Public Information Notice: IMF Executive Board Reviews International Standards: Strengthening Surveillance, Domestic Institutions, and International Markets

April 3, 2003

Public Information Notices (PINs) are issued, (i) at the request of a member country, following the conclusion of the Article IV consultation for countries seeking to make known the views of the IMF to the public. This action is intended to strengthen IMF surveillance over the economic policies of member countries by increasing the transparency of the IMF's assessment of these policies; and (ii) following policy discussions in the Executive Board at the decision of the Board.

On March 19, 2003, the Executive Board of the International Monetary Fund (IMF) considered a joint IMF/World Bank staff paper on the standards and codes initiative that was launched in the wake of the financial crises in the late 1990s.


The standards and codes initiative is part of the international community's wider strategy for strengthening the stability of the international financial system. The initiative is designed to strengthen institutions and promote good governance and transparency thereby enhancing the accountability and credibility of policy and reducing vulnerability to crises. The concept of internationally agreed standards is not new but the work has accelerated in the past few years in developing international standards and codes to provide policy makers with benchmarks of good practice in key areas of policy.

In early 2001, the IMF and Bank Boards reviewed the experience of assessing and implementing standards. They endorsed a list of 11 areas and associated standards useful to their operational work and for which assessments will be undertaken as appropriate and agreed that Reports on Standards and Codes (ROSCs) would be the principal tool for undertaking assessments. At that time, Fund Directors also agreed on modalities by which ROSCs would inform the surveillance process. In November 2002, the Executive Boards of both organizations agreed to add anti-money laundering and combating the financing of terrorism (AML/CFT) to this list.

The standards can be grouped into three main categories: transparency standards (focused on data, fiscal, and monetary and financial policy transparency); financial sector standards (banking supervision, securities, insurance, payment systems, and AML/CFT); and market-integrity standards for the corporate sector (corporate governance, accounting, auditing, and insolvency and creditor rights).

The number of ROSCs has increased sharply since the 2001 review. As of December 31, 2002, 343 ROSCs have been produced for 89 economies or 48 percent of Fund membership. About 71 percent of ROSCs were published.

Executive Board Assessment

Executive Directors welcomed the opportunity to review the experience with the standards initiative, in order to build on its success and to discuss the role of the initiative in strengthening domestic institutions, international markets, and surveillance. They had a frank discussion on possible re-prioritization of efforts in the light of experience to date and the current resource envelope and taking into account the need to maintain the momentum of the initiative and ensure adequate follow-up of ROSCs already undertaken. Directors believed that standards and codes, together with the Financial Sector Assessment Program (FSAP), have benefited both participating countries and the international financial community. They also noted the contributions of these initiatives to enhancing the effectiveness of Fund surveillance and its crisis prevention efforts.

Directors highlighted the broad and growing acceptance of standards and codes by member countries, notwithstanding their voluntary nature. They noted the sharp increase in the number of ROSCs since the January 2001 review, and that ROSCs are now produced in all areas endorsed by the Fund and Bank Boards. They welcomed the rise in Bank-led ROSCs covering the standards concerned with market integrity. Directors noted that most systemically important countries are participating in the initiative. However, many Directors felt that industrial countries need to step up their participation rate in order to bring about a more balanced coverage of the standards assessments.

Directors agreed that standards assessments are being increasingly integrated into Fund operations. ROSCs are providing an important input for surveillance, raising the profile of institutional weaknesses in discussions with country authorities. ROSCs have also helped to pinpoint concerns, propose specific areas for policy action, and focus technical assistance. Directors stressed the importance of adequate technical assistance in implementing and sequencing the ROSC recommendations. They welcomed the contribution of the Financial Sector Reform and Strengthening (FIRST) initiative.

Directors believed that the practice of sharing draft ROSCs with the authorities to allow for greater dialogue and ensure accuracy has worked well and should continue. They emphasized that member countries and the Executive Board should receive reports that clearly identify staff views on institutional weaknesses and their significance but also progress achieved and explicitly prioritize recommendations. A number of Directors, however, cautioned that the language in ROSC reports should strike a balance between candor and restraint, taking into account the potential impact on markets and on the policy dialogue with countries.

Directors noted that the standards initiative is generating increased attention from financial market participants and ratings agencies, and is thus informing risk assessment and investment decisions. They believed that the program of outreach to the private sector should continue as a mechanism for both publicizing and gaining feedback on the initiative as it evolves.

In view of the growing demand for standards assessments and ROSCs, and for follow up to ROSCs, a number of Directors supported the allocation of additional resources to the ROSC program. Other Directors considered that, for the initiative to remain effective, careful prioritization and management of the process would be necessary and that the mix, coverage, and frequency of new ROSCs and updates to ROSCs would need to be adjusted accordingly. More external partnership in the implementation of the initiative could supplement the resources devoted to it.

Directors saw greater prioritization of assessments as key to focusing the scarce capacity of members and Fund resources on areas where reforms are most needed. They encouraged Fund and Bank staffs to examine ways to allow greater prioritization of ROSCs. Resources should be allocated to deliver the greatest benefit in strengthening domestic and international financial systems and members' institutional capacity. The focus should be on identifying areas of potential vulnerability with a view to addressing them while building confidence in member countries. Moreover, many Directors saw as important the development of a more systematic mechanism for determining when a standards assessment is important for Article IV surveillance. They noted that Fund and Bank staffs will work more closely together and build on the existing mechanisms for exchanging views in the prioritization process.

Most Directors thought that, as regards new ROSCs, priority should be given to (i) members where the exercise would have the highest return in terms of stability for the country and the international financial system; and (ii) members for which the developmental impact is likely to be important, including in a regional context. Article IV reports would indicate the standards that could most usefully be assessed for a member. Many Directors, in this regard, emphasized the need to ensure uniform treatment of countries' requests for assistance, noting that assessments for advanced countries are important in providing information on best practices but also for systemic reasons. A few Directors also expressed concern about the pace of Bank-led assessments in the areas of market integrity for advanced economies and encouraged the establishment of procedures that would allow such assessments to inform Article IV surveillance. In this context, it was suggested to explore the possibility of a cost-sharing arrangement with industrial countries.

Directors also agreed to adjust the intensity and frequency of follow up work to keep ROSCs current and informative to meet the needs of members and markets within the given resource envelop. Accordingly, Directors agreed that factual updates for the transparency standards (i.e. data, fiscal and monetary and financial policy) could be supplemented with more substantive updates when warranted and depending on the availability of resources. When there have been substantial changes in a member's practices, a reassessment or new ROSC might be prepared. A few Directors thought that it would be preferable to focus on new assessments and rather curtail follow up to existing ROSCs.

Directors also agreed on the need for greater selectivity in updating. In particular, the IMF should concentrate on updates to ROSCs in those areas most central to the Fund's concerns (i.e., the data, fiscal, monetary and financial policy transparency, and the Basel Core Principles modules-the last in collaboration with the World Bank if undertaken in the context of the FSAP). Some Directors, however, suggested to implement this guideline flexibly. In this context, the importance of ROSCs on payment systems, securities regulation, and insurance supervision was underscored. The results should be reported in updates to ROSCs or staff reports.

Directors stressed that the current policy regarding the voluntary nature of ROSCs and their publication is working well. They encouraged the authorities to publish the ROSC reports in order to enhance transparency and the usefulness of the ROSC process. While a few Directors, in this context, suggested to establish a policy of presumed publication, it was agreed to take up this matter in the context of the next Board review of transparency policy later this year.

Directors agreed that the central role and responsibility of the IMF and the World Bank in this exercise should be complemented with stepped up efforts by other international agencies and standards setters in producing ROSCs and ROSC updates in their areas of competence.

Moreover, Directors encouraged staff to continue to support various initiatives underway by other standards setters to fill current gaps, particularly in the areas of corporate governance, accounting, and auditing, while noting that any revisions should take into account the views and needs of countries at all stages of development.

Most Directors agreed that at this time there does not seem to be sufficient basis for adding other new areas to the list of standards important to the work of the Fund for which ROSCs are undertaken. Where gaps in existing standards need to be filled, standard setters are enhancing principles or modifying standards, generally with broad support from the international community. Looking forward, a few Directors expressed an interest in considering the usefulness of additional standards, such as public sector governance, public debt management, and guidelines for multi-national corporations. Directors asked the staff to monitor the emerging need for additional standards and bring the matter to the Board periodically.

Directors noted that the standards setters for payments and securities have developed Recommendations for Securities Settlement Systems (RSSS) that identifies the minimum requirements and best practices for securities settlement. They agreed to include assessments against the RSSS as a complement to a payments and settlement system ROSC for members with significant securities trading.

Directors agreed that the next review of the experience with standards assessments should take place in two years' time. There will continue to be periodic reviews of international standards.


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