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The G20 has given a welcome update on progress on financial reform but there are still many unanswered questions.
The Association for Financial Markets in Europe (AFME) supports the work to achieve a robust but proportionate prudential regulatory regime. It welcomes the G20’s announcement of its decision to take forward the Basel Committee’s recommendations. Developing the proposals has been a substantial piece of work for the Committee, against a challenging timetable. From what is already known, it is clear that the proposals will have a significant impact on the global financial system, which will feed through to the wider global economy. The recent decision to have a phased implementation for some aspects was highly welcome, but this will still be a significant challenge, both for the industry and regulators. It is therefore crucial that the Committee address as quickly as possible the many outstanding questions that remain, on detail and aspects of timing, so that the financial services industry can begin to make preparations for the new regime.
AFME is pleased to see the G20’s commitment to ensuring that the new financial regulatory framework is complemented with a more effective supervisory regime. AFME believes that enhanced supervision, under which supervisors have clear mandates, the independence to act and the appropriate tools and resources, is one of the cornerstones of a robust financial system. It commends the Financial Stability Board for its work in bringing forward these recommendations to the G20.
AFME believes that with such a regime in place to address the financial stability risks that are of concern to the G20 it should be unnecessary to designate certain firms as being globally or nationally “systemically important” in order to impose on them further regulatory requirements, in addition to more intensive supervisory oversight. However, given the G20’s decision to do so, AFME calls on the relevant bodies charged with bringing forward proposals in this area to guard against the potential unintended outcomes of this policy, in terms of the impact on the wider economy, and the barriers to entry it might create. Furthermore, as recognized by the Basel Committee, identifying SIFIs is not an easy task and invites moral hazard issues. AFME also notes that the G20 has given national regulators the capacity to require supplementary prudential and other requirements on SIFIs and urge individual regulators to commit to taking a proportionate approach.