specific standards and codes can respond to needs in these areas, but support from other agencies will also be needed. The dissemination of information on priorities to improve standards in individual countries will contribute to the mobilization of support.

9.  Successful assessments also require a close working relationship between staff and the national authorities, and efforts to improve the observance of standards will be most successful if the authorities feel sufficient ownership of the process to address the issues raised. Self-assessments of the observance of standards can play a role in helping to foster ownership although, in isolation, they are likely to lack credibility. Accordingly, external assessments should be seen as a necessary complement to any self-assessment exercises. Successful implementation may also require significant technical assistance, including in areas beyond the capacity of the Bank and Fund.

III.  Areas Subject to Assessment

10.  The preparation of summary assessments of the observance of standards is proceeding on a modular basis. It is intended that all ROSC modules would be collected into a ROSC "binder" which is presented to the Boards of the Bank and the Fund. In the Bank's case, the binder will form background to the Executive Board's discussion of country assistance strategies and lending operations. In the Fund's case, it comprises part of the accompanying documentation to Article IV consultations.4 The modular approach has the advantage of staggering the workload for participating national authorities and staff. Over time, it is also likely to facilitate coordination between the various organizations that it is hoped will join the Bank and Fund in working with national authorities to identify the extent to which standards are observed. It is already apparent that the modular approach provides needed flexibility in approach across the various areas subject to summary assessment, while also allowing the exploitation of synergies with other initiatives underway in the Fund and Bank.

11.  In addition to assessments of financial sector standards, Fund staff are preparing ROSC modules assessing observance of standards in the areas of data dissemination and fiscal transparency. These assessments are being done in the context of existing technical assistance activities and in stand-alone exercises in the context of surveillance and program reviews. In the case of the data dissemination modules, assessments have generally been carried out in the context of multi-topic statistical assessment missions or GDDS/SDDS technical assistance activities.5 Many of the initial ROSC modules on fiscal transparency were substantially carried out with assistance from resident experts working in member countries. However, few of the countries in the current round of fiscal ROSC modules have resident fiscal advisors and so stand-alone missions are increasingly needed. Such missions are proving necessary where the issues are complex or specific transparency-related concerns need to be addressed.

12.  ROSC modules for the financial sector are being derived from the FSAP process as a byproduct. The FSAP teams prepare a series of detailed assessments of selected financial sector standards in the broader context of assessing financial sector vulnerabilities and developmental priorities. Along with the approach adopted for the data and fiscal assessments, this helps to avoid a simple pass/fail approach to standards assessments. The choice of standards is determined by the FSAP team in conjunction with the national authorities and after consultation with the Fund area department and Bank region. To date assessments have covered areas such as: monetary and financial policy transparency,6 banking supervision, securities and insurance regulation, payments systems and deposit insurance. Staff anticipate producing between 2 and 5 ROSC modules from each FSAP currently underway.7

13.  Bank staff have identified three areas in which they plan to experiment with standards assessments and contribute to ROSC modules.

  • The Bank has developed a template to be used for experimenting with corporate governance assessments which is being discussed with partner institutions, including the OECD and the Fund. It is planned to produce around half a dozen corporate governance ROSC modules by June 2000 and discussions are currently underway on country selection.

  • The Bank is also in the process of developing a template for systematically assessing accounting and auditing practices in consultation with relevant national and international institutions and private sector bodies. However, it is recognized that developing a successful methodology is likely to involve extensive iteration and the involvement of the private sector. By September 2000, it is hoped to have available an initial set of ROSC modules that could form the basis for further discussions with relevant parties.

  • In the area of insolvency regimes, priority is being given to developing a set of principles to underlie successful systems.8 Work on experimental ROSC modules will commence only after these principles have been considered by the Executive Board of the World Bank and the Development Committee. This phase of work is expected to be followed by development of methodologies for assessment and a series of pilot assessments.

IV.  Assessments Underway

14.  Table 1 indicates those economies for which ROSC modules have now been published. It also indicates which areas had been subject to assessment. The Table also indicates that most assessments of financial sector standards were prepared separately from an FSAP during the first two rounds of case studies as the FSAP pilot had not yet commenced. While seeking to maintain flexibility in approach, Fund and Bank staff now believe that considerable synergies arise from producing financial sector ROSC modules in the context of an FSAP.9 While an examination of financial sector standards in isolation may be appropriate at times, too narrow a focus could mean that vulnerabilities are overlooked--there are benefits from assessing standards in the broader context of an assessment of strengths, risks and vulnerabilities. Accordingly, in the third round studies, staff have indicated that it would be desirable for financial sector ROSC modules to be derived from work undertaken in the context of an FSAP.

15.  After detailed discussions between national authorities and Fund staff, around 50 modules for 24 countries are currently underway. These cover both modules prepared in the context of technical assistance and stand-alone exercises as well as those to be derived from the FSAP. While not all modules are likely to be completed by mid-2000, Fund staff believe that they will be able to draw sufficient lessons to effectively inform the preparation of the pre-Annual Meeting policy paper.

16.  The Bank is also undertaking a set of pilot studies. As noted, Bank staff propose to produce six corporate governance modules by mid-summer and discussions are currently underway to identify volunteers for this exercise, and it is also proposed to produce a series of accounting and auditing modules by September 2000.

17.  There has been more interest among Fund members in having assessments prepared than there are resources available to undertake assessments. Consequently, a number of members have agreed to wait until the second half of 2000 and beyond before assessments commence. It is also worth noting that, in December 1999, G-20 members agreed "to undertake the completion of Reports on the Observance of Standards and Codes ("Transparency Reports") and Financial Sector Assessments within the context of continuing efforts by the IMF and World Bank to improve these mechanisms." Since then, Korea has indicated its intention to participate in this exercise with the preparation of a full suite of ROSC modules over the next year and a half.10 A number of other G-20 members have sought information about the FSAP and ROSC procedures.

18.  Figure 1 provides a schematic (and tentative) stylization of the standards assessment process. It starts with the partnership between authorities and IFIs/standard-setters which delivers detailed assessments of standards in a range of areas. For the financial sector, the FSAP provides an assessment of vulnerabilities and development priorities which incorporates assessments of financial sector standards. The ROSC binder focuses on standards assessments, but covers a broader range of areas. In the Fund, the FSSA and the ROSC binder form part of the input into the Article IV consultation discussions. In the Bank the FSA and the ROSC binder are to be used as inputs to overall policy and diagnostic work, including Social and Structural Reviews, and as an underpinning for Country Assistance Strategies. The output of these processes flows back to the national authorities as policy dialogue and possibly technical and/or financial assistance.

1Further background is available in Progress in Assessing Observance of Standards and Codes (SM/99/274), November 15, 1999 available on the IMF website.
2In addition, the Bank and Fund are already partners in the Financial Sector Assessment Program (FSAP) from which summary assessments of selected financial sector standards are being derived--these assessments become ROSC modules for the financial sector.
3Non-traditional areas for the IMF include, for example, accounting, auditing, insolvency regimes, corporate governance, and so on. In contrast, traditional or core areas include data dissemination, transparency in fiscal, monetary and financial policies, and banking supervision.
4During the first stages of the pilot, ROSC modules and binders were presented to the IMF Executive Board as supplements to policy papers discussing possible modalities for the IMF's involvement in ROSCs. The first binder circulated as an accompanying document to the staff report has been that for Bulgaria on March 15, 2000. Summary assessments of financial sector standards will also be presented simultaneously as part of the Fund's Financial System Stability Assessment (FSSA) and the Bank's Financial Sector Assessment (FSA).
5For additional information see IMF Board paper Review of the Fund's Data Standards Initiatives (SM/00/55), March 15, 2000.
6When undertaken in the context of the FSAP, assessments in this area have remained the responsibility of Fund staff. When undertaken outside of FSAPs, assessments have been conducted by Fund staff except in Tunisia, where the assessment was undertaken by Bank staff..
7Each FSAP will allow assessments to be derived for, at least, the Code of Good Practices on Transparency in Monetary and Financial Policies and the Basel Core Principles for Effective Banking Supervision. Depending on the country circumstances, assessments may also be conducted that relate to the IOSCO, IAIS and Committee on Payment and Settlement Systems core principles and other standards as appropriate.
8This builds on work presented in the Fund paper Orderly and Effective Insolvency Procedures--Key Issues and the conference organized by the Bank in September 1999 on effective insolvency systems.
9In some cases, it may be appropriate for the first stage of the FSAP to focus on standards assessments.
10Among G-20 members, Argentina, the United Kingdom and Australia have already had ROSC modules prepared; Russia and Turkey had modules underway at the time of the G-20 meeting and France had indicated its intention to participate prior to the September 1999 Fund Board meeting. Canada and South Africa have already completed FSAPs and India has agreed to an FSAP mission which will commence shortly.


Table 1.  ROSC Modules Published
Country Data Fiscal MFP Banking Other Published FSAP


X X X X   X  


X X X X   X  

United Kingdom1

X X X X   X  


X X X X DI X  


  X       X  

Czech Republic

X X X X SM X  


  X       X  

Hong Kong SAR

X X X X   X  


X X X X SM X  


X X X X   X  


  X       X  
Data = Data dissemination, Fiscal = Fiscal transparency
MFP = Monetary and Financial Policy transparency, Banking = Banking supervision
SM= Securities market regulation, INS=Insurance regulation, Acc=Accounting and Auditing, PAY-Payment systems
DI-Deposit insurance

1Material on securities, insurance, accounting and auditing standards also included in the report. However, Fund staff made no independent assessment of the extent to which relevant international standards in these areas were observed.
2Material on securities, insurance, corporate governance, bankruptcy, accounting and auditing standards, and foreign investment policy also included in the report. However, Fund staff made no assessment of the extent to which relevant international standards in these areas were observed.
3Material on securities and insurance standards also included in the report. However, Fund staff made no assessments of the extent to which relevant international standards in these areas were observed.


Table 2.  Developing International Standards: Current Status
Standard Key Agency Responsible Status

Data Dissemination


The Third Review of the Fund's Data Standards Initiatives is scheduled for March 2000.

Seven countries have begun to disseminate data using the reserves template. SDDS subscribers need to comply with the SDDS provisions by end-March 2000.

The General Data Dissemination System (GDDS) is moving into the second, or operational, phase in 2000.

Fiscal Transparency


The Code of Good Practices on Fiscal Transparency was endorsed by the Interim Committee in April 1998, and the accompanying manual, which provides guidance on implementation of the Code, has been issued. Both are available on the IMF's Web site. A questionnaire, and self-evaluation report are also available on the IMF's Web site.

Transparency in Monetary and Financial Policies


The Code of Good Practices on Transparency of Monetary and Financial Policies was endorsed by the Interim Committee in September 1999. A "supporting document" is being prepared, which elaborates and illustrates with examples of the good transparency practices of the Code.

Banking Supervision

Basel Committee

A working group that included the Fund and Bank developed a handbook containing a methodology for assessing compliance with the Basel Core Principles. The IMF and the World Bank are currently undertaking assessments using this handbook.

Securities Market Regulation

International Organization of Securities Commissions (IOSCO)

In relation to the Implementation of the Objectives and Principles for Securities Regulation, the first phase of a self-assessment exercise has begun. Three self-assessment surveys and methodologies have been distributed to all IOSCO members (for the entire document, Principles relating to the Issuer, and Principles relating to the Regulator). A draft survey and methodology document on the Principles relating to Collective Investment Schemes has been circulated for comments. Responses will be received in April 2000. The Committee on the Implementation of the Objectives and Principles is developing surveys and additional assessment methodologies to cover those Principles not yet addressed. The Committee is currently considering proposals for a completeness and quality checking exercise for the self-assessment exercise, and is also considering introducing a peer review process. The IOSCO Secretariat is also collaborating with the World Bank, IMF and the regional development banks in order to assist them in their use of the Objectives and Principles, most notably in relation to the Financial Sector Assessment Program.

Insurance Regulation

International Association of Insurance Supervisors (IAIS)

The IAIS Task Force on Core Principles Methodology has drafted the Core Principles Methodology that will be discussed for approval at the Task Force meeting in March 2000 in Lima. The IAIS has invited the Fund and the Bank staff to comment on the draft. At the request of the IAIS, the Fund and the Bank staff are preparing a chapter for the methodology document on the structure and assessment methodology report. The original core principles have been modified from Insurance Supervisory principles to Insurance Core Principles. Three new principles have been added to the original 14 principles relating to organization of a supervisory body, market conduct and insurance concordat.

Payment and Settlements Systems

Committee on Payment and Settlement Systems (CPSS)

The CPSS has issued a consultative document on the Core Principles for Systemically Important Payment Systems--CPSIPS (December 1999). The consultation period will last until March 17, 2000. The CPSS Task Force is currently working on the second part of the report that will elaborate on how the CPSIPS are to be interpreted and applied in different contexts.

Accounting and Auditing

International Accounting Standards Committee (IASC); International Federation of Accountants (IFAC)

The International Accounting Standards (IAS) are being reviewed by the Basel Committee for their relevance to bank supervisors. The BCBS, in July 1999, issued guidelines on Sound Practices for Loan Accounting and Disclosure by banks. The BCBS guidelines includes 26 items of sound practices--2 related to the role of supervisors and 24 related to accounting and disclosure (18 items are comparable with accounting and disclosure requirements in IAS). IOSCO is assessing whether a core set of IAS can form a comprehensive set of accounting principles for issuers undertaking cross-border securities offerings and listings. The IASC has published an Issues Paper on insurance in December 1999 as the first step in its project on insurance accounting. The IAIS is assessing the suitability of IAS for the insurance industry. The International Federation of Accountants (IFAC) is formulating accounting standards for the public sector based on IAS.

IFAC has formulated International Standards on Auditing (ISA), and Audit Practice Statements have also been formulated.

The International Forum on Accountancy Development (IFAD) has been set up, as a initiative of IFAC and the World Bank, to promote good accounting and auditing practices worldwide. The World Bank is developing a diagnostic tool for country assessment of accounting standards and actual practices. This assessment framework will show the strengths and weaknesses of the enforcement mechanism in implementing accounting standards/rules; it will also show the conformity of national accounting standards with International Accounting Standards (ISA)

Corporate Governance

World Bank; OECD

The OECD, with the World Bank, has been working to use the Principles of Corporate Governance as a framework for dialogue and consultation with emerging and transition economies with the aim of improving corporate governance practices and various regional "round table" meetings are being organized.

Insolvency Regimes


The Model Law on Cross Border Insolvency developed by UNCITRAL in 1997 is now under consideration in a number of countries. The IMF published a report Orderly and Effective Insolvency Procedures in 1999 that discusses major policy choices to be addressed by countries when designing insolvency systems. The World Bank is developing a set of Principles and Guidelines on Insolvency Regimes for developing countries, in collaboration with international organizations and insolvency experts. In parallel, an assessment matrix is being developed by the Bank for use in pilot assessments.


1With standard setting bodies as appropriate.
2Work is also underway in other contexts to address questions of data quality and fiscal vulnerabilities.
3This remains the responsibility of the IMF when conducted in the context of the FSAP.
4Including accounting practices of banks.