The current geopolitical landscape presents unique challenges to international supervisory and regulatory bodies. Following unprecedented political upheaval, domestic regulators and financial institutions might be expected to gravitate more intensely towards these centralized organizations. However, as more countries trend towards financial deregulation, these institutions could face greater obstacles in building consensus around the adoption and implementation of major reforms.
Western leaders from Europe and North America play a dominant role in many of these organizations. With the European Union negotiating the United Kingdom’s exit and the United States adjusting to the new administration under President Donald Trump, international regulatory and supervisory priorities may become less important on domestic agendas. Despite this uncertain environment, the top international organizations in the financial services space have begun work on an aggressive, policy-intensive agenda for 2017. Key priorities include capital resilience, conduct oversight and fintech.
Several international organizations are working on ongoing and new resilience and resolvability reforms. Although the Basel Committee on Banking Supervision has faced continued delays, Basel III implementation and Basel IV amendments are still underway. The Standardized Approach for Measuring Counterparty Credit Risk Exposures took effect this year, so the BCBS is also reviewing implementation of the standards for credit risk capital and leverage ratios.
The Financial Stability Board, which serves as an international monitor, plans to work with international regulators and standards bodies this year to address emerging risks and weaknesses in the financial system. The FSB has issued policy recommendations to address vulnerabilities in asset management activities. The International Organization of Securities Commissions is expected to review and respond to the findings later this year. The FSB will finalize new standards on central counterparty clearing house resilience and resolvability this year as well. Finally, in July, the FSB plans to conduct an assessment of its work to transform shadow banking into resilient market-based finance.
Alongside domestic regulators, international organizations have been active in culture and conduct issues. The FSB is progressing on its workplan to reduce misconduct risk. As part of this effort, the FSB is developing a supervisory toolkit in support of international conduct standards. Supplementary guidance on compensation standards, reporting and data collection will be published by the end of the year. IOSCO’s new Market Conduct Task Force will continue to advance regulatory best practices for conduct regulation. In May, the Bank for International Standards published its new code of conduct for foreign exchange market participants. With the support of 60 central banks across the globe, the strict conduct standards are expected to be fully adopted by financial institutions within a year. While some international efforts may be voluntary, policies with diverse geographical backing and strong support are likely to be nearly as effective as domestic initiatives.
The fintech sector hasn’t gone unnoticed by international organizations. The International Association of Insurance Supervisors and FSB are both exploring the growth of the innovative sector. In particular, the FSB’s fintech workplan will draw in the feedback of other regulators to develop fintech facilitators and examine credit intermediation and distributed ledger technology.
While some regulators may coalesce around international standards in this uncertain political environment, others may resist cooperation following a trend of heightened nationalism in the US and UK. The tone of the upcoming G20 Summit in Hamburg, Germany, should provide some insight into what to expect for the rest of 2017 in terms of international collaboration. Even with wavering support from key countries though, these international organizations remain the standard-bearers and thought leaders for domestic financial regulation.
Download Clutch’s 2017 Financial Services Regulatory Highlights Report now to learn more. In this insightful and informative report, Clutch Group tracks 2017’s key global regulatory developments across the financial services industry to identify major rulemakings, legislative and regulatory implementations, supervisory priorities and enforcement trends.