The Financial Stability Board (FSB) met to discuss vulnerabilities currently affecting the global financial system and its work plan for 2012 to strengthen global financial regulation. The sovereign debt crisis in the euro area continues to weigh on the global financial system. High risk aversion and weak economic growth are compounding the refinancing challenges facing sovereigns and financial institutions. Although market conditions have improved in recent weeks, downside risks remain substantial.
Addressing Systemically Important Financial Institutions (SIFIs)
The FSB discussed the work ahead to further develop and implement the SIFI framework, including extending it to domestic systemically important banks, and global systemically important insurance companies and other types of financial institution. The FSB also approved work plans to implement the ‘Key Attributes of Effective Resolution Regimes’, including the preparation of resolvability assessments, recovery and resolution plans, and cross-border co-operation agreements between home and host authorities for each global SIFI by end-2012 and the development of an assessment methodology for the key attributes.
The first of an iterative series of peer reviews of the implementation of the key attributes will be launched in the second half of this year.
The FSB reviewed the status of workstreams to strengthen the regulation and oversight of shadow banking. The FSB will review in more detail the progress made by all workstreams in March.
Over-the-counter (OTC) Derivatives
The FSB has set up an OTC Derivatives Co-ordination Group, comprising the chairs of relevant standard-setting bodies, to ensure close coordination of the different international workstreams, as an important element in achieving the G20’s OTC derivatives market reforms as agreed by end-2012.
An initial focus of the group will be on establishing adequate safeguards for a global framework for central counterparties (CCPs) so that, by June 2012, authorities can make informed decisions on the appropriate form of CCPs to meet their commitment that all OTC derivatives be centrally cleared by end-2012. Alongside the work to coordinate international standard-setting, members agreed on the importance of continued close coordination in the development of national reforms consistent with international standards.
Legal Entity Identifier (LEI)
The FSB is supporting the development of a LEI – a unique global identifier for parties to financial transactions – by coordinating work among the global regulatory community to prepare recommendations for the appropriate governance framework, as requested at the G20 Cannes Summit. The FSB has set up an expert group from the official sector, to be supported by a private-sector advisory panel, to deliver concrete proposals by April on the implementation of a global LEI system for review by the FSB and delivery to the G20 at the June 2012 Summit.
Members discussed the conclusions of the December FSB roundtable on enhancing risk disclosures by financial institutions, and agreed next steps to encourage the development of principles and identification of leading practices for risk disclosures.
The FSB also agreed to study how to improve the role that external audits play in providing early warnings to prudential supervisors and regulators of financial institutions, and to encourage work to improve the intensity and effectiveness of regulation of external audits, particularly those of financial institutions.
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