At its November 17, 2016 plenary session in London, the Financial Stability Board (FSB) met to discuss current vulnerabilities and agree on priorities for 2017. While noting that the global financial system is more resilient as a result of the regulatory reforms introduced following the 2008 financial crisis, the FSB is keeping a close eye on areas of concern like high sovereign and corporate debt, asset quality and profitability issues faced by banks, and unfinished balance sheet repair in some parts of the financial system. With these and other potential vulnerabilities in mind, the FSB has assembled a list of the areas upon which they plan to focus their attention in the upcoming year.
While newsworthy and timely issues like regulatory issues arising from new fintech innovations and examination of climate-related financial disclosures made it on the FSB’s agenda for 2017, the group still plans work in areas whose complex issues the FSB has been negotiating for several years. One of these areas is global systemically important financial institutions (G-SIFIs). With a majority of G-SIB home authorities having published policy proposals or consultation documents on total loss-absorbing capacity (TLAC) implementation, the FSB promised a consultation on guidelines on lenders’ internal TLAC before the end of 2016, and final guidelines likely in 2017. As promised, the FSB published a its annually revised list of global systemically important banks on November 21, just days after their London plenary meeting.
In 2017, FSB will turn its attention back to shadow banking. Following its May 2016 Thematic Review on the Implementation of the FSB Policy Framework for Shadow Banking Entities, the Board agreed that it will undertake by July 2017 an assessment of progress in transforming shadow banking into resilient market-based finance. This assessment will include a study of the evolution of shadow banking activities since the global financial crisis and related financial stability risks, and whether the policies and monitoring put in place by FSB members since then are adequate to address these risks. The Board also indicated that the FSB staff will publish near the end of 2016 or early 2017 high-level findings from the latest annual monitoring exercise of the global trends and risks in the shadow banking system.
FSB continues to be concerned about the structural vulnerabilities from asset management activities. The Board said they plan to publish final public policy recommendations in the next month on the topic based on the consultation on the topic published in June of 2016. Also by the end of 2016, FSB promised to publish “next steps” to address the decline in correspondent banking.
In mid-2017, the FSB plans to publish a consultation document on “Compensation Principles and Standards on the use of compensation structures to reduce misconduct risk.” As a companion to the consultation, the FSB’s staff is working in conjunction with the International Organization for Securities Commission’s Market Conduct Task Force on a toolkit for conduct regulation.
Notably, the minutes from the London meeting also indicate that in preparation for the July 2017 G20 meeting, the FSB will also be taking a look at the effects, both beneficial and unintended consequences, of reforms implemented to date. As part of this study, the FSB plans a comprehensive review of the implementation and effects of over-the-counter derivatives reforms and an interim report by the Committee on the Global Financial System on its study on repo market liquidity.
The full text of the FSB’s press release on the November 17 London meeting is available via: http://www.fsb.org/2016/11/financial-stability-board-agrees-2017-workplan/