Standards and Codes: The Role of the IMF
April 5, 2016
Standards and codes are benchmarks of good practices. The IMF and the World Bank have recognized international standards in 12 policy areas related to their work. In assessing countries’ observance of these standards, and helping them to implement reforms where needed, the IMF and the World Bank aim to increase economic and financial stability by strengthening countries’ economic and financial institutions.
The term “standards and codes” refers to sets of provisions relating to the institutional environment—the “rules of the game”—within which economic and financial policies are devised and implemented. Countries whose institutions are well-regulated and transparent tend to demonstrate better economic performance and greater financial stability. It is thus in countries’ own interest to adopt and implement internationally-recognized standards and codes.
The IMF’s and the World Bank’s work on standards and codes is part of the efforts to strengthen the international financial architecture that followed the emerging market crises of the 1990s. The development of international standards aims to assist countries in strengthening their economic institutions. Their adoption by countries both informs market participants, which allows for more effective market discipline, and informs IMF surveillance and IMF and World Bank country assistance strategies. The ultimate goal is to promote greater economic and financial stability at both the domestic and international levels.
In March 2011, a review of the IMF’s and the World Bank’s work on standards and codes concluded that this work has been useful for countries in identifying gaps, setting the reform agenda, strengthening institutions, and enhancing transparency. It also identified scope to adapt standards to a changing environment, better prioritize assessments across countries and policy areas, enhance integration of theReport on the Observance of Standards and Codes(ROSC) findings into the IMF’s surveillance and technical assistance, and improve the public availability of ROSCs. The IMF and the World Bank’s Executive Boards supported the Financial Stability Board’s decision to combine the accounting and auditing standards under one policy area and introduce a new policy area on crisis resolution and deposit insurance. In August 2014, the IMF Board approved the first three pillars of a strengthened Fiscal Transparency Code, the groundwork for which was laid in a 2012 IMFpolicy paper . Fiscal Transparency Evaluations (FTEs), which assess country practices against the Code, will replace the Fiscal Module of the ROSC as the IMF’s principal fiscal transparency diagnostic under the Standards and Codes Initiative. The next standards and codes review should be completed around end-2016 and will likely recommend additional steps to strengthen the focus and effectiveness of the initiative.
The list of standards and codes
The IMF and the World Bank have recognized international standards in 12 policy areas, which form three broader groups:
(1) Policy Transparency: Standards in these areas have been developed by the IMF.
- Data Dissemination: IMF’s Special Data Dissemination Standard (SDDS), Enhanced General Data Dissemination System (e-GDDS), and Special Data Dissemination Standard Plus (SDDS Plus).
- Fiscal Policy Transparency : The IMF’s Fiscal Transparency Code, part of the IMF's Fiscal Transparency Initiative, is the international standard for disclosure of information about public finances. It is based on four pillars covering the key elements of fiscal transparency: (i) fiscal reporting; (ii) fiscal forecasting and budgeting; (iii) fiscal risk analysis and management; and (iv) resource revenue management.
- Monetary and Financial Policy Transparency: IMF’s Code of Good Practices on Transparency in Monetary and Financial Policies.
(2) Financial Sector Regulation and Supervision: Standards in these areas have been developed by specialized standard-setting bodies.
- Banking Supervision: Basel Committee on Banking Supervision’s Core Principles for Effective Banking Supervision, including an assessment methodology.
- Securities Regulation: International Organization of Securities Commissions’ Objectives and Principles of Securities Regulation and the corresponding Methodology for Assessing the Implementations of the IOSCO Principles
- Insurance Supervision: International Association of Insurance Supervisors’ Insurance Core Principles, including an assessment methodology.
(3) Institutional and Market Infrastructure: Standards in these areas have been developed by specialized standard setting bodies, with substantive input from the IMF and World Bank:
- Crisis Resolution and Deposit Insurance: International Association of Deposit Insurers’ Core Principles for Effective Deposit Insurance Systems. The Financial Stability Board’s Key Attributes of Effective Resolution for Financial Institutions.
- Insolvency and Creditor Rights: A standard based on the World Bank’s Principles for Effective Insolvency and Creditor Rights Systemsand the United Nations Commission on International Trade Law’s Law was finalized in consultation with IMF staff.
- Corporate Governance: Organization of Economic Cooperation and Development’s Principles of Corporate Governance.
- Accounting and Auditing: International Accounting Standards Board’s International Financial Reporting Standards and International Federation of Accountants’ International Standards on Auditing.
- Financial Market Infrastructures: Committee on Payments and Market Infrastructures and Technical Committee of International Organization of Securities Commissions’ Principles for Financial Market Infrastructures.
- Market Integrity: Revised recommendations on anti-money laundering and combatting the financing of terrorism (AML/CFT) were agreed in February 2012 and endorsed by the Executive Board of the IMF in March 2014.
Observance of standards and codes can be assessed, at a member’s request, by the IMF and/or the World Bank (and also by the FATF or FATF-style regional bodies (FSRBs) in the case of AML/CFT). In the area of data dissemination, observance is also monitored on a monthly basis for SDDS subscribers and SDDS Plus adherents.
In the financial sector regulation and supervision areas, standards, when assessed done in the context of the Financial Sector Assessment Program (FSAP)and are summarized in ROSCs, and accompany the FSAP report to the Executive Board.
In the fiscal policy transparency area, Fiscal Transparency Evaluations (FTEs) assess countries against the Fiscal Transparency Code. FTEs provide quantified analyses of the scale and sources of fiscal vulnerability involving a set of fiscal transparency indicators, a summary of country fiscal transparency strengths and reform priorities using heat maps, and an optional fiscal transparency action plan to help countries address reform priorities.
There is flexibility in how assessments are done. The findings of an initial assessment may be updated in a reassessment, which can be a new assessment or a targeted assessment in which only selected principles are reassessed based on pre-specified (that is, risk-based) criteria. FTEs allow for modular assessments covering individual pillars on the Fiscal Transparency Code’s that allow greater focus on the most pressing transparency issues. In the case of AML/CFT, an update can be a reassessment, or it can be based on a targeted assessment that draws on FATF/FSRBs follow-up reports; or, if there are no follow-up reports, on the basis of available information in an FSAP. Countries are responsible for implementing the recommendations from an assessment (whether in a ROSC, FSAP, or FTE, etc.) and many request technical assistance from the IMF and other international bodies to do so.
Participation in the standards and codes initiative through a request for ROSCs and FTEs is voluntary. The publication of the ROSCs and FTEs is also voluntary, but presumed. Most of the IMF’s member countries have completed one or more ROSCs. As of end-December 2015, about 1,600 ROSCs have been produced. The publication rate for ROSCs was 81 percent in 2015. As of end-August 2015, 13 FTEs have also been conducted—nine of which have been published—covering countries across a range of regions and income levels.