Public Information Notice: IMF Executive Board Concludes Review of Standards and Codes Initiative

March 22, 2011

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

Public Information Notice (PIN) No. 11/38
March 22, 2011

On March 9, 2011 the Executive Board of the International Monetary Fund (IMF) considered a joint IMF/World Bank staff paper on the Standards and Codes Initiative, in line with the Initiative’s requirement of periodic (5-yearly) reviews.


In the aftermath of the Asian financial crisis of the late 1990s, the Standards and Codes Initiative (hereafter ―Initiative) was launched in 1999 as part of the international community’s efforts to strengthen the international financial architecture. Specifically, it was designed to promote greater financial stability both within and across countries through the development, dissemination, adoption, and implementation of international standards and codes. The Initiative’s three main intermediate objectives are to: strengthen member countries’ economic institutions by improving transparency and promoting good governance, inform Fund surveillance and the Bank’s Country Assistance Strategies, and inform market participants to discriminate better among investment opportunities.

As part of the Initiative, 12 areas and associated standards which are considered relevant for maintaining macroeconomic and financial stability were endorsed by the Boards of the Bank and Fund. These standards focus mainly on three areas: data and policy transparency; financial sector regulation and supervision; and market integrity. Implementation is monitored by regular Reports on Standards and Codes (ROSCs), prepared by the IMF and World Bank staff, in the areas of each institution’s relative expertise.

The Initiative has been reviewed three times by the Board (2001, 2003, and 2005). The 2005 review concluded that: i) the initiative in its current form remains useful and should be maintained; ii) more efforts are needed to encourage participation, particularly for countries which would benefit the most and are systemically important; iii) priority areas for standards assessments should be integrated into Article IVs consultations and follow up efforts should be improved through Technical Assistance; and iv) the clarity of ROSC findings should be enhanced.

Since the inception of the Initiative, most countries have been covered by ROSC assessments. As of end-December 2010, 1077 assessments and 140 factual updates had been conducted in 162 countries or regions, representing over 86 percent of the Fund’s membership. After peaking in 2003, the annual number of ROSCs fell by nearly half, partly reflecting budgetary considerations and a shift in priorities as many countries already had initial assessments. However, this trend may be reversed due to the comprehensive overhaul underway across most standards as well as the renewed momentum to enhance adherence to those standards following the global crisis.

Executive Board Assessment

Executive Directors welcomed the timely review of the implementation of the Standards and Codes Initiative, which draws lessons from the recent global crisis. They welcomed the international community’s renewed emphasis on adherence to international standards, particularly to promote financial stability. Directors noted the usefulness of the Initiative in identifying data gaps and weaknesses in institutional frameworks, setting reform agendas, and enhancing transparency. They emphasized the importance of prioritizing recommendations in line with countries’ needs, updating current standards where needed, and further promoting country ownership of recommendations in Reports on Observance of Standards and Codes (ROSCs).

Directors acknowledged that compliance with agreed standards represents only one of the building blocks for crisis prevention. The recent crisis has identified gaps in the architecture of standards and codes. It has also brought to the fore the need to complement assessments under ROSCs with rigorous follow-up implementation, strengthened surveillance of financial institutions, and international cooperation on cross-border issues and crisis resolution. The impact of the crisis on public balance sheets also calls for renewed attention to fiscal transparency, including a possible review of fiscal standards and an update of the framework for assessing data quality.

Directors endorsed amendments to the list of key standards. Specifically, they supported the decision of the Financial Stability Board (FSB) to combine the accounting and auditing standards into one policy area, and to introduce a new policy area on crisis resolution and deposit insurance. Enhancing coordination between standard setters and assessors, through a more systematic feedback mechanism, will ensure that lessons from standard implementation inform standard revisions.

Given additional demand for assessments of the two new standards within a limited resource envelope, Directors generally considered it necessary to prioritize ROSCs across standards. They supported plans to improve the link between ROSC assessments and capacity building, and to integrate these assessments more systematically into area departments’ Regional Strategy Notes. Directors saw considerable merit in the use of topical trust funds to finance follow-up technical assistance in high-priority areas, building on the overall positive experience of the Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) trust fund, although a few noted some practical difficulties with this approach. Directors stressed the need to ensure that the focus on systemically important members does not crowd out low-income and emerging market countries.

Directors generally supported the broader application of targeted ROSCs to enhance efficiency and allow for more frequent updates. Most viewed country self-assessments, with the help of qualified outside experts, as a cost-effective means of fostering ownership and building capacity. Directors recognized that such assessments could not substitute for ROSCs, and that their quality could vary. They urged that, in assisting country authorities to conduct self-assessments, staff exercise care so as not to create an impression that the findings are endorsed by the Fund and the Bank.

Most Directors agreed with the recommendations to better integrate ROSC findings into Fund surveillance, including by following up on macro-relevant ROSC recommendations in the context of bilateral surveillance. A number of Directors pointed out that such a move would be inconsistent with the voluntary nature of ROSCs, as well as run counter to the ongoing efforts to streamline and focus Article IV staff reports. Directors urged continued efforts at information-sharing and coordination between the Fund and the Bank. Extending Bank-led ROSCs on accounting, auditing, and corporate governance to a broader group of advanced countries could also improve the effectiveness of surveillance.

Directors welcomed steps to improve the public’s access to ROSCs and efforts to encourage countries to publish ROSCs. They were generally open to considering a mechanism to facilitate public reporting on progress in implementing ROSC recommendations, based on clear guidelines to ensure credibility. A few cautioned against creating undue pressures for countries to provide updated information to markets, which is not a key objective of ROSCs.

Most Directors agreed to maintain the current system on the use of compliance ratings, in which some ROSCs assign ratings while others do not, reflecting the tension between public disclosure and a focus on reform efforts and country ownership. A few were of the view that greater use of compliance ratings would enhance clarity, transparency, and comparability of assessments across countries, as well as provide stronger incentives to push ahead with reforms.

Directors continued to support Fund collaboration with the Financial Stability Board, including with respect to its initiatives to encourage greater compliance by non-cooperative jurisdictions (NCJ) with international standards, insofar as the FSB’s initiatives respect the Fund’s legal framework, the cooperative nature of the Fund’s relationship with its members, and the voluntary nature of the ROSC exercise. In particular, they broadly endorsed the proposed principles on the Fund’s participation in NCJ processes.

Directors agreed that the next review of the Standards and Codes Initiative should be undertaken in five years, with some flexibility to conduct ad hoc reviews as necessary. They looked forward to the forthcoming reviews of selected standards under the Initiative.


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