|Volume 7, Number 7
December 5, 2018The Group of Twenty (G20) nations’ Buenos Aires Leaders’ Declaration signals that international financial policymakers will be evaluating the effects of post-global financial crisis regulatory reforms such as Basel III and will only propose new rules as necessary to address emerging risks. The G20 issued the Leaders’ Declaration on December 1st at the conclusion of the G20 Leaders’ Buenos Aires Summit.The G20 Leaders’ Declaration committed international standard-setting bodies such as the Financial Stability Board, the Basel Committee on Banking Supervision and the Financial Action Task Force to evaluate whether their post-crisis financial reforms have had unintended negative consequences. The Declaration also stated that new international rules, if needed, should be limited to addressing emerging risks such as evolving cyber-security threats. The G20 Leaders, however, endorsed continued implementation of the post-crisis financial reform agenda with limited “fragmentation” from jurisdiction-to-jurisdiction, indicating that future regulatory burden reductions are likely to be top-down reforms achieved at the international level.
The G20 Leaders’ Declaration also endorsed international efforts to regulate financial technology companies and shadow banks, endorsed the Financial Action Task Force’s efforts to regulate crypto-assets such as bitcoin under anti-money laundering/countering the financing of terrorism (AML/CFT) rules, and endorsed the continued implementation of the Organisation for Economic Co-operation and Development’s Common Reporting Standard on the international exchange of financial account information.
Advocacy Outlook: G20, FSB Moves Herald Era of Evidence-Based Deregulation
Recent G20 and Financial Stability Board (FSB) policy statements as well as the appointment of Randal Quarles as the new FSB Chair effective December 1st indicate that international financial policymakers are willing to reduce regulatory burdens on financial institutions when the evidence shows that financial rules are having unintended negative consequences on industry or consumers.
In a report and letter presented at the recent G20 Leaders’ Buenos Aires Summit, the FSB stated that it is pivoting from creating new rules to evaluating existing financial rules’ effectiveness and adjusting them when “material negative consequences” or emerging risks are identified. Relatedly, the G20 Leaders’ Declaration instructed international standard-setting bodies including the FSB to evaluate the effects of their post-crisis financial reforms, and the FSB on November 27th issued new guidelines to increase its transparency and standardize its public consultation process.
It will be up to Mr. Quarles, who is viewed as a proponent of deregulation and also serves as the Vice Chairman for Supervision at the US Federal Reserve Board of Governors, to implement the FSB’s new policy direction and public accountability procedures. Mr. Quarles has led recent efforts at the Fed to limit stress testing compliance burdens and to reduce Basel III leverage ratio requirements for both large banks and community banks.
Pro-regulatory forces remain in the FSB’s leadership, however, such as new FSB Vice Chair Klaas Knot, President of De Nederlandsche Bank. Mr. Knot opposes “rolling back” the post-crisis financial reforms and his selection as FSB Vice Chair indicates that successful deregulatory initiatives at the international level will indeed need to be evidence-based.
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