• Reg Reform/G20 - Recap of Highlights of G20 Leaders Statement
  • April 28, 2009 | Author: Kirsten B. Wegner
  • Law Firm: Patton Boggs LLP - Washington Office
  • The Group of Twenty ("G20") released a "Leader's Statement" following a global summit that highlights priority items for strengthening financial supervision and regulation. In particular, the Statement notes the following priorities: (1) the need for global coordination generally; (2) the commitment to manage systemic risk, including creation of a Financial Stability Board (FSB) to provide early warning signs of risks; (3) executive compensationand corporate social responsibility; (4) issue of capital and leverage in the banking system; (5) examination of tax havens; (6) the need for global accounting standards; and (7) supervision of credit rating agencies.

    Notably, looking ahead to November 2009, the Statement instructs the FSB and International Monetary Fund ("IMF") to submit a progress report to Finance Ministers at a meeting in Scotland regarding progress so far in implementation of these and other objectives.  

    To recap, highlights include:

    (1) Global Coordination on Regulation and Supervision and Discouragement of Excessive Risk-Taking. In relevant part, the G20 writes: "We each agree to ensure our domestic regulatory systems are strong. But we also agree to establish the much greater consistency and systematic cooperation between countries, and the framework of internationally agreed high standards, that a global financial system requires. Strengthened regulation and supervision must promote propriety, integrity and transparency; guard against risk across the financial system; dampen rather than amplify the financial and economic cycle; reduce reliance on inappropriately risky sources of financing; and discourage excessive risk-taking. Regulators and supervisors must protect consumers and investors, support market discipline, avoid adverse impacts on other countries, reduce the scope for regulatory arbitrage, support competition and dynamism, and keep pace with innovation in the marketplace."

    (2) G20 Commitment to Manage Systemic Risk, Macro-Prudential Risks and Establish a new Financial Stability Board (FSB).  The G20 agrees to establish a new FSB would have a strengthened mandate, as a successor to the Financial Stability Forum (FSF), including all G20 countries, FSF members, Spain, and the European Commission; the FSB would work with the IMF on risks to provide early warning of macroeconomic and financial risks and the actions needed to address them.  Further, the G20 agrees to work on systemic risk mitigation by extending regulation and oversight to all systemically important financial institutions (including systemically important hedge funds), instruments and markets; the G20 agrees to work to reshape the regulatory systems so that authorities are able to identify and take account of macro-prudential risks.

    (3) Executive Compensation. The G20 writes that it will work to endorse and implement the FSF’s tough new principles on pay and compensation and to support sustainable compensation schemes and the corporate social responsibility of all firms.

    (4) Capital in the Banking System and Preventing Excessive Leverage. The G20 writes that it will take action, once recovery is assured, to improve the quality, quantity, and international consistency of capital in the banking system. In future, regulation must prevent excessive leverage and require buffers of resources to be built up in good times.

    (5) Tax Havens. The G20 indicates that it plans to take action against non-cooperative jurisdictions, including tax havens. ("We stand ready to deploy sanctions to protect our public finances and financial systems. The era of banking secrecy is over. We note that the OECD has today published a list of countries assessed by the Global Forum against the international standard for exchange of tax information.")

    (6) Global Accounting Standards. The G20 indicates it will call on the accounting standard setters to work urgently with supervisors and regulators to improve standards on valuation and provisioning and achieve a single set of high-quality global accounting standards.

    (7) Credit Rating Agencies. The G20 writes that it will extend regulatory oversight and registration to Credit Rating Agencies to ensure they meet the international code of good practice, particularly to prevent unacceptable conflicts of interest.