2.4 International Regulatory Cooperation
2 min read•august 7, 2024
International regulatory cooperation is crucial in today's interconnected financial world. Global bodies like the FSB, IOSCO, and BCBS set standards and promote collaboration among regulators to maintain stability and fairness in financial markets.
and are key challenges. and MoUs help regulators work together across borders. This cooperation is vital for overseeing and addressing effectively.
Global Financial Regulatory Bodies
International Standard-Setting Bodies
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- (FSB) coordinates and promotes the implementation of effective regulatory, supervisory and other financial sector policies
- (IOSCO) sets global standards for securities market regulation and facilitates cooperation among regulators to maintain fair, efficient, and transparent markets
- (BCBS) provides a forum for regular cooperation on banking supervisory matters and sets global standards for bank regulation and supervision (Basel Accords)
- (FATF) establishes international standards to combat money laundering, terrorist financing, and other related threats to the integrity of the international financial system
Roles and Responsibilities
- These international bodies develop and promote the implementation of global regulatory and supervisory standards
- They facilitate , cooperation, and coordination among national financial regulators
- The standards and guidelines set by these bodies are not legally binding but are widely adopted by national authorities to ensure a level playing field and reduce
- Regular meetings and consultations are held to assess emerging risks, share best practices, and adapt regulatory frameworks to changing market conditions (financial innovation, digitalization)
International Cooperation and Oversight
Intergovernmental Forums and Authorities
- , consisting of the world's major economies, provides a platform for on and
- (EBA) ensures effective and consistent prudential regulation and supervision across the European banking sector
- EBA develops a single rulebook for EU banks, conducts stress tests, and promotes transparency and consumer protection
Cross-Border Supervision and Coordination
- Cross-border supervision involves the oversight of financial institutions operating in multiple jurisdictions
- Supervisory colleges bring together home and host country regulators to exchange information and coordinate supervisory activities for internationally active banks
- (MoUs) establish formal channels for information sharing and cooperation between national authorities
- Effective cross-border supervision requires clear allocation of responsibilities, timely communication, and mutual trust among supervisors to address potential conflicts of interest and ensure comprehensive risk assessment
Key Terms to Review (17)
Basel Committee on Banking Supervision: The Basel Committee on Banking Supervision (BCBS) is a global forum for banking supervisory authorities that aims to enhance financial stability by improving the quality of banking supervision worldwide. Established in 1974, the committee develops broad supervisory standards and guidelines and seeks to promote best practices in banking regulation across different jurisdictions.
Coordination: Coordination refers to the process of organizing and aligning activities and regulations across different jurisdictions to achieve common goals, especially in the context of international financial regulations. This involves various regulatory bodies working together to ensure that financial systems are stable, transparent, and resilient against global risks, fostering trust and cooperation among nations.
Cross-border supervision: Cross-border supervision refers to the regulatory oversight and collaboration between financial authorities from different countries to monitor and manage financial institutions that operate across national borders. This practice aims to enhance the stability of the global financial system by ensuring that risks associated with cross-border activities are effectively identified and managed, while also facilitating international regulatory cooperation.
European Banking Authority: The European Banking Authority (EBA) is a regulatory agency of the European Union that aims to ensure effective and consistent prudential regulation and supervision across the European banking sector. It plays a crucial role in fostering transparency, stability, and resilience within the financial system, promoting international regulatory cooperation among EU member states and beyond.
Financial Action Task Force: The Financial Action Task Force (FATF) is an intergovernmental organization founded in 1989 to combat money laundering and terrorist financing. It develops policies and promotes international cooperation to establish effective measures for preventing these financial crimes, thereby enhancing the integrity of the global financial system.
Financial Stability: Financial stability refers to a condition in which the financial system operates effectively, supporting sustainable economic growth while minimizing systemic risks. This state ensures that financial institutions can withstand shocks, maintain confidence, and continue to provide essential services to the economy. A stable financial system contributes to the overall economic health and mitigates the risk of crises that can disrupt both national and global economies.
Financial Stability Board: The Financial Stability Board (FSB) is an international body that monitors and makes recommendations about the global financial system to promote stability and protect against systemic risks. Established in 2009, it plays a crucial role in enhancing international regulatory cooperation among various financial authorities and institutions to ensure the resilience of the financial system.
G20: The G20, or Group of Twenty, is an international forum that brings together the world's major economies to discuss and promote international financial stability. It consists of 19 individual countries and the European Union, representing about 85% of global GDP and two-thirds of the world’s population. The G20 plays a critical role in fostering international regulatory cooperation by addressing issues like economic policy, sustainable development, and global financial system reforms.
Global Risks: Global risks refer to potential events or conditions that can cause widespread disruption and affect multiple countries or regions simultaneously. These risks can arise from various sources, including economic instability, environmental challenges, technological changes, and geopolitical tensions. Understanding global risks is crucial for international regulatory cooperation, as they require coordinated responses to effectively mitigate their impacts across borders.
Information Sharing: Information sharing refers to the practice of exchanging relevant data and insights among different parties, particularly in the context of regulatory and compliance matters. This process is essential for fostering transparency and cooperation between regulatory bodies across international borders, which helps ensure that financial institutions adhere to best practices and legal standards. By facilitating open communication, information sharing plays a critical role in enhancing the effectiveness of global financial regulation and maintaining the stability of the financial system.
International Cooperation: International cooperation refers to the collaboration between countries and international organizations to achieve common goals, address global challenges, and enhance mutual interests. This type of cooperation is essential in the financial services industry as it fosters regulatory harmonization, promotes stability, and facilitates cross-border transactions, enabling countries to work together effectively in a complex global economy.
International Organization of Securities Commissions: The International Organization of Securities Commissions (IOSCO) is a global association that brings together the securities regulators from around the world to establish standards and promote cooperation among its members. IOSCO plays a critical role in fostering international regulatory cooperation by developing and promoting adherence to internationally recognized standards for securities markets, thereby enhancing investor protection and maintaining fair and efficient markets.
Memoranda of Understanding: A Memorandum of Understanding (MOU) is a formal agreement between two or more parties that outlines the terms and details of their relationship or collaboration. It serves as a non-binding document that sets the framework for future agreements, clarifying roles, responsibilities, and expectations without creating legally enforceable obligations. MOUs are often utilized in international regulatory cooperation to enhance communication and coordination among different regulatory bodies.
Multinational financial institutions: Multinational financial institutions are organizations that operate across multiple countries, providing financial services and support to governments, businesses, and individuals. They play a critical role in the global economy by facilitating international trade, investment, and financial stability through loans, investment funding, and policy advice.
Regulatory Arbitrage: Regulatory arbitrage refers to the practice of taking advantage of differences in regulations or laws between jurisdictions to gain a financial advantage or circumvent more stringent requirements. This often occurs in the financial services industry, where firms may shift their operations to regions with looser regulations to reduce costs or enhance profitability. The implications of regulatory arbitrage are significant for international regulatory cooperation and can create challenges in implementation and reporting requirements.
Regulatory Reform: Regulatory reform refers to the process of reviewing, revising, and streamlining regulations in order to improve efficiency, enhance compliance, and reduce unnecessary burdens on businesses and the economy. This process often involves collaboration among various stakeholders to ensure that regulations effectively address current economic realities while promoting growth and stability in the financial services industry.
Supervisory colleges: Supervisory colleges are collaborative groups of financial regulators from different jurisdictions that work together to oversee large, complex financial institutions operating in multiple countries. These colleges facilitate the exchange of information and coordination among regulators, helping to ensure that international financial firms are properly supervised and comply with relevant regulations across borders.