Financial regulation

Following a two-day meeting attended by financial executives, regulators and policy-makers, the International Centre for Financial Regulation (ICFR) has called on leaders attending the G20 summit in Seoul to focus on the most workable reforms.

In a press release, the ICFR said there was widespread fear in the sector that the G20 could "fail to make progress on its goals, as domestic considerations move back center-stage."

It urged leaders to agree on financial reforms most likely improve economic stability and achieve international implementation.

"We are calling on the G20 to prioritize more effective cross-border coordination by supervisors, and for agreement on the way forward on crisis resolution to allow for the orderly wind-down of complex banks," Barbara Ridpath, CEO of the watchdog said in a statement.

"Time for unity"

The ICFR calls were echoed by United Nations Secretary General Ban Ki-Moon, who is in the South Korean capital for the international summit. On the eve of the meeting, he expressed concern over national differences of opinion on global rebalancing and currency policies.

"The global economic recovery remains fragile. 64 million people have been pushed into extreme poverty this year," Ban said, adding that this was a time for unity.

He said the world could not afford to think narrowly about development and economic growth, and that "all countries and all peoples have a stake in the management of the global economy."

On the agenda

Leaders at the Seoul G20 summit, the first to be held in an emerging market economy, are expected to sign off on the Basel III agreement, which is designed to tighten global capital and liquidity requirements for banks from 2013 onwards.

Drafted by the Basel Committee of central bankers and regulators back in September, the package is considered a significant step down the path towards financial stability. It also tipped by observers to be one of the few items on the regulation agenda that is likely to receive broad support in Seoul.

The only other real progress the talks are expected to yield is the endorsement of a series of agreements aimed at tightening supervision of the derivatives market and ensuring the standardization of contracts to facilitate central clearing processes and trading on exchanges.

Safety nets

On the issue of "too big to fail" banks, analysts are expecting little movement. The Financial Stability Board (FSB), which is responsible for the implementation of G20 regulatory pledges, is expected to lay out a set of recommendations on "systemically important financial institutions," otherwise known as SIFIs, involving the largest 20 or so global banks.

Under the terms of the proposals, regulators would be required to make sure that SIFIs, the list of which is yet to be finalized, prepare living wills outlining how, if necessary, they could be wound up without causing major upset on the markets.

G20 members have not, as yet, been able to agree on many of the details of SIFIs, but there is speculation that the list will not include big Asian banks. Their business is conducted primarily in domestic markets. They therefore pose little threat to the wider world if they go under.

Ratings, commodities and accounting

Summit delegates are, however, tipped to rubber-stamp FSB proposals for reducing market reliance on rating agencies. If they do green-light the suggestion, they will have to find alternative ways of assessing creditworthiness.

Regulators say the move would reduce what is known as the cliff effect, which contributes to market destabilization.

In the name of yet greater stability, the Group of 20 wealthy and emerging nations is also calling for more transparency in commodity markets. This week, regulators ruled a major overhaul, but they did concede more pricing information was needed from physical commodity markets.

There is little hope of movement on the establishment of a single set of global accounting standards. The June 2011 deadline is likely to be overshot due to differences between the G20 member states, but analysts say the summit could be an opportunity to push for resolution.

Author: Tamsin Walker (Reuters, AFP)
Editor: Sam Edmonds