30th Regulation and Supervisory (PROGRES) Seminar March 2014, Geneva

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2 30th Regulation and Supervisory (PROGRES) Seminar March 2014, Geneva Section 4: Cross-sectoral supervisory and regulatory cooperation

3 Table of Contents A. Introduction: Cross-sectoral Cooperation B. Details I. Regulatory Cooperation 1. Joint Forum Risk Assessment and Capital Working Group (JFRAC) 2. Joint Forum Financial Conglomerates Committee (JFFCC) II. Supervisory Cooperation 3

4 Introduction: Cross-sectoral Cooperation Singular role and unique composition of the Joint Forum (JF): The JF is the only international forum that brings together supervisors from banking, insurance and securities It was established in 1996 under the aegis of the Basel Committee on Banking Supervision (BCBS), the International Organization of Securities Commissions (IOSCO) and the International Association of Insurance Supervisors (IAIS) ('the Parent Committees') Fifteen G-20 countries are represented; enlargement in the last couple of years: China, India and South Africa The group develops guidance, principles and identifies best practices that are of common interest to all three sectors, including the regulation of financial conglomerates 4

5 Regulatory Cooperation The JF Review of the Differentiated Nature and Scope of Financial Regulation Key Issues and Recommendations of January 2010 From the November 2008 Declaration of the G20 Leaders: The approciate bodies (i.e., the JF) should review the differentiated nature of regulation in the banking, insurance and securities sectors and provide a report oulining the issues and making recommendations on needed improvements. A review of the scope of financial regulation, with a special emphasis on institutions, instrumens, and markets that are currently unregulated, along with ensuring that all systemically-important institutions are appropriately regulated, should also be undertaken. 5

6 Regulatory Cooperation Seventeen Recommendations in five key areas were specified: Key Regulatory Differences Across Sectors, esp. Regulatory Arbitrage and Risk transfer between sectors Group-wide Supervision Mortage Underwriting Hedge Fund Regulation Credit Risk Transfer 6

7 Regulatory Cooperation Joint Forum Joint Forum Risk Assessment and Capital Working Group JFRAC JFFCC Joint Forum Financial Conglomerates Committee 7

8 Joint Forum Risk Assessment and Capital Working Group (JFRAC) Work recently finalized: A forward-looking Report on Longevity risk transfer markets: market structure, growth drivers and impediments, and potential risks Report on Point of Sale disclosure in the insurance, banking and securities sectors Report on Mortgage insurance: market structure, underwriting cycle and policy implications 8

9 Joint Forum Risk Assessment and Capital Working Group (JFRAC) Ongoing projects Post-Crisis Stock Take of Developments in Credit Risk Management Across Sectors To investigate regulatory changes related to credit risk treatment implemented by supervisors since 2006, with particular focus on their cross-sectoral implications To analyse CRM practices, changes in evaluation and management of credit risk by supervised entities in banking, securities and insurance sector Asset Encumbrance A Cross-Sectoral Study of the Impact of Increased Collateral Requirements To examine cross-sectoral effects of new sectoral regulations, i.e. Basel III, insurance regulatory frameworks (i.e. EU s Solvency II )or regulations on OTC derivatives, (CCPs), on collateral requirements How have increased requirements for collateral impacted firms behaviour Are there unintended consequences across sectors may arise, such as contagion risk or conflicts of interest, in and between sectors 9

10 Joint Forum: Principles for the supervision of financial conglomerates The Principles for the supervision of financial conglomerates were developed by the JF and are a broader and more consolidated set of internationally agreed principles. They include guidance for policymakers on the powers and authority necessary for supervisors of financial conglomerates. The five principles are: Supervisory powers and authority, esp. comprehensive group-wide supervision including unregulated financial entities Supervisory responsibility, esp. cooperation coordination and information sharing including cross-sectoral colleges Corporate governance Capital adequacy and liquidity Risk management 10

11 Joint Forum Financial Conglomerates Committee (JFFCC) Joint Forum Financial Conglomerates Committee (JFFCC) Supervisory colleges workstream Pilot implementation assessment workstream The JFFCC undertook a survey of JF members on supervisory colleges in relation to Financial Conglomerates (FCs) The objective of this survey was to take stock of the extent to which crosssectoral issues and specific questions related to FCs are effectively addressed within supervisory colleges The stock-take would also provide information on the implementation of the Principles for the Supervision of FCs, and in particular relating to supervisory cooperation, coordination and information sharing The JF conducted its first pilot implementation exercise with four countries (Australia, El Salvador, Colombia and Panama) providing a selfassessment of their implementation status for the Principles for the Supervision of FCs The exercise aimed to promote implementation of the Principles; draw lessons, including areas where revisions or clarification of the Principles or additional guidance may assist with their implementation 11

12 Supervisory Cooperation Regular discussions among JF members aiming an identification of any potential emerging regulatory and supervisory risks Most recent identified emerging cross-sectoral risks areas: Financial innovation Risk transfer between sectors Cyber-crime Low interest rate environment Group-wide supervision Regular roundtable of the JF for purpose of confidential exchange of information among members with regard to cross-sectoral supervisory risks arising in their respective areas of competence/scope of supervision 12

13 Thank you for your attention 13