## IMF Participation in FSB Committees and Other Activities

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### Overview
- Paper examines implications of the Fund accepting membership in the Financial Stability Board (FSB).
- Executive Board decision is required for the Fund to accept membership.
- Paper organized into Part I (institutional framework of the FSB), Part II (parameters of Fund cooperation with the FSB), Part III (options for strengthened cooperation), and Part IV (proposed Executive Board decision).

### Financial Stability Board — Institutional framework and mandate (Part I)
- Establishment and legal character:
  - FSB established in April 2009 as successor to the Financial Stability Forum (FSF); inaugural meeting on June 26–27, 2009.
  - FSB Charter endorsed by G-20 Leaders in September 2009; Article 16: “This Charter is not intended to create any legal rights or obligations.”
  - FSB is not a legal entity, has no capacity to enter into agreements, and has no privileges or immunities.
- Mandate (Article 1 and Article 2):
  - Article 1: act “in the interest of global financial stability”; coordinate work of national financial authorities and international standard setting bodies (SSBs); address vulnerabilities “in collaboration with” the IFIs.
  - Article 2 tasks include (inter alia):
    - assess vulnerabilities affecting the global financial system and identify and review on a timely and ongoing basis the regulatory, supervisory and related actions needed to address them, and their outcomes;
    - promote coordination and information exchange among authorities responsible for financial stability;
    - monitor and advise on market developments and their implications for regulatory policy;
    - advise on and monitor best practice in meeting regulatory standards;
    - undertake joint strategic reviews of SSB policy development work;
    - set guidelines for and support establishment of supervisory colleges;
    - support contingency planning for cross-border crisis management, particularly with respect to systemically important firms;
    - collaborate with the Fund to conduct Early Warning Exercises (EWE);
    - Article 2(i): “undertake any other tasks agreed by its Members in the course of its activities and within the framework of the Charter.”
- Composition and membership:
  - Three member categories: (a) Member Jurisdictions (G-20 plus Hong Kong, the Netherlands, Singapore, Spain and Switzerland, ECB and European Commission); (b) International Standard-Setting, Regulatory, Supervisory and Central Bank Bodies (e.g., BCBS, CPSS, CGFS, IASB, IAIS, IOSCO); (c) International Financial Institutions (IFIs) including the Fund, World Bank, BIS, OECD.
  - Annex A: acceptance of membership by IFIs subject to approval of their governing bodies; Charter offers no guidance/criteria for acceptance of new members.
- Governance and procedures (Articles 6–15):
  - Governing bodies: Plenary (only decision-making body), Steering Committee, Chairperson, Secretariat.
  - Plenary:
    - Comprises all FSB members; representation at central bank governor or immediate deputy; head or immediate deputy of supervisory/regulatory agency; and deputy finance minister.
    - Meets at least twice a year; takes decisions by consensus (Article 7).
  - Steering Committee:
    - Provides operational guidance between Plenary meetings; composition decided by Plenary for balanced representation; in practice takes decisions by consensus.
  - Chairperson:
    - Appointed by Plenary for a term of three years; chairs Plenary and Steering Committee and represents the FSB externally.
  - Secretariat:
    - Located at the BIS in Basel; Secretary General appointed by the Plenary; staff generally seconded from member countries/organizations; Article 15(5): “the Secretary General and the Secretariat Staff, in the discharge of their functions, shall owe their duty entirely to the FSB and to no other authorities or institutions.”
  - Charter silent on allocation of resources to support Secretariat and internal bodies.
- Transnational Regulatory Network (TRN) character:
  - FSB characterized as a TRN: informal, non-binding (“soft law”) network; membership and decisions not legally binding but can influence domestic law and regulation.

### Implications of Fund membership in the FSB
- Legal and policy consequences:
  - Legally, no formal consequences: Fund and other IFIs would not acquire legal rights or be bound by legal obligations as members; Charter uses “commitments” (not obligations) and these do not apply to IFIs.
  - Nature of membership: non-binding commitment to cooperate toward common goals; not equivalent to membership in an international organization.
  - Executive Board approval required because the “Fund” as an institution would be identified as the member.
  - Privileges, immunities, and liability:
    - FSB has no privileges or immunities; potential liability risk for Fund and staff participating in FSB work (e.g., litigation by a bank adversely affected by implementation of an FSB recommendation).
    - The Fund’s own privileges and immunities would apply and provide legal protection for the Fund and relevant staff.
  - Precedent: OECD and World Bank considering similar approach to FSB membership.

### Fund participation to date and practical engagement
- Current engagement:
  - Fund staff represented in Standing Committee on the Assessment of Vulnerabilities (SCAV) and Standing Committee on Standards Implementation (SCSI).
  - Fund staff participate in working groups including the Cross-border Crisis Management Working Group, and the Data Gaps and Systemic Linkages Working Group.
  - Plenary sessions attended by the Financial Counselor despite the Fund not having formally accepted membership.
  - Collaboration with FSB on cross-border bank resolution, systemically important financial institutions, deposit insurance and other issues in G-20 context.
- Box 1 (TRNs) — key TRN features summarized:
  - Sub-state actors; informal creation; flexible internal organization; decentralization; ambiguous legal force; strong links to other organizations; decision-making by consensus.

### Division of responsibilities, joint activities, and complementarities
- Division of responsibilities (as per November 2008 joint letter):
  - Fund: surveillance of the global financial system and macroeconomic policies of its members.
  - FSF/FSB: elaboration of international financial standards and coordination of standard-setting bodies.
  - Jointly: Early Warning Exercises (EWE); Fund assesses national policy implementation via FSAPs, ROSCs, Article IV consultations.
- Joint activities and policy cooperation:
  - Joint Fund/FSB/BIS paper on systemically important markets and institutions; paper on financial sector taxation; benchmarking macroeconomic impact of regulatory reform; G-20 request for FSB (in consultation with Fund) to develop recommendations by October 2010.
- Peer reviews, thematic reviews, and surveillance links:
  - FSB peer reviews intended to leverage Fund FSAPs and occur between FSAP assessments; first peer review (Mexico) concluded mid-2010, building on 2006 FSAP assessment in consultation with Fund staff.
  - Thematic reviews include compensation practices (first), risk disclosures (second), mortgage origination practices (third); other topics: resolution frameworks, deposit insurance, securitization.
  - Implementation Monitoring Network (IMN) reports to SCSI, includes experts and international bodies including the Fund; gathers information on national implementation of G-20/FSB recommendations and provides inputs to G-20 mutual assessment process and Article IV consultations.
- Non-Cooperative Jurisdictions (NCJ) process:
  - Aims to promote compliance with a subset of principles in three main financial sector standards related to cooperation and information-sharing.
  - Relies on Fund (or Fund-Bank) assessments from FSAPs or stand-alone ROSCs.
  - Envisages positive incentives (technical assistance) and negative incentives (possible public listing as “non-cooperative” or sanctions by FSB members).
  - Fund caution: cannot participate in or be bound by decisions inconsistent with its legal and policy framework.

### Guiding principles and options for Fund/FSB cooperation; Board considerations
- Guiding principles proposed:
  - Fund must continue statutory activities (e.g., surveillance) irrespective of FSB activities; cannot delegate these responsibilities.
  - Division of labor: each body leads in areas of comparative advantage (Fund: surveillance and macro-financial stability analysis; FSB: regulatory and supervisory issues).
  - Clear delineation of content and scope to minimize duplication (e.g., timing and scope of peer reviews versus FSAPs).
  - Preserve Fund’s independence and accountability to entire membership; balance FSB activity (subset of members) with safeguarding full membership interests.
  - Caution regarding NCJ process; Fund cannot be bound by decisions inconsistent with its legal/policy framework.
- Options and staff view:
  - Membership listed in Charter as possible for IFIs, subject to governing-body approval.
  - Staff view: membership in the FSB would be most effective mechanism for cooperation—allows full involvement, enables Fund to bring broader membership interests, consistent with multilateral cooperation.
  - Alternatives (less formal cooperation, observership, MoU) have limitations: risk diminishing Fund voice; Charter does not presently contemplate observership.
- Understandings to clarify if Board approves membership (proposed to be set out in summing up and communicated to FSB):
  - Acceptance of membership will not give rise to any legal rights or obligations for the Fund.
  - Fund will participate in the FSB in accordance with its legal framework and policies, under Article 5(3) of the FSB Charter.
  - Fund reserves the right not to take part in FSB decision-making where such participation would be inconsistent with its legal or policy framework.
  - If FSB consensus decisions expect members to implement them, the Fund will only do so to the extent consistent with its legal and policy framework.
- Modalities to determine if membership approved:
  - Extent of authority of Fund representatives in the FSB Plenary.
  - Arrangements for regular reporting to the Executive Board on FSB activities.
  - Clarification of circumstances when FSB decisions need to be brought to the Executive Board.
  - Proposed approach: management to guide Fund participation in FSB activities and report periodically to the Executive Board.

### Resource implications and proposed Executive Board decision
- FY 2010 resource estimates and costs:
  - Travel costs (including headquarter- and Basel-based Fund staff) amounted to about $200,000 in FY 2010.
  - Estimates of staff costs for FY 2010 are approximately 1.6 FTEs (of which one is on account of the Basel-based staff), for a dollar amount of around $600,000.
  - Costs reflect senior staff participation in FSB meetings (plenary, committees, working groups), including travel, and preparation of briefings and substantive contributions.
  - Costs associated with Fund staff seconded to the FSB have existed since FSF establishment and have been managed within existing resources.
  - Greater Fund involvement would imply intensified preparatory work and carry additional costs.
  - Note: FSB/G-20 commitment to initial FSAP assessments (with updates every five years), and the NCJ process may have resource implications if they lead to increased requests for the Fund to engage in FSAPs or ROSCs; these costs would not be affected by Fund membership in the FSB.
- Proposed Executive Board decision (draft as presented):
  - “The Fund’s acceptance of membership in the Financial Stability Board is approved.”
  - Subsequent to issuance of the paper, the proposed decision was revised; final text adopted by the IMF’s Executive Board has also been published.

### FSB Charter — key provisions and dates (summary)
- Article 1 (Objectives): coordinate international work of national financial authorities and SSBs; in collaboration with IFIs address vulnerabilities in the interest of global financial stability.
- Article 2 (Mandate and tasks): (summary as above under mandate).
- Governance summary (Articles 3–15): consultation, Members, internal structures, Plenary (decisions by consensus; convenes at least two Plenary Meetings every calendar year), Steering Committee (at least four meetings every calendar year), Chairperson (term three years), Secretariat (located in Basel at the BIS).
- Article 16: “This Charter is not intended to create any legal rights or obligations.”
- Article 17: “This Charter shall come into effect on 25 September 2009.”
- Membership lists and standing bodies (Annexes A–C):
  - Member jurisdictions include Argentina; Australia; Brazil; Canada; China; France; Germany; Hong Kong SAR; India; Indonesia; Italy; Japan; Korea; Mexico; Netherlands; Russia; Saudi Arabia; Singapore; South Africa; Spain; Switzerland; Turkey; United Kingdom; United States; plus ECB and European Commission.
  - International Financial Institutions listed include BIS; IMF; OECD; World Bank (acceptance subject to governing-body approval).
  - International Standard-Setting bodies include BCBS; CPSS; CGFS; IASB; IAIS; IOSCO.
  - Standing Committees (3): Standing Committee on Assessment of Vulnerabilities; Standing Committee for Supervisory and Regulatory Cooperation; Standing Committee for Standards Implementation.
  - Ad-hoc working groups (3): Cross-border Crisis Management Working Group; Expert Group on Non-cooperative Jurisdictions; Working Group on Compensation.

*Source: IMF staff paper “IMF Participation in FSB Committees and Other Activities” (see source document).*

### 1. IMF Participation in FSB Committees and Other Activities ...............................................13

### IMF Participation in FSB Committees and Other Activities

### Overview
- This paper examines the implications of the Fund accepting membership in the Financial Stability Board (FSB).
- An Executive Board decision is required for the Fund to accept membership.
- The paper is organized into: Part I (institutional framework of the FSB), Part II (parameters of Fund cooperation with the FSB), Part III (options for strengthened cooperation), and Part IV (proposed Executive Board decision).

### Financial Stability Board — Institutional Framework (Part I)
- Establishment and institutional basis
  - The FSB was established in April 2009 at the initiative of the G-20 as the successor to the Financial Stability Forum (FSF).
  - The FSB held its inaugural meeting in Basel on June 26–27, 2009.
  - The FSB Charter was endorsed by the G-20 Leaders in September 2009 and formalized the FSB’s mandate, tasks, decision-making framework, and permanent Secretariat (copy attached as Appendix I in the source).
  - The FSB is not a legal entity, has no capacity to enter into agreements, and has no privileges or immunities.
  - The Charter is political and non-binding; Article 16 states the Charter “is not intended to create any legal rights or obligations.”

- Mandate (Article 1 and Article 2)
  - Article 1: FSB acts “in the interest of global financial stability” and coordinates the work of national financial authorities and international standard setting bodies (SSBs) to develop and promote implementation of effective regulatory, supervisory and other financial sector policies; it will address vulnerabilities “in collaboration with” the IFIs.
  - Article 2: FSB tasks include:
    - assess vulnerabilities affecting the global financial system and identify and review on a timely and ongoing basis the regulatory, supervisory and related actions needed to address them, and their outcomes;
    - promote coordination and information exchange among authorities responsible for financial stability;
    - monitor and advise on market developments and their implications for regulatory policy;
    - advise on and monitor best practice in meeting regulatory standards;
    - undertake joint strategic reviews of the policy development work of the international standard setting bodies;
    - set guidelines for and support the establishment of supervisory colleges;
    - support contingency planning for cross-border crisis management, particularly with respect to systemically important firms;
    - collaborate with the Fund to conduct Early Warning Exercises (EWE).
  - Article 2(i) empowers the FSB to “undertake any other tasks agreed by its Members in the course of its activities and within the framework of the Charter.”
  - The Charter contemplates the FSB making recommendations to members on policy issues and leaves open a more expanded mandate.

- Composition (Article 5 and Annex A)
  - Three categories of members:
    - (a) Member Jurisdictions: national authorities of the G-20 countries plus Hong Kong, the Netherlands, Singapore, Spain and Switzerland, the European Central Bank and the European Commission. Membership open to national and regional authorities responsible for maintaining financial stability (ministries of finance, central banks, supervisory and regulatory authorities). Number of representative authorities per Member jurisdiction varies (from one to three).
    - (b) International Standard-Setting, Regulatory, Supervisory and Central Bank Bodies: including BCBS, CPSS, CGFS, IASB, IAIS, IOSCO.
    - (c) International Financial Institutions (IFIs): including the Fund, the World Bank, the BIS, and the OECD.
  - Different responsibilities assigned by category:
    - Member jurisdictions commit under Article 5 to: “(a) pursue the maintenance of financial stability; (b) maintain the openness and transparency of the financial sector; (c) implement international financial standards; and (d) undergo periodic peer reviews.”
    - Standard-setting bodies are to “report to the FSB on their work without prejudice to their existing reporting arrangements or their independence” (Article 5(2)).
    - No commitments are specified for the IFIs; IFIs participate “in accordance with their respective legal and policy frameworks” (Article 5(3)).
  - Annex A: acceptance of membership by the international financial institutions is subject to the approval of their governing bodies.
  - The Charter offers no guidance or criteria for acceptance of new members.
  - The FSB will consult widely and intends to establish by the end of 2010 regional outreach arrangements.

- Decision-making structure and procedures (Articles 6–13, 15)
  - Governing structure: Plenary, Steering Committee, and the Chairperson.
  - Plenary:
    - The only decision-making body; takes all decisions related to FSB work program, membership, adoption of reports/principles/standards/recommendations/guidance, appointment of Chairman, amendments to the Charter, and other business and affairs of the FSB.
    - Comprises all FSB members; Plenary representatives are at the level of central bank governor or immediate deputy; head or immediate deputy of supervisory/regulatory agency; and deputy finance minister. Plenary also includes chairs of main standard-setting bodies and high-level IFI representatives.
    - The Plenary meets at least twice a year and takes decisions by consensus (Article 7); the Charter does not specify how consensus is achieved.
  - Steering Committee:
    - Provides operational guidance between Plenary meetings to ensure decisions are carried out (Article 13).
    - Monitors progress, commissions work from Standing Committees and working groups, and performs joint strategic reviews.
    - Composition decided by Plenary with regard to balanced geographic and institutional representation (Article 12).
    - FSB Secretariat clarified the Steering Committee takes decisions by consensus in practice.
  - Chairperson:
    - Chairs both Plenary and Steering Committee, appointed by the Plenary from its members for a term of three years (currently the Governor of Banca d’Italia), and represents the FSB externally.
  - Secretariat:
    - Located at the BIS; Secretary General appointed by the Plenary.
    - Secretariat staff are generally seconded from member countries or organizations; staff on loan (currently from the BIS, IMF, and World Bank) continue to be paid by those organizations; member country staff are temporarily on the BIS payroll.
    - Article 15(5): “the Secretary General and the Secretariat Staff, in the discharge of their functions, shall owe their duty entirely to the FSB and to no other authorities or institutions.”
    - The Charter is silent on allocation of resources to support the Secretariat and internal bodies.

- Legal status of the FSB and implications of Fund membership
  - The FSB Charter is an informal and non-binding “memorandum of understanding” for cooperation; the FSB is characterized as a transnational or transgovernmental regulatory network (TRN).
  - TRNs operate informally without creating formal legal rights or obligations; membership is informal, decisions are not legally binding and effectively enforced through peer pressure (“soft law”).
  - “Soft law” can become “hard law” through adoption into the domestic framework; TRNs’ soft regulation has had significant regulatory impact (e.g., Basel Committee accords).

### Implications of Fund Membership in the FSB
- Legal and policy considerations highlighted
  - Legal consequences of membership:
    - Legally, there would be no formal consequences of membership; Fund and other IFIs would not be subject to legal rights as members or bound by legal obligations as a result of membership.
    - The Charter sets out “commitments” (rather than obligations) and these do not apply to the IFIs.
  - Nature of membership:
    - Membership in the FSB is not the same as membership in an international organization; it would involve a non-binding commitment to cooperate towards a common goal with other forum participants.
  - Executive Board approval:
    - Because the “Fund” as an institution would be identified as the member, Board approval is necessary for membership.
    - Participation in the FSF previously did not require a Board decision because the Fund as an institution was not asked to become a member; participation took place at the level of Fund staff.
  - Privileges, immunities, and potential liability:
    - The FSB has no privileges or immunities; to the extent Fund and its staff participate in FSB work, there may be a risk of potential liability in some cases (e.g., a bank adversely affected by implementation of an FSB recommendation sues the Fund and participating staff).
    - There would be no privileges or immunities or other legal protections that the Fund or its staff could claim other than the Fund’s own privileges and immunities.
    - The Fund’s privileges and immunities would apply and would provide the Fund and relevant staff with sufficient legal protection.
  - Precedent and parallel processes:
    - A similar approach towards acceptance of membership in the FSB is being taken by the OECD and is under consideration at the World Bank.

### Fund Participation to Date and Practical Engagement
- Fund staff representation and participation:
  - Fund staff is represented in two of the Standing Committees: the Standing Committee on the Assessment of Vulnerabilities (SCAV); and the Standing Committee on Standards Implementation (SCSI).
  - Fund staff participates in a number of working groups including the Cross-border Crisis Management Working Group, and the Data Gaps and Systemic Linkages Working Group.
  - Plenary sessions, although the Fund has not accepted membership, are attended by the Financial Counselor.
  - The FSB and the Fund are working together in the context of the G-20 on cross-border bank resolution, systemically important financial institutions, deposit insurance and other issues.

### Box 1 — Transnational Regulatory Networks (TRNs) (summary)
- Academic context:
  - Interest in TRNs began in the 1990s with groups such as the Basel Committee and its 1988 bank capital adequacy accord.
  - TRNs described as “informal multilateral forums that bring together representatives from national regulatory agencies or departments to facilitate multilateral cooperation on issues of mutual interest with the authority of the participants.” (source citation in original).
- Typical elements of TRNs (academic literature):
  - (1) Sub-state actors — members do not represent national governments.
  - (2) Informal creation — lack of legal existence.
  - (3) Flexible internal organization — absence of constitutive documents.
  - (4) Decentralization — small bureaucracies and small budgets.
  - (5) Ambiguous legal force — no regulatory capacity to promulgate laws; claim not to create rights and obligations.
  - (6) Strong institutional and logistical links to other organizations.
  - (7) Decision-making by consensus is typical.

*Source: IMF staff paper “IMF Participation in FSB Committees and Other Activities” (see source document).*

### 17.      A joint letter by the Fund’s Managing Director and the Chairman of the FSF in

### 17.      A joint letter by the Fund’s Managing Director and the Chairman of the FSF in

### Division of responsibilities and institutional roles
- The November 2008 joint letter clarified key responsibilities and roles of the Fund and the FSF (transformed into the FSB) and continues to govern the division of responsibilities.
- The joint letter recognizes complementary and, in some cases, overlapping mandates and programs:
  - The Fund is responsible for surveillance of the global financial system and the macroeconomic policies of its members.
  - The principal task of the FSF/FSB is the elaboration of international financial standards and policies and the coordination of standard-setting bodies, to which the Fund contributes.
- The two cooperate on the EWE, and the Fund assesses implementation of national policies through FSAPs, ROSCs, and Article IV consultations.

### Joint activities, comparative advantages, and information sharing
- The Fund and FSB have sought to build a working relationship based on the joint letter and each body’s comparative advantages:
  - The Fund generally takes the lead on economic, macro-financial, and sovereign risk analysis.
  - The FSB tends to lead on regulatory and supervisory issues.
- The Fund and FSB jointly developed the EWE, aimed at improving the analysis of systemic risks, including through linkages between the financial sector and the real economy, and cross-border spillovers.
- The Fund and FSB are working closely to fill data and information gaps exposed by the recent financial crisis:
  - They are collaborating to build on existing reporting frameworks and coordinate efforts nationally and internationally.
  - They last jointly reported on progress to the G-20 Finance Ministers and Governors in October 2009.

### Peer reviews, thematic reviews, and surveillance complementarities
- FSB peer reviews:
  - Represent an opportunity to further leverage the Fund’s financial sector surveillance.
  - Are based on G-20 countries’ commitment to undertake FSAP assessments roughly every five years.
  - Are supposed to take place in-between FSAP assessments, draw on their findings, and monitor progress in implementing their recommendations.
  - The first peer review (Mexico) was concluded in mid-2010 and built on the 2006 FSAP assessment, in consultation with Fund staff to minimize overlap and maximize synergies.
- FSB thematic reviews and Fund surveillance:
  - The first thematic review covered implementation of the FSB Principles for Sound Compensation Practices and their Implementation Standards and assessed adherence within member jurisdictions.
  - The second review will focus on risk disclosures by market participants.
  - The third will focus on mortgage origination practices.
  - Other FSB topics under consideration include resolution frameworks, deposit insurance, and securitization—priorities also for the Fund.
- Implementation Monitoring Network (IMN):
  - Established by the FSB, reports to the SCSI, comprises experts and international bodies including the Fund.
  - Gathers information on national implementation of G-20/FSB recommendations relating to the current financial crisis, including those not related to international standards.
  - Has provided inputs into the G-20 mutual assessment process and could represent a resource for Article IV consultations.

### Non-Cooperative Jurisdictions (NCJ) process and compliance
- The FSB initiative to promote compliance with regulatory and supervisory international standards related to international cooperation and information-sharing is known as the “Non-Cooperative Jurisdictions” (NCJ) process.
- The NCJ process:
  - Has a global reach and aims to encourage adherence by all countries to a subset of principles in the three main financial sector standards pertaining to cooperation and information sharing.
  - Relies on results of Fund (or Fund-Bank) assessments of compliance with these principles undertaken in the context of FSAPs or stand-alone ROSCs.
  - Envisages positive incentives (including technical assistance by FSB members) to encourage adherence.
  - Envisages negative incentives for jurisdictions that refuse to cooperate or where progress is insufficient, including the possibility of public listing as “non-cooperative” by the FSB or sanctions by FSB members.

### Ongoing policy cooperation and G-20 workstreams
- Fund staff and the FSB collaborate on a range of policy-related issues, often at the request of the G-20:
  - Joint Fund/FSB/BIS paper on systemically important markets and institutions.
  - Recent paper on financial sector taxation.
  - Fund staff is working with the FSB on benchmarking the macroeconomic impact of regulatory reform.
  - The G-20 requested the FSB, in consultation with the Fund, to develop recommendations to strengthen financial sector oversight and supervision for delivery to G-20 ministers by October 2010.

### Guiding principles for future Fund/FSB collaboration
- Care will be needed to ensure effective cooperation and avoid duplication between the Fund and FSB; Fund membership in the FSB should help identify overlaps early and ensure mutual complementarity.
- Broad principles proposed to guide collaboration:
  - Under the Articles of Agreement, the Fund is required to engage in certain activities (e.g., surveillance), regardless whether other bodies like the FSB perform similar functions; it cannot delegate that work or decline to engage simply because another body is doing similar work.
  - Collaboration based on a division of labor where each body generally takes the lead in its area of comparative advantage; the Fund would continue to take the lead on surveillance over the international monetary system and analysis of macro-financial stability issues.
  - Wherever possible, clear delineation of the content and scope of programs of the two bodies to minimize duplication (for example, timing and scope of country peer reviews vis-à-vis FSAPs).
  - Preservation of the Fund’s independence and accountability to its entire membership; the Fund must balance its FSB activity (which relates to a subset of members) with safeguarding the interests of the full membership, preserving independence, and ensuring it is not politically bound to support decisions inconsistent with its legal or policy framework.
  - Particular caution regarding the FSB’s NCJ process, noting the Fund cannot participate in or be bound by decisions inconsistent with its legal and policy framework.

### Options for Fund participation in the FSB and Board considerations
- The FSB Charter lists the Fund as one of its members qualified by the caveat that “the acceptance of membership by the international financial institutions in the FSB is subject to the approval of their respective governing bodies.”
- Staff view: membership in the FSB would be the most effective mechanism for cooperation:
  - Full participation as a member would allow full involvement in FSB activities, enable the Fund to bring to bear the interests of its broader membership, and is consistent with the Fund’s emphasis on multilateral cooperation.
- Alternatives considered and limitations:
  - Less formal cooperation (e.g., memorandum of understanding or observership) could risk diminishing the Fund’s voice and the FSB Charter does not presently contemplate observership; such approaches could undermine the Fund’s ability to partner on joint work.
- Understandings to clarify if the Executive Board approves membership:
  - The acceptance of membership in the FSB will not give rise to any legal rights or obligations for the Fund.
  - The Fund will participate in the FSB in accordance with its legal framework and policies, under Article 5(3) of the FSB Charter.
  - The Fund reserves the right in specific circumstances not to take part in FSB decision-making where such participation would not be consistent with its legal or policy framework.
  - If the FSB reaches a decision by consensus that its members would be expected to implement, the Fund will only be prepared to do so to the extent that, and for so long as, it is consistent with its legal and policy framework.
  - These understandings could be set out in the summing up of the Board discussion approving membership and communicated to the FSB after the meeting.
- Modalities requiring determination if membership is approved:
  - Extent of authority of Fund representatives in the FSB Plenary.
  - Arrangements for regular reporting to the Executive Board on FSB activities.
  - Clarification of circumstances in which certain decisions of the FSB would need to be brought to the attention of the Executive Board.
  - Proposed approach: management would continue to guide Fund participation in the FSB’s activities and would report periodically to the Executive Board on the Fund’s work in the FSB.

*17.      A joint letter by the Fund’s Managing Director and the Chairman of the FSF in*

### 25.      Regardless of the form of participation of the Fund in the FSB, the resource

### _081010 - 25.      Regardless of the form of participation of the Fund in the FSB, the resource

### Resource implications for the Fund’s collaboration with the FSB
- Travel costs (including both headquarter- and Basel-based Fund staff) amounted to about $200,000 in FY 2010.
- Estimates of staff costs for FY 2010 are approximately 1.6 FTEs (of which one is on account of the Basel-based staff), for a dollar amount of around $600,000.
- Such costs reflect primarily:
  - senior staff participation in FSB meetings (plenary, committees, working groups), including travel; and
  - the preparation of briefings and other substantive contributions to FSB meetings.
- There are costs associated with Fund staff seconded to the FSB—an arrangement that has been in place since the establishment of the FSF.
- These costs have been managed in the past within the existing resource envelope.
- Involving the Fund more fully into the FSB’s activities would imply intensified preparatory work and carry additional costs.
- Note on potential additional resource implications: “The FSB/G-20 countries’ commitment to undertake an initial assessment under the FSAP (with updates every five years), and the NCJ process may have resource implications for the Fund, if they lead to an increase in requests for the Fund to engage in FSAPs or ROSCs. However, these costs would not be affected by the Fund’s membership in the FSB.”

### Proposed decision (as presented in the document)
- Draft decision proposed for adoption by the Executive Board: “The Fund’s acceptance of membership in the Financial Stability Board is approved.”
- Subsequent to the issuance of this paper, the proposed decision was revised. The final text of the decision adopted by the IMF’s Executive Board has also been published.

### FSB Charter — Objectives and mandate (summary of Articles 1–2)
- Article 1 (Objectives): Coordinate at the international level the work of national financial authorities and international standard setting bodies (SSBs) to develop and promote implementation of effective regulatory, supervisory and other financial sector policies; in collaboration with international financial institutions, address vulnerabilities affecting financial systems in the interest of global financial stability.
- Article 2 (Mandate and tasks) — the FSB will, inter alia:
  - assess vulnerabilities affecting the global financial system and identify and review on a timely and ongoing basis the regulatory, supervisory and related actions needed to address them, and their outcomes;
  - promote coordination and information exchange among authorities responsible for financial stability;
  - monitor and advise on market developments and their implications for regulatory policy;
  - advise on and monitor best practice in meeting regulatory standards;
  - undertake joint strategic reviews of the policy development work of the international standard setting bodies to ensure their work is timely, coordinated, focused on priorities and addressing gaps;
  - set guidelines for and support the establishment of supervisory colleges;
  - support contingency planning for cross-border crisis management, particularly with respect to systemically important firms;
  - collaborate with the International Monetary Fund (IMF) to conduct Early Warning Exercises;
  - undertake any other tasks agreed by its Members within the framework of the Charter.
- The FSB will promote and help coordinate alignment of SSB activities to address overlaps or gaps and clarify demarcations across prudential and systemic risk, market integrity and investor and consumer protection, infrastructure, accounting and auditing.

### Governance and organizational structure (summary of Articles 3–15)
- Consultation (Article 3): The FSB will consult widely among Members and with other stakeholders, including private sector and non-member authorities; consultation includes regional outreach activities.
- Members (Article 4–5):
  - Eligible Members: national and regional authorities responsible for maintaining financial stability; international financial institutions; international standard setting, regulatory, supervisory and central bank bodies.
  - Member commitments include pursuing financial stability, maintaining openness and transparency of the financial sector, implementing international financial standards, and undergoing periodic peer reviews using IMF/World Bank FSAP reports.
  - International financial institutions participate as Members in accordance with their legal frameworks and policies.
- Internal structures (Article 6): Plenary; Steering Committee; Chairperson; Secretariat.
- Plenary (Articles 7–11):
  - Decision-making body; decisions taken by consensus.
  - Responsibilities include approving work programme, adopting reports/principles/standards/guidance, deciding on Membership, appointing the Chairperson, amending the Charter.
  - Representation level: central bank governor or immediate deputy; head or immediate deputy of main supervisory/regulatory agency; deputy finance minister or deputy head of finance ministry; also chairs of main SSBs and high-level representatives of IMF, World Bank, BIS, OECD.
  - Chair convenes at least two Plenary Meetings every calendar year (normally in March and in September); additional extraordinary and regional meetings as appropriate.
- Steering Committee (Articles 12–13):
  - Composition decided by the Plenary at the proposal of the Chair, ensuring effectiveness and balanced representation.
  - Responsibilities: provide operational guidance between Plenary meetings; convene at least four Steering Committee Meetings every calendar year; monitor and guide progress of ongoing work; promote coordination across Standing Committees and working groups; ensure information flow; conduct joint strategic reviews of SSB policy development work.
- Chairperson (Article 14):
  - Appointed by the Plenary for a term of three years renewable once.
  - Convene and chair Plenary and Steering Committee; oversee the Secretariat; principal spokesperson; owes duty entirely to the FSB.
- Secretariat (Article 15):
  - Directed by the Secretary General, who is appointed by the Plenary at the proposal of the Chair and acts under the responsibility and instructions of the Chair.
  - Responsibilities include supporting FSB activities and committees, facilitating cooperation, communication, managing financial/material/human resources (including appointment of staff seconded by Members), maintaining records and website, and other functions assigned by the Chair or Plenary.
  - The Secretariat shall be located in Basel at the BIS.

### Legal effect and effective date
- Article 16: “This Charter is not intended to create any legal rights or obligations.”
- Article 17: “This Charter shall come into effect on 25 September 2009.”

### Membership and participation (Annex A and related provisions)
- Member jurisdictions listed include, inter alia, Argentina; Australia; Brazil; Canada; China; France; Germany; Hong Kong SAR; India; Indonesia; Italy; Japan; Korea; Mexico; Netherlands; Russia; Saudi Arabia; Singapore; South Africa; Spain; Switzerland; Turkey; United Kingdom; United States; plus the European Central Bank and the European Commission.
- International Financial Institutions (Annex A, B): Bank for International Settlements (BIS); International Monetary Fund (IMF); Organisation for Economic Co-operation and Development (OECD); World Bank. (Acceptance of membership by the international financial institutions in the FSB is subject to the approval of their respective governing bodies.)
- International Standard-Setting, Regulatory, Supervisory and Central Bank Bodies (Annex A, C) include: Basel Committee on Banking Supervision (BCBS); Committee on Payment and Settlement Systems (CPSS); Committee on the Global Financial System (CGFS); International Accounting Standards Board (IASB); International Association of Insurance Supervisors (IAIS); International Organization of Securities Commissions (IOSCO).

### Standing Committees and ad-hoc working groups (Annex B)
- Standing Committees (3):
  - Standing Committee on Assessment of Vulnerabilities
  - Standing Committee for Supervisory and Regulatory Cooperation
  - Standing Committee for Standards Implementation
- Ad-hoc working groups (3):
  - Cross-border Crisis Management Working Group
  - Expert Group on Non-cooperative Jurisdictions
  - Working Group on Compensation

*Source: _081010 - 25.      Regardless of the form of participation of the Fund in the FSB, the resource*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2010/_081010.pdf_