29 March 2008

FSF discussions on challenges to financial markets

The FSF met in Rome on 28-29 March discussing the current challenges in financial markets, the steps that are being taken to address them and policy options going forward.

Strengthening market and institutional resilience

The FSF discussed the report to be delivered to G7 Finance Ministers and Central Bank Governors in April that identifies the key weaknesses underlying the turmoil and recommends actions to enhance market and institutional resilience going forward. The report sets out specific policy recommendations in the following areas:

- prudential oversight of capital, liquidity and risk management;

- transparency, disclosure and valuation practices;

- the role and uses of credit ratings;

- the authorities’ responsiveness to risks and their arrangements to deal with stress in the financial system.

These recommendations are concrete and operational and, if approved, the FSF will report on their prompt implementation.

Hedge fund industry

In its 2007 report on highly leveraged institutions the FSF called on the hedge fund industry to review and enhance sound practice benchmarks. In response, best practice standards have been developed by the UK-based Hedge Fund Working Group, and are to be released shortly by a similar US-based group. Both groups have established boards which will keep the standards up to date and monitor the take-up of the standards by hedge funds.

The FSF would welcome regular reports on the adoption of the standards by the hedge fund industry and how well these standards are meeting the objectives of increasing transparency and improving risk management practices.

Sovereign wealth funds

The FSF discussed work underway at the IMF and OECD with regard to sovereign wealth funds (SWFs). The IMF in close partnership with the SWFs is coordinating work to identify a set of voluntary best practice guidelines, focusing on the governance, institutional arrangements and transparency of SWFs. The OECD is developing guidance for recipient countries’ policies toward investments from SWFs.

Members welcomed these efforts and the participation of the SWFs in the development of these guidelines.

Press release

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