The Financial Stability Board (FSB) has called on the leaders of G20 nations to fend off reform fatigue and continue to work together through reinforced, voluntary, international regulatory cooperation grounded in agreed international standards.
Bank of England governor and FSB chair Mark Carney wrote to G20 leaders on 3 July ahead of their summit in Hamburg on 7 and 8 July to update them on the FSB’s progress in areas such as OTC derivatives reform and shadow banking.
Through a series of reports delivered over the last week on multiple subjects, the FSB appears to be largely pleased with its work since the financial crisis of 2008 to minimise risks in markets, with Carney telling G20 leaders that reforms “are building a safer, simpler and fairer financial system”.
“[But] there are nascent risks that, if left unchecked, could undermine the G20’s objective for strong, sustainable and balanced growth,” Carney warned.
Without naming US President Donald Trump’s aim to repeal and replace the Dodd-Frank Act, and possibly halt implementation of key Basel III reforms such as the net stable funding ratio, nor the UK’s decision to leave the EU, Carney said: “Giving into reform fatigue could erode the willingness of G20 members to rely on each other’s systems and institutions and, in the process, fragment pools of funding and liquidity, create inefficiencies and frictions, reduce competition, and diminish cross-border capital and investment flows.”
He added: “There is, however, another path that involves working together through reinforced, voluntary, international regulatory cooperation grounded in agreed international standards.”
These include encouraging full and consistent implementation of standards to support a level playing field and reduce regulatory arbitrage opportunities, and revising legal frameworks to facilitate cooperation.
On this last point, Carney gave the example of sharing information among authorities on resolution and removing legal barriers to reporting OTC derivatives to trade repositories and to authorities access to that data.
