Twelfth Meeting of the Financial Stability Forum
8–9 September 2004, Washington, D.C.
Financial Sector Regulation: Issues and Gaps
The IMF reported on the main findings of a study examining the extent of implementation of standards in the banking, securities, and insurance sectors in a panel of industrial, emerging, and developing countries. The study, drawing on the joint IMF/World Bank Financial Sector Assessment Program (FSAP), described gaps in implementation and raised a number of issues relating to the standards themselves, including the treatment of preconditions, consistency in implementation methodology, cross-border regulation, regulatory and corporate governance, especially for state-owned enterprises (SOEs), public disclosure, and practices resulting in regulatory forbearance. Particular attention needs to be paid to shortage of internationally agreed concrete capital and risk management standards in the insurance sector.
Members welcomed the IMF study, which they found to be comprehensive and to offer useful insights. Representatives from the standard setting bodies, notably the BCBS, IAIS, and IOSCO, indicated that they would make good use of the study's insights for the revision of their standards, as appropriate. The standard setting bodies agreed that consistency across sectors deserved attention and that further work on their part on these matters was advisable, including by exploring possible synergies on specific issues from ongoing work by the Joint Forum. The following points were also made in the discussion:
All members agreed that FSAPs should encompass an assessment
of the enabling preconditions to the effective implementation of standards.
Several members stressed that these preconditions should not be incorporated
into the standards themselves: the preconditions were not in general
the standard setting bodies' responsibility, and prudential authorities
needed to take compensatory measures where preconditions were weak.
Some other members noted the need to distinguish the more general preconditions
(e.g., macroeconomic stability) from the more specific ones (e.g., the
accounting and auditing framework), and indicated that the latter could
usefully be reflected in the standards. One member noted that the protection
of property rights should be one key precondition. Several members suggested
that the development of additional guidance for more effective and uniform
assessments of preconditions was desirable, but that this should be
outside the standard setting process.
Several members stressed that the primary focus now should
be on implementing standards, not revising them, and that the standard
setting process should be the responsibility of the standard setting
One member noted that research has pointed to the importance
of market discipline: enhanced supervision by itself will not ensure
soundness. He also pointed out that there are objectives in addition
to financial stability--including investor protection and the development
of the financial sector--and that in the short run there could be trade-offs
The OECD representative informed the Forum that the OECD Steering
Group on Corporate Governance is developing an assessment methodology
for the OECD's revised Corporate Governance Principles that were approved
by OECD Ministers in May this year. The assessment methodology is to
include a peer review element, and is to be further discussed at several
upcoming regional roundtables jointly organized with the World Bank.
He also noted that the OECD is developing governance guidelines for
state owned enterprises in consultation with non-OECD countries.
Some members underscored the further development of stress
testing as an important assessment tool, but noted that this should
be done outside the standard setting process.
Some members welcomed the attention paid to the issues of the
diversity of financial systems and dollarization, and supported the
IMF's work agenda on these matters.
One member noted that the needs of less advanced countries
should be better considered in the standard setting process. Other members
expressed concerns that this could result in a weakening of the standards,
and noted that the needs of less developed economies were better addressed
through the essential and additional requirements of implementation
One member noted the importance of remittance payments, and
suggested that the CPSS and BCBS look into whether a standard might
be needed to better assess this increasingly important phenomenon.
In summing up the discussion, the FSF Chair noted that the
FSAP has proved to be a very valuable and helpful process. He welcomed
the IMF report and encouraged the IMF to continue its work in this field.
The Chair also encouraged the standard setting bodies to consider the
cross-sectoral issues underscored in the study with a view to addressing
inconsistencies and unnecessary incompatibilities among the standards
in areas where they overlap, in consultation with the Joint Forum and
the international financial institutions.
1This is an extract
from the Summary of the Twelfth Meeting of the Financial Stability Forum
issued on September 28, 2004.