IMF’s General Counsel, Sean Hagan: “The seminar will help set the agenda for future work in the design of sound legal and institutional frameworks in the financial sector.” (photo: IMF)
IMF Conference
The conference, “Law and Financial Stability,” which will take place during May 16–18 at IMF Headquarters in Washington, D.C., will draw high-level legal experts and policymakers from over 80 member countries to discuss the progress made in strengthening financial regulatory systems since the global financial crisis. A high-level panel chaired by Governor Daniel Tarullo of the U.S. Federal Reserve will lay out a vision of the road ahead.
Speaking to IMF Survey, IMF General Counsel and Director of the Legal Department, Sean Hagan, and Deputy General Counsel, Ross Leckow, discussed the reform agenda and the importance of strong legal frameworks for the IMF and its members.
IMF Survey: The IMF is hosting this high-level seminar. Could you tell us why and why now?
Hagan: The purpose of the seminar is to illustrate the important role that the law plays in contributing to financial stability, at the international, regional, and national levels. Strengthening financial sector legal frameworks is an issue of critical importance for the Fund and its members. The Legal Department is actively involved in this work, and we therefore think it is appropriate to review the progress made since the global financial crisis. The seminar will also provide a timely opportunity to critically examine what remains to be done, as well as identify emerging legal issues.
The conference will draw high-level speakers and participants from over 80 countries, international organizations, academia, and private law practice.
I should note that the timing of the seminar coincides with a very important milestone for us—the 70th anniversary of our Legal Department. It is striking for us to see how the Legal Department’s work on financial sector issues has steadily grown over time, particularly since the financial crisis.
IMF Survey: Can you give us a sense of the topics that will be discussed during these two days?
Hagan: The seminar will cover a broad range of financial sector issues on which we work very closely with our members and other international organizations, as part of our mandate to promote macroeconomic and financial stability.
It will examine the progress made in strengthening resolution regimes for financial institutions and the key role played by legal regimes for insolvency in facilitating private sector debt restructuring and economic recovery. We will also discuss the most effective legal models for the conduct of macroprudential policies, and the implications of central banks’ macroprudential mandates on their governance and autonomy.
Apart from these topics, we will focus on emerging legal issues. For instance, we will discuss how the law can contribute to striking the right balance between addressing the risks associated with the development of the new “fin-tech” industry, while avoiding overregulation that could stifle innovation. In view of its growing importance, we will also examine the legal aspects of Islamic banking.
A panel of very high-level policymakers, chaired by Governor Tarullo of the Federal Reserve, will then draw together the various themes of the seminar and lay out their vision of the “road ahead” for the financial regulatory reform agenda and the legal framework underlying it.
IMF Survey: From a legal perspective, what is your assessment of the global financial regulatory system? What are the key priorities?
Leckow: Both the IMF and member countries have taken major steps in strengthening financial sector legal frameworks. A key achievement has been the recognition that authorities need strong and clear mandates and powers to resolve financial institutions. The Financial Stability Board’s international standards for effective resolution regimes, the Key Attributes, represent a major milestone in this respect. Many countries have updated their corporate insolvency regimes, also as part of their efforts to tackle the pervasive problem of non-performing loans, which is hampering growth.
More generally, the role that legal frameworks can play in promoting financial stability, by giving to the authorities the necessary powers and ensuring transparency and accountability in the financial sector, is now well-acknowledged.
However, the agenda is unfinished. The financial industry is rapidly changing, with potential benefits and risks now emerging. We need to continuously monitor whether the existing standards can help us deal with new risks and vulnerabilities.
Moreover, we need to focus on the implementation challenges that arise for our member countries—particularly for emerging markets and developing economies—in adopting new international standards. We have to ensure that the global regulatory framework adequately takes into account the specific circumstances and needs of these member countries.
IMF Survey: The issue of corruption is generating of lot of interest following the release of the Panama Papers. Will these issues be discussed?
Hagan: While the Panama Papers will not as such be discussed, they do highlight the importance of international initiatives to increase transparency and introduce measures to prevent the misuse of legal entities and arrangements for illicit purposes. This is one of the constant themes of the Legal Department’s work on anti-money laundering and counter-terrorism financing (AML/CFT), as well as on our promotion of sound governance for financial institutions and central banks.
The post financial crisis regulatory environment and strengthened requirements related to economic sanctions, AML/CFT, and tax compliance are contributing to global banks’ withdrawal from correspondent banking and other high-risk business relationships. We will dedicate a session to the issue of de-risking and the ways in which we can ensure, in a legally sound manner, that developing countries remain integrated within the international financial system.
In general, we need to go beyond “mere financial regulation” and look at what more can, and should, be done to improve incentives and strengthen ethical behavior by financial market participants and public authorities. The seminar will address these important issues and provide an opportunity to exchange best practices on governance frameworks and supervisory toolkits regarding misconduct risks, as well as to share experiences on bank regulators’ enforcement powers to address instances of market abuse by professional market parties.
IMF Survey: What is the role of the IMF in advancing legal reforms?
Leckow: Our work in strengthening legal and institutional frameworks in our member countries is firmly embedded in the IMF’s surveillance, program lending, and technical assistance. We work very closely with colleagues from other departments in strengthening national legal frameworks, and with international bodies such as the Financial Stability Board, the Basel Committee on Banking Supervision, and the Financial Action Task Force in developing international standards and codes.
The Legal Department also plays an important role in assessing member countries’ compliance with the legal component of these standards and codes, with the ultimate goal of promoting greater macroeconomic and financial stability.
A good example is the Financial Action Task Force’s AML/CTF standards, which are assessed in the context of Financial Sector Assessment Programs. Of course, we also provide technical assistance at the request of member countries by advising them on the appropriate reforms that would align their legal and institutional frameworks to international standards and best practices, while being mindful of the different countries’ circumstances and legal traditions.
IMF Survey: What do you expect from this seminar? What will be the next steps?
Hagan: We are looking forward to a stimulating and productive discussion amongst all of the speakers and participants. The seminar will help set the agenda for future work in the design of sound legal and institutional frameworks in the financial sector. As the process of legal reform is a cooperative effort, we expect that the seminar will be an important step in an ongoing process of engagement with our membership.
