Amid an array of heightened risks and uncertainties, the global financial system remains vulnerable, as reforms developed in the wake of the global financial crisis remain incomplete, the Financial Stability Board (FSB) warns.
In a letter to G20 policymakers and regulators — ahead of meetings between the G20 finance ministers and central bankers on Oct. 15-16 — the chair of the FSB, Andrew Bailey, called for enhancing surveillance of emerging systemic risks, along with action to fully implement reforms that aim to guard against those kinds of risks.
Alongside the letter, the FSB also released a report, detailing the results of a strategic review, which found that the “full, timely and consistent implementation” of the post-crisis reforms hasn’t been achieved.
Those reforms include measures to address the risk posed by financial institutions becoming too-big-to-fail, shadow banking reforms, OTC derivatives reforms and the revision to the global capital rules (known as Basel III) — along with more recent recommendations on crypto asset markets and activities.
“Significant inconsistencies in the implementation of global financial reforms can pose risks to market efficiency, financial stability and the integrity of the global regulatory framework,” the FSB warned.
The FSB said that the next phase of that work will focus on why these inconsistencies exist. It will make specific recommendations for improving its processes for implementing reforms and monitor implementation progress.
“In recent years, concerns have arisen about challenges in implementing agreed reforms and that commitment in this regard within jurisdictions may not be as strong as it once was, highlighting the need for increasingly robust implementation monitoring,” the FSB said.
In the wake of the report — and given the prevailing environment of elevated risks — Bailey’s letter also stressed the importance of global standards and cooperation, “not just to prevent crises, but also as a foundation to support sustainable growth.”
“The rapid evolution of the financial sector, coupled with the uncertain economic and political outlook, calls for enhanced surveillance,” the letter said. “The adoption of artificial intelligence in the financial sector or the increasing use of stablecoins for payment and settlement purposes, for example, put a premium on the monitoring of emerging risks.”