13 September 2019

FSB's Domanski: Three priorities for international regulatory and supervisory cooperation

The FSB is pivoting from post-crisis policy design to reinforce the resilience of the global financial system. This pivot reflects evolving priorities for international regulatory and supervisory cooperation that were discussed by FSB Secretary General Dietrich Domanski, .

The full, timely and consistent implementation of the agreed reforms is a precondition for achieving the intended levels of financial resilience. It is too early to declare the job done. The FSB’s annual report to G20 Leaders shows that implementation progress remains uneven, both across reform areas and across jurisdictions. Remaining work includes: implementing the final Basel III reforms; operationalising resolution plans for cross-border banks and building effective resolution regimes for insurers and central counterparties; making OTC derivatives trade reporting more effective; and further strengthening the oversight and regulation of nonbank financial intermediation.

A second priority is to preserve the benefits of integrated financial markets, including in terms of financial stability. G20 Leaders recognised the economic benefits of an open, integrated financial system early on, and the post-crisis reforms were designed to foster integration. Promoting integration is an ongoing task as markets evolve and regulatory reform is moving on to implementation and evaluation. It is against this backdrop that the FSB embarked on work on market fragmentation, and published a report on the topic in June. The relationship between market fragmentation and financial regulation is complex. Some types of market fragmentation can be seen as a by-product of measures to improve domestic resilience. In places, such fragmentation can have a positive effect on financial stability, for instance by reducing the transmission of economic shocks between jurisdictions. But there may be instances of ‘unintended’ fragmentation, potentially with adverse consequences for financial stability, through limiting opportunities for cross-border diversification and risk management, impairing market liquidity or preventing capital and liquidity from being channelled to where it is needed in periods of stress.

The third priority concerns financial innovation. Technological innovation holds great promise for the provision of financial services, with the potential to increase market access and the range of product offerings, and lower costs to clients. Authorities need to find ways to harness the benefits of digital innovation while containing risks. This is obviously a challenge that regulation always faces. But digital innovation is special because of its pervasiveness, and potential disruptiveness. The impact of digitalisation ranges from the plumbing of regulation and supervision – regtech and suptech are the buzzwords here – to broad strategic questions concerning the approach of regulation.

New entrants into the financial services space, including FinTech firms and large, established technology companies (‘BigTech’), could materially alter the universe of financial services providers. This could in turn affect the degree of concentration and contestability in financial services, with both potential benefits and risks for financial stability. A recent example are proposals to use new types of crypto-assets for retail payment purposes on a broad, potentially global scale. In the Osaka Summit Declaration, G20 Leaders have called on the FSB to assess the implications of such new developments and advise on multilateral response as appropriate.

Full speech on the FSB

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