Crypto-assets: Work underway, regulatory approaches and potential gaps

31 May 2019 | PDF full text (407 KB)

This report on crypto-assets considers work underway, regulatory approaches and potential gaps. The report was delivered to G20 Finance Ministers and Central Bank Governors ahead of their meetings in Fukuoka on 8-9 June.

The report gives an update on work by the Basel Committee on Banking Supervision, Committee on Payments and Market Infrastructures, International Organization of Securities Commissions, Financial Action Task Force, Organisation for Economic Co-operation and Development and the FSB. These international organisations are working on a number of fronts, directly addressing issues arising from crypto-assets. They are mainly focused on investor protection, market integrity, anti-money laundering, bank exposures and financial stability monitoring. They are monitoring and analysing developments in these markets; setting supervisory expectations for firms; and clarifying how international standards apply to crypto-assets.

The report notes that gaps may arise in cases where such assets are outside the perimeter of market regulators and payment system oversight. To some extent, this may reflect the nature of crypto-assets, which may have been designed to function outside established regulatory frameworks. Gaps may also arise from the absence of international standards or recommendations.

Assessing the significance of potential gaps is challenging, given the rapidly evolving nature of the crypto-asset ecosystem and related risks. A forward-looking approach to monitoring crypto-assets can help provide a basis for identifying potential gaps and areas that should be prioritised or focused on.

The report concludes with the recommendation that the G20 keep the topic of regulatory approaches and potential gaps, including the question of whether more coordination is needed, under review.

FSB publishes updates on work to assess and address correspondent banking declines

29 May 2019

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Ref no: 16/2019

The Financial Stability Board (FSB) today published two reports as part of its work:

  • a progress report on the implementation of its action plan to assess and address the decline in correspondent banking relationships; and
  • a report on progress on implementing the FSB’s recommendations on remittance service providers’ access to banking services.

Addressing the decline in correspondent banking relationships: Progress report

The decline in the number of correspondent banking relationships remains a source of concern for the international community, as the number of active correspondent banks declined by 3.4% in 2018, bringing the cumulative decline since 2011 to 19.3%. Concentration increased, as fewer correspondent banks are handling payments. Access to correspondent banking relationships remains a critical issue in some regions and jurisdictions. The Committee on Payments and Market and Infrastructures (CPMI) on 27 May published the full set of data on the latest developments on the number of correspondent banking relationships.

With the international components of the FSB-coordinated action plan largely in place, attention has turned to monitoring of implementation:

  • There is growing evidence of the concrete implementation of regulatory clarifications by national authorities, following the guidance provided by the Financial Action Task Force and the Basel Committee on Banking Supervision.
  • To support domestic capacity building in jurisdictions that are home to affected respondent banks, official sector technical assistance still requires ongoing coordination. Industry initiatives to support capacity building are gaining traction, especially the additional guidance developed by the Wolfsberg Group to implement their Correspondent Banking Due Diligence Questionnaire.
  • The technical measures recommended by CPMI to improve the efficiency of due diligence procedures and reduce compliance costs are now generally available for use, but their concrete implementation still requires continued focus by industry and the official sector, such as the use of the Legal Entity Identifier in payment messages and practical steps to support effective information sharing.

Should the situation deteriorate further, the FSB, the relevant standard-setting bodies and other stakeholders including international organisations and the private sector would consider whether further actions should be taken to address the issue.

Remittance service providers’ access to banking services: Monitoring of the FSB’s recommendations

The reduction in correspondent banking relationships has had a significant impact on remittance service providers’ ability to access banking services, particularly acute in those developing countries where remittance flows are a key source of funds for households.

The report assesses implementation of the FSB’s March 2018 recommendations to address problems that remittance service providers have accessing banking services. The report finds that, while positive steps have been taken in a number of areas, further work by national authorities, international organisations, remittance firms and banks is needed.

Jurisdictions have adopted or implemented a number of good practices and procedures to improve their supervisory frameworks for remittance firms and enhance coordination; authorities are responding to and accommodating innovative technology approaches in their regulatory frameworks; and significant technical assistance is being directed at the issue both at a global level and directly to affected jurisdictions.

Dialogue between remittance firms, banks and authorities responsible for supervision of the remittance sector has been useful, but has not led to tangible next steps. In order to make further progress, it is important to have a common understanding of issues facing remittance firms in their access to banking services and banks’ expectations concerning remittance firms’ anti-money laundering compliance.

The remittance report will be delivered to the G20 Finance Ministers and Central Bank Governors meeting in Fukuoka on 8-9 June.

Alexander Karrer, Chair of the FSB’s Correspondent Banking Coordination Group and Deputy State Secretary at the Swiss Federal Department of Finance, said: “The data shows that concentration in correspondent banking is increasing further, with countries and banks relying on fewer correspondent banks. We will continue to monitor the data and to coordinate the effective implementation of the agreed action plan to clarify regulatory expectations, provide technical assistance and make due diligence more effective. We stand ready to adopt further measures as necessary, as we did last year for remittance firms’ access to banking services, to preserve the smooth processing of cross-border payments.”

Notes to editors

The FSB launched its four-point action plan in November 2015 to assess and address the decline in correspondent banking. The plan covers:

  1. Further examining the dimensions and implications of the issue;
  2. Clarifying regulatory expectations, including guidance from FATF and BCBS;
  3. Domestic capacity-building in jurisdictions that are home to affected respondent banks; and
  4. Strengthening tools for due diligence in correspondent banks.

The FSB’s March 2018 recommendations to address problems that remittance service providers have accessing banking services cover:

  1. Promoting dialogue and communication between the banking and remittance sectors;
  2. International standards and oversight of the remittance sector;
  3. The use of innovation in the remittance sector and its possible role in enabling RSPs greater access to banking services; and
  4. Technical assistance on remittance-related topics.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Vice Chairman for Supervision, US Federal Reserve; its Vice Chair is Klaas Knot, President, De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

Remittance service providers’ access to banking services: Monitoring of the FSB’s recommendations

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The reduction in correspondent banking relationships has had a significant impact on remittance service providers’ (RSPs’) ability to access banking services, a trend which his particularly acute in those developing countries where remittance flows are a key source of funds for households.

The report assesses implementation of the FSB’s March 2018 recommendations to address problems that remittance service providers’ (RSPs) have accessing banking services. The report concludes that while positive steps have been taken in a number of areas, further work by national authorities, international organisations, RSPs and banks is needed. Jurisdictions have adopted or implemented a number of good practices and procedures to improve their RSP supervisory frameworks and enhance coordination; authorities are responding to and accommodating innovative technology approaches in their regulatory frameworks; and significant technical assistance is being directed at the issue both at a global level and directly to affected jurisdictions.

Dialogue between RSPs, banks and authorities responsible for supervision of the remittance sector has been useful, but has not led to tangible next steps. In order to make further progress, it is important to have a common understanding of issues facing RSPs in their access to banking services and banks’ expectations concerning RSPs’ anti-money laundering compliance.

The FSB also published a progress report on implementation of the FSB’s correspondent banking action plan.

This report will be delivered to the G20 Finance Ministers and Central Bank Governors meeting in Fukuoka from 8-9 June.

FSB action plan to assess and address the decline in correspondent banking: Progress report

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The decline in the number of correspondent banking relationships remains a source of concern for the international community, as the number of active correspondent banks declined by 3.4% in 2018, although this represents a slight slowing of the rate of decline compared to 2017. This decline affected the vast majority of jurisdictions and all three major currencies in 2018, although it was more pronounced for USD (-5.9%) compared to EUR (-4.6%) and GBP (-3%). Concentration increased, as fewer banks are handling more payments. A comprehensive data set was published by the Committee on Markets and Payment Infrastructures (CPMI) on 27 May, based on SWIFT data.

With the international components of the FSB coordinated action plan largely in place, attention has turned to monitoring of implementation:

  • There is growing evidence of the concrete implementation of regulatory clarifications by national authorities, following the guidance provided by the Financial Action Task Force and the Basel Committee on Banking Supervision.

  • To support domestic capacity building in jurisdictions that are home to affected respondent banks, official sector technical assistance still requires ongoing coordination. Industry initiatives are gaining traction in that field, especially the additional guidance developed by the Wolfsberg Group to implement their Correspondent Banking Due Diligence Questionnaire.

  • The technical measures recommended by CPMI to improve the efficiency of due diligence procedures and reduce compliance costs are now generally available for use, but their concrete implementation still requires continued focus by industry and the official sector, such as the use of the Legal Entity Identifier in payment messages and practical steps to support effective information sharing.

The FSB also published a monitoring report which assesses implementation of its March 2018 recommendations to address problems with remittance services providers’ access to banking services.

FSB publishes peer review of implementation of the Legal Entity Identifier

28 May 2019

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Ref no: 15/2019

The Financial Stability Board (FSB) published today a Thematic Review on Implementation of the Legal Entity Identifier (LEI). The LEI is a 20-character, alpha-numeric code that was introduced following the financial crisis to be adopted globally, to uniquely identify legally distinct entities that engage in financial transactions.

Since its endorsement by the G20 in 2012, the Global LEI System has been successfully brought into operation, with over 1.4 million entities uniquely identified by an LEI in more than 200 countries. Most FSB jurisdictions have implemented rules mandating LEI use in at least one area. Adoption has been most successful when the LEI has been mandated by regulators as part of an international standard-setting effort or across multiple market segments. Widespread coverage has already been achieved in over-the-counter (OTC) derivatives and securities markets. In these areas, the LEI has come the closest to meeting the G20’s objective to “encourage global adoption of the LEI to support authorities and market participants in identifying and managing financial risks”.

The regulatory uses of the LEI are multiple and the benefits can be substantial. The LEI standardises identification of legal entities at the global level, to support the management and analysis of large datasets. Implementation of the LEI enhances regulators’ surveillance by tracking market abuse across institutions, products and jurisdictions. The LEI can also assist regulators’ and market participants’ aggregation and more flexible retrieval of granular data on entities from multiple sources, as well as the analysis of counterparty risks, interconnectedness and complex group structures. Many in the financial industry are supportive of the LEI, citing substantial existing and potential benefits stemming from its use.

Notwithstanding this progress, the LEI has far to go to meet the G20’s objective. Coverage is too low outside securities and derivatives markets to effectively support new industry or regulatory uses, or to reach a tipping point where voluntary take-up by market participants would suffice to propel further adoption. LEI adoption also remains uneven across jurisdictions, with coverage concentrated in Canada, the EU and the United States. More efforts should be made both at national and international levels to promote LEI adoption and enhance the benefits to authorities and market participants from its use by addressing identified obstacles. These obstacles include the current business model, which does not clearly align the current benefits and costs of LEI use for participants; a lack of LEI coverage for so-called ‘Level 2’ (relationship) data; and insufficient links with other (in particular, business registry) identifiers.  

The report sets out four sets of recommendations to address the issues identified in the peer review and promote broader LEI adoption. The recommendations are addressed to FSB member jurisdictions, the FSB, relevant standard-setting bodies and international organisations, the LEI Regulatory Oversight Committee and the Global LEI Foundation.

Lesetja Kganyago, Governor of the South African Reserve Bank and Chair of the FSB’s Standing Committee on Standards Implementation (SCSI) that oversaw the preparation of the peer review, said “The LEI has a valuable role to play in helping with the effective assessment of risks in the global financial system. The peer review reaffirms the FSB’s commitment to a broader use of LEIs globally in order to meet the G20’s objective.”

Amir Zaidi, Director of the Division of Market Oversight at the US Commodity Futures Trading Commission (CFTC) and Chair of the peer review team, said “Implementation of the peer review recommendations will provide a firm basis to expand LEI adoption and realise fully the benefits from its use for both authorities and market participants.”

Notes to editors

The FSB began a regular programme of peer reviews in 2010, consisting of thematic reviews and country reviews. The objectives of thematic reviews are: to encourage consistent cross-country and cross-sector implementation; to evaluate (where possible) the extent to which standards and policies have had their intended results; and to identify gaps and weaknesses in reviewed areas and to make recommendations for potential follow-up (including through the development of new standards) by FSB members. The objectives and guidelines for the conduct of these reviews are set out in the Handbook for Peer Reviews.

The peer review is the fifteenth thematic review conducted by the FSB. This report describes the findings of this review, including the key elements of the discussion in the FSB SCSI. The draft report was prepared by a team of experts drawn from FSB member and other institutions and led by Amir Zaidi, Director of the Division of Market Oversight at the US CFTC.

The financial crisis showed the difficulty of identifying counterparties to financial transactions across borders with accuracy and speed. To address this problem, in 2011 the G20 supported the creation of an LEI and called on the FSB to take the lead in helping coordinate work among the regulatory community to prepare recommendations for the appropriate governance framework for the Global LEI System. At the June 2012 Los Cabos Summit, the G20 Leaders endorsed the FSB report, A Global Legal Entity Identifier for Financial Markets. Since then, the FSB has continued to support the implementation of the LEI.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Vice Chairman for Supervision, US Federal Reserve; its Vice Chair is Klaas Knot, President, De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

Thematic Review on Implementation of the Legal Entity Identifier

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This report sets out the conclusions from a peer review of the implementation of the Legal Entity Identifier (LEI). Since its endorsement by the G20 in 2012, the Global LEI System has been successfully brought into operation, with over 1.4 million entities uniquely identified by an LEI in more than 200 countries. Most FSB jurisdictions have implemented rules mandating LEI use in at least one area. Adoption has been most successful when the LEI has been mandated by regulators as part of an international standard-setting effort or across multiple market segments. Widespread coverage has already been achieved in over-the-counter (OTC) derivatives and securities markets. In these areas, the LEI has come the closest to meeting the G20’s objective to “encourage global adoption of the LEI to support authorities and market participants in identifying and managing financial risks”.

The regulatory uses of the LEI are multiple and the benefits can be substantial. The LEI standardises identification of legal entities at the global level, to support the management and analysis of large datasets. Its implementation enhances regulators’ surveillance by tracking market abuse across institutions, products and jurisdictions. The LEI can also assist regulators’ and market participants’ aggregation and more flexible retrieval of granular data on entities from multiple sources, as well as the analysis of counterparty risks, interconnectedness and complex group structures. Many in the financial industry are supportive of the LEI, citing substantial existing and potential benefits from its use.

Notwithstanding this progress, the LEI has far to go to meet the G20’s objective. Coverage is too low outside securities and derivatives markets to encourage new industry or regulatory uses, or to reach a tipping point where voluntary take-up by market participants would suffice to propel further adoption. LEI adoption also remains uneven across jurisdictions, with coverage concentrated in Canada, the EU and the United States. More efforts should be made both at national and international levels to promote LEI adoption and enhance the benefits to authorities and market participants from its use by addressing identified obstacles.

The report sets out four sets of recommendations to address the issues identified in the peer review and promote broader LEI adoption. The recommendations are targeted at FSB member jurisdictions, the FSB, relevant standard-setting bodies and international organisations, the LEI Regulatory Oversight Committee and the Global LEI Foundation.

FSB updates G20 on its work related to cyber incident response and recovery

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Ref no: 14/2019

The Financial Stability Board (FSB) today published a progress report on its work on developing effective practices for financial institutions’ response to, and recovery from, a cyber incident, which it has delivered to G20 Finance Ministers and Central Bank Governors ahead of their meetings in Fukuoka on 8-9 June.

As part of its work programme to enhance the cyber resilience of financial institutions, the FSB is developing a toolkit of effective practices relating to a financial institution’s response to, and recovery from, a cyber incident. The toolkit also aims to help supervisors and other relevant authorities in supporting financial institutions before, during and after a cyber incident.

This project seeks to mitigate the implications of cyber incidents on financial stability, by taking into account their cross-border and cross-sectoral nature. It will also leverage on the shared experience and diversity of perspectives gathered in the course of this work. The development of effective practices will draw on a stocktake of publicly released guidance from national authorities and international bodies, a review of case studies on past cyber incidents and various engagements with external stakeholders.

As part of its outreach, the FSB will launch an online survey in July which will help to identify effective practices at financial institutions. A public consultation on the report will be launched in early 2020, and the toolkit of effective practices will be finalised in late 2020.

Notes to editors

This initiative builds on previous FSB work to enhance cyber resilience of financial institutions to promote financial stability. Following a stocktake of publicly available regulations, guidance and supervisory practices on cyber security in the financial sector in 2017, the FSB published the Cyber Lexicon in November 2018 to help build a common language to support the work of the FSB, standard-setting bodies, authorities and private sector participants to address financial sector cyber resilience. The Lexicon comprises a set of approximately 50 core terms related to cyber security and cyber resilience in the financial sector and will be used in the development of effective practices for cyber incident response and recovery.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Vice Chairman for Supervision, US Federal Reserve; its Vice Chair is Klaas Knot, President, De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

Cyber Incident Response and Recovery: Progress Report to the G20 Finance Ministers and Central Bank Governors

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This progress report, delivered to G20 Finance Ministers and Central Bank Governors ahead of their meetings in Fukuoka on 8-9 June, provides an update on the FSB’s work on developing effective practices for financial institutions’ response to and recovery from a cyber incident.

As part of its work programme to enhance the cyber resilience of financial institutions, the FSB is developing a toolkit of effective practices relating to a financial institution’s response to, and recovery from, a cyber incident. The toolkit also aims to help supervisors and other relevant authorities in supporting financial institutions before, during and after a cyber incident.

This project seeks to mitigate the implications of cyber incidents on financial stability, by taking into account their cross-border and cross-sectoral nature. It will also leverage the shared experience and diversity of perspectives gathered in the course of this work. The development of effective practices will incorporate a stocktake of publicly released guidance from national authorities and international bodies, a review of case studies on past cyber incidents and various engagements with external stakeholders.

As part of its outreach, the FSB will launch an online survey in July which will help to identify effective practices at financial institutions. A public consultation on the report will be launched in early 2020, with a view to finalising the toolkit of effective practices in late 2020.

Evaluation of too-big-to-fail reforms: Summary Terms of Reference

23 May 2019 | PDF full text (224 KB)

This summary terms of reference provides details about the objectives, scope and process of the FSB’s evaluation of too-big-to-fail (TBTF) reforms. The evaluation will assess whether the implemented reforms are reducing the systemic and moral hazard risks associated with systemically important banks (SIBs). It will also examine the broader effects of the reforms to address TBTF for SIBs on the overall functioning of the financial system.

Stakeholder outreach will be an important aspect of the evaluation, including through workshops to exchange views with relevant stakeholders on this topic and through this call for public feedback.

Feedback, including evidence in support of the responses, should be submitted by 21 June 2019 to [email protected] under the subject heading “TBTF evaluation”. Responses will be published on the FSB’s website unless respondents expressly request otherwise. The feedback will be considered by the FSB as it prepares the draft report, which will be issued for public consultation in June 2020. The final report will be published in late 2020.

FSB launches evaluation of too-big-to-fail reforms and invites feedback from stakeholders

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Ref no: 13/2019

The Financial Stability Board (FSB) is seeking feedback from stakeholders as part of its evaluation of the effects of the too-big-to-fail (TBTF) reforms for banks that were agreed by the G20 in the aftermath of the global financial crisis. The evaluation, which is being carried out by a working group chaired by Claudia Buch (Vice-President of the Deutsche Bundesbank), will assess whether the implemented reforms are reducing the systemic and moral hazard risks associated with systemically important banks (SIBs). It will also examine the broader effects of the reforms to address TBTF for SIBs on the overall functioning of the financial system. More details on the evaluation can be found in the summary terms of reference.

Stakeholder outreach will be an important aspect of the evaluation, including through workshops to exchange views with stakeholders on this topic and through this call for public feedback. In particular, the FSB invites feedback from banks, other financial institutions, academics, think tanks, industry and consumer associations on the following issues:

  1. To what extent are TBTF reforms achieving their objectives as described in the terms of reference? Are they reducing the systemic and moral hazard risks associated with SIBs? Are they enhancing the ability of authorities to resolve systemic banks in an orderly manner and without exposing taxpayers to loss, while maintaining continuity of their economic functions? What evidence can be cited in support of your assessment?

  2. Which types of TBTF policies (e.g. higher loss absorbency, more intensive supervision, resolution and resolvability, other) have had an impact on SIBs and how? What evidence can be cited in support of your assessment?

  3. Is there any evidence that the effects of these reforms differ by type of bank (e.g. global vs domestic SIBs)? If so, what might explain these differences?

  4. What have been the broader effects of these reforms on financial system resilience and structure, the functioning of financial markets, global financial integration, or the cost and availability of financing? What evidence can be cited in support of your assessment?

  5. Have there been any material unintended consequences from the implementation of these reforms to date? What evidence is available to substantiate this?

  6. Are there other issues relating to the effects of TBTF reforms that are not covered in the questions above and on which you would like to provide your views? Please substantiate your comments with evidence.

Feedback, including evidence in support of the responses, should be submitted by 21 June 2019 to [email protected] under the subject heading “TBTF evaluation”. Responses will be published on the FSB’s website unless respondents expressly request otherwise. The feedback will be considered by the FSB as it prepares the draft report, which will be issued for public consultation in June 2020. The final report will be published in late 2020.

Notes to editors

Following the global financial crisis, the G20 launched a comprehensive programme of financial reforms to increase the resilience of the global financial system, while preserving its open and integrated structure. With the post-crisis reforms nearly complete and their implementation well under way, an analysis of the effects of these reforms is becoming possible. To that end, the FSB published in July 2017 a framework for the post-implementation evaluation of the effects of the G20 financial regulatory reforms.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Vice Chairman for Supervision, US Federal Reserve; its Vice Chair is Klaas Knot, President, De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.