1. Some of the most significant pieces of regulation for financial services have been implemented in the past ten years (e.g. EMIR, MiFID I & II, Dodd Frank etc.), primarily as a result of the post-crisis G20 mandate. Do you feel the market infrastructure regulatory landscape will experience more major shifts in the coming years, or has the pace of change settled down for the foreseeable future?
The FSB’s work programme for 2020 highlights the further strengthening of the resilience and resolvability of central counterparties (CCPs) as a priority. The FSB will publicly consult on further guidance on financial resources for resolution and the treatment of CCP equity in resolution in the second quarter. The guidance will assist authorities and Crisis Management Groups (CMGs) in adopting a structured process to evaluate the adequacy of a CCP’s resolution resources. A specific focus will be on non-default loss resolution scenarios to help authorities gain an understanding of the potential scale of losses and the availability of resources to absorb them in such scenarios. Implementation of the guidance may result in changes to domestic regulatory policies.
The FSB’s latest resolution report published in November highlighted the importance of all FSB jurisdictions implementing robust resolution regimes for CCPs. The report found that CMGs are in place for most of the major CCPs, but credible resolution plans are still lacking in many jurisdictions. As a result, this will continue to be an area of focus for the FSB.
Technological change will lead to changes in market structure across the financial system including market infrastructures. The FSB is monitoring developments closely and in time changes to market structure will lead to changes in regulation and supervision.
Disclosure by companies of climate-related financial information is a prerequisite for financial firms and other users of financial data to manage and price climate-related financial risks appropriately. Stock exchanges have shown an interest in the work of the FSB’s Task Force on Climate-related Financial Disclosures (TCFD), with some referencing the recommendations in their listings rules. The TCFD will deliver a further progress report on implementation by companies of the TCFD recommendations to the FSB later this year.
2. What approach is your organisation taking to emerging technology and digital assets?
Technological innovation holds the promise of greater efficiency, diversity and inclusiveness in the provision of financial services. But it may also give rise to financial vulnerabilities. While many of these may not be fundamentally different from existing ones – stemming from leverage, maturity and liquidity mismatches or operational weaknesses – technology may affect the speed and breadth with which shocks are transmitted through the global financial system.
Against this background, innovation has been an integral part of the FSB’s policy work, and will continue to be in 2020, including:
- Building on the December 2019 report on BigTech, the FSB will explore the implications of BigTech firms expanding into offering financial services in emerging market and developing economies.
- The FSB will also take stock of the range of practices on the use of RegTech and SupTech.
- The introduction of so-called “stablecoins” with potential global reach could pose a host of challenges to the regulatory community, including for financial stability. This creates a case for close international cooperation in this area. The FSB will publically consult on regulatory issues of such instruments in April.
Closely related to financial innovation is the FSB’s current work to mitigate the impact of cyber incidents on financial stability. The FSB will finalise a toolkit of effective practices to assist financial institutions, supervisors and authorities in supporting financial institutions before, during and after a cyber incident. The FSB will publically consult on the toolkit in April.
3. Entering a new decade is not just about looking ahead; it’s also a good time for reflecting on the past. What’s the most important lesson you’ve learned from the past ten years?
The FSB was created about a decade ago in response to a failure to ensure global financial stability. The crisis experience, and the FSB’s work since then, bears at least three main lessons for successful financial stability policy at the global level.
- The need to be forward looking. The post-crisis reforms have made the financial system safer and simpler. This greater resilience is a necessary, but not a sufficient condition for global financial stability. Financial vulnerabilities keep evolving as economic conditions and the financial system changes. Identifying emerging vulnerabilities early is essential for ensuring stability. In 2020 the FSB will finalise a new financial stability surveillance framework, which will support the systematic and forward-looking identification of vulnerabilities in the global financial system.
- The need to take a system-wide perspective. The financial crisis revealed a failure to appreciate the interconnectedness of the financial system, domestically and internationally. Understanding the linkages between different parts of the financial system is therefore the basis for a robust assessment of financial stability risks and effective macroprudential policy. The FSB’s broad membership, including central banks, finance ministries, sectoral regulators, and international standard-setters, brings together a unique combination of perspectives on global financial stability.
- The need for close international cooperation. An open and resilient global financial system, grounded in agreed international standards, is crucial to support sustainable growth. Promoting openness and resilience requires cooperation at all stages of the financial stability policy cycle, including forward-looking assessment of vulnerabilities, development of policy responses as required; monitoring the implementation of agreed reforms; and evaluating their effects in order to ensure that they work as intended. These are the areas around which the FSB’s work is organised.
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