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The general guidance proposes that a sound policy framework provides the basis for effective and efficient financial regulation.
This policy framework should reflect the key features of the financial system, including:
Ø The primary role played by the financial system in financial intermediation in the economy and in the pooling, management, and transfer of risks;
Ø The close interlinkages between the financial system and the macro-economy and the global and integrated nature of financial and economic systems; and,
Ø The complex and rapidly evolving nature of the financial system, the continued convergence of products, institutions, and markets, and the growth of globally active financial conglomerates.
The general guidance advances ten key principles for financial regulation:
1. Precaution: Policymakers should pro-actively anticipate and address emerging risks and problems and not initiate reforms solely in response to the onset of a crisis.
2. Risk based regulation: Financial regulation and its related supervisory component should be properly oriented to existing and possible risks and should seeks to establish a coherent, consistent approach to underlying system risks and risk capacities;
3. Sound initiatives: Competitive markets, coupled with adequate disclosure and transparency, may help to ensure a proper alignment of incentives and thus may be explicitly factored into the design of financial regulation.
4. Comprehensiveness: Financial regulation should be comprehensive in nature
5. Consistency and competitive neutrality: Financial regulation should be applied in a consistent, “functionally equivalent” manner
6. High-quality, transparent decision-making and enforcement:
7. Systematic review: The quality, implementation, and impact of regulation should be assessed after a sufficient length of time has passed since its adoption.
8. International co-ordination, convergence, and implementation in policy and regulation
9. International co-ordination in the regulation of internationally active financial firms and groups
10. Establishment of a level playing field and removal of unnecessary duplication, burdens, conflicts, and barriers across countries
It should be noted that the general guidance is based largely on regulatory initiatives and discussions that preceded the current financial crisis, and thus may not offer specific solutions to the crisis, it may nonetheless have relevance to current efforts to reconsider, from a longer-term perspective, the framework for financial sector intervention and regulation.
The guidance contains a set of principles that should be adopted or considered as a framework for government intervention and regulation in the financial system and form the basis for a high-level checklist of questions for consideration by governments.
Deadline for comments is
The documents are attached below.