Geneva Association - Global Supervision 2012

The Institutional Framework for Global Insurance Regulation and Supervision: The Changing Landscape
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The Geneva Association

(The International Association for the Study of Insurance Economics) The Geneva Association is the leading international insurance think tank for strategically important insurance and risk management issues.
The Geneva Association identifies fundamental trends and strategic issues where insurance plays a substantial role or which influence the insurance sector. Through the development of research programmes, regular publications and the organisation of international meetings, The Geneva Association serves as a catalyst for progress in the understanding of risk and insurance matters and acts as an information creator and disseminator. It is the leading voice of the largest insurance groups worldwide in the dialogue with international institutions. In parallel, it advancesin economic and cultural termsthe development and application of risk management and the understanding of uncertainty in the modern economy. The Geneva Association membership comprises a statutory maximum of 90 Chief Executive Officers (CEOs) from the worlds top insurance and reinsurance companies. It organises international expert networks and manages discussion platforms for senior insurance executives and specialists as well as policy-makers, regulators and multilateral organisations. The Geneva Associations annual General Assembly is the most prestigious gathering of leading insurance CEOs worldwide. Established in 1973, The Geneva Association, officially the International Association for the Study of Insurance Economics, has offices in Geneva and Basel, Switzerland and is a non-profit organisation funded by its members. Chairman: Dr Nikolaus von Bomhard, Chairman of the Board of Management, Munich Re, Munich. Vice Chairmen: Mr John Strangfeld, Chairman and CEO, Prudential Financial, Inc., Newark; Mr Kunio Ishihara, Chairman of the Board, Tokio Marine & Nichido Fire Insurance Co., Tokyo; Mr Michael Diekmann, Chairman of the Management Board, Allianz SE, Munich. Members of the Board: Dr Carlo Acutis, Vice President, Vittoria Assicurazioni S.p.A., Turin; Dr Sergio Balbinot, Managing Director, Assicurazioni Generali S.p.A., Trieste; Mr Henri de Castries, Chairman of the Management Board and CEO, AXA Group, Paris; Mr Patrick de Larragoiti Lucas, President, Sul America Seguros, Rio de Janeiro; Mr Donald Guloien, President and CEO, Manulife Financial Corporation, Toronto; Prof. Denis Kessler, Chairman and CEO, SCOR, Paris; Mr Michel Lis, Group CEO, Swiss Re Group, Zurich; Mr Mike McGavick, CEO, XL Group plc, Hamilton; Mr Martin Senn, CEO, Zurich Financial Services, Zurich; Mr Esteban Tejera Montalvo, 1st Vice Chairman, MAPFRE, Madrid; Mr Tidjane Thiam, Group Chief Executive, Prudential plc, London; Dr Richard Ward, CEO, Lloyds, London; Dr Yan Wu, Chairman and President, The Peoples Insurance Company (Group) of China Ltd., Beijing. Secretary General: Mr John H. Fitzpatrick, Basel/Geneva. Vice Secretaries General: Prof. Jan Monkiewicz (Head of PROGRES and LiaisonEastern Europe), Warsaw; Mr Walter R. Stahel (Head of Risk Management), Geneva. Heads of Programmes and Research Directors: Dr Etti Baranoff (Research Director for Insurance and Finance), Richmond, VA; Dr Christophe Courbage (Research Director and Head of Health and Ageing and Insurance Economics), Geneva; Mr Daniel Haefeli (Head of Insurance and Finance), Geneva; Mr Anthony Kennaway (Head of Communications), Geneva; Prof. Krzysztof Ostaszewski (Research Director for Life and Pensions), Normal, IL. Special Officers: Mr Katsuo Matsushita (LiaisonJapan & East Asia), Yokohama; Mr Richard Murray (Head of Liability Regimes Project), New York; Mr Gordon Stewart, (LiaisonNorth America), New York; Dr Hans Peter Wrmli (Chairman of Chief Risk Officers Network), Zurich. Chairman of the Scientific Advisory Council: Prof. Harold Skipper. Former Presidents of The Geneva Association: Prof. Raymond Barre, Paris (1973-1976); Mr Fabio Padoa, Trieste (1976-1983); Mr Julius Neave, London (1983-1986); Prof. Dr Dr e.h. Reimer Schmidt, Aachen (19861990); Sir Brian Corby, London (1990-1993); Drs. Jan H. Holsboer, Amsterdam (1993-1999); Mr Walter Kielholz, Zurich (1999-2003); Mr Henri de Castries, Paris (2003-2008); Mr Martin J. Sullivan, New York (2008); Mr Jacques Aigrain, Zurich (2008-2009). Former Secretaries General of The Geneva Association: Prof. Orio Giarini (1973-2000), Mr Patrick M. Liedtke (2000-2012).
Patrick M. Liedtke and Jan Monkiewicz
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December 2012 The Institutional Framework for Global Insurance Regulation and Supervision: The Changing Landscape The Geneva Association Published by The Geneva Association (The International Association for the Study of Insurance Economics), Geneva The opinions expressed in The Geneva Association newsletters and publications are the responsibility of the authors. We therefore disclaim all liability and responsibility arising from such materials by any third parties. Download the electronic version from www.genevaassociation.org.
Contents
Executive summary 1. Introduction PART I: Understanding financial regulation and its wider context
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2. Evolution of the global financial setting after World War II: from treaties to networks 3. Modern financial services regulation and the theory of transnational networks: an explanatory framework PART II Analytical appreciation of developments under way at key institutions 4. G-20 - from crisis committee to global steering committee 5. The Financial Stability Board: a rebranded new global regulatory pillar 6. The International Monetary Fund: from monetary to financial system oversight 7. The Organisation for Economic Cooperation and Development: in search for the new mission 8. The Joint Forum disappearing regulatory body? 9. The International Association of Insurance Supervisors (IAIS): getting mature for the new challenges 10. Conclusions and outlook for the future Annexes Annex 1. Bank for International SettlementStatutes (of 20 January 1930; text as amended o n 27 June 2005) Annex 2. Bank for International SettlementOrganigram Annex 3. Basel Committee on Banking SupervisionBank for International Settlement Organisation Chart Annex 4. Financial Stability BoardCharter Annex 5. I nternational Monetary FundOrganisation Chart Annex 6. Convention on the Organisation for Economic Co-operation and Development Annex 7. International Association of Insurance SupervisorsBy-Laws (2010 Edition)
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19 27 33 39 41 43 49
53 64 65 66 73 74 79
References and selected bibliography 89 List of acronyms 95
Acknowledgements
This report has been inspired by the discussions held by the authors with regulatory experts at Geneva Association member companies, academics and insurance and financial services regulators at the large international institutions such as the IAIS, the FSB, the BIS, IOSCO, etc., which in many cases kindly offered their continuous intellectual support in the process of preparing this text. It is based on the work coordinated and carried out by the Research Programme on Regulation and Supervision (PROGRES) of The Geneva Association. Marian Maecki, from the Warsaw Liaison Office of The Geneva Association, offered his special technical assistance and provided invaluable advice. We furthermore appreciate the input and comments received from Geneva Association Board Associates. We also profited immensely from the exchange of ideas with other colleagues from the staff of The Geneva Association and thank them also for their support in preparing the final version of this report, in particular Susanne LeRoux for editing and Franoise Jaffr for copy-editing and layout.
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Summary
Executive summary
The recent financial crisis has undermined the widely held belief that the existing global regulatory and supervisory structures are sufficient to cope with the challenges of the dynamic financial systems in the 21st century and provide appropriate protection against possible market excesses and transborder contagion. Since 2008, the global community has therefore initiated a wave of actions, projects and policies to repair the elements of regulatory and supervisory structures held liable for the crisis outbreak and its dissemination. However, due to the very high dynamics of the adverse developments in motion, that repair was neither preceded by a systematic overhaul of the entire system nor a comprehensive institutional discussion. As a result there is the danger of curing only what is visible and not necessarily what is the most important. For the same reason, the risk of introducing more inconsistency into the system has substantially increased. An essential part of the said repair relates to the global institutional arrangements which provide a framework within which regulatory and supervisory activities are carried out. Their role is by no means neutral to the final outcome of the whole process. On the contrary some solutions are more conducive than others to the accomplishment of desired goals, whereas others may even be counterproductive. The aim of this report is to map out and review the changes that are taking place or are likely to take place in the global institutional framework for financial regulation and supervision and to discuss their likely consequences. Our focus is on insurance. However, it is self-evident that the existing framework is overwhelmingly a crosssectoral one and touches all parts of the financial services sector, including banking, asset management and insurance plus other financial intermediaries. At the same time, it must be noted that financial regulation on the global level has been influenced by banking regulation and that discussions on how to develop a future global financial architecture are very much asymmetrically bank-oriented, which has a special impact on ongoing and future discussions for insurance. The first major observation of this report is that the global institutional framework for insurance regulation will, in future, remain even more dependent on network bodies than treaty organisations. That means inter alia that the process of developing global standards will take place via the interaction of relevant national authorities. This also means that, in principle, the possible impact upon its content may be best accomplished not by discussion with the staff of networking associations who are largely performing organisational and coordinating tasks but rather by discussions with staff of the relevant national jurisdictions. The recent financial crisis substantially expanded the perimeter of relevant jurisdictions by upgrading the role of the G-20 in the context of the financial systems. Hence there are more partners in the game which will also generate a different global regulatory agenda.
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The second major observation of the report is that the insurance industry is going to remain in the shadow of the banking industry and will not be properly differentiated. Under the new situation, banking will receive even more attention and more powers due to the expanding role of the central banks in macroprudential supervision, a key tool to mitigate systemic risk. Thus central banks will increasingly be charged with responsibility for the supervision of the entire financial system including insurance. The third major observation is about the growing role in the years to come of the International Association of Insurance Supervisors (IAIS) which in the aftermath of the financial crisis reinforced its position as the primary source of global insurance expertise and as a reliable partner of other relevant bodies in particular the Financial Stability Board (FSB) and the International Monetary Fund (IMF).
Introduction
1. Introduction
As a result of globalisation, national financial markets are increasingly integrated internationally. These processes require rules, standards and institutions to protect individual national financial systems against the risk of external shocks and the global financial system against contagion effects resulting from the interaction of national financial systems. Additionally there is a need for facilitation of the cross-border business relationships of the market players based on the different regulatory arrangements. This has to take place in the multipolar and multilayer political set-up without endangering national sovereignty of the countries concerned. The recent financial crisis has undermined the widely-held belief that the existing global regulatory and supervisory structures are adequate to cope with the challenges of dynamic financial systems and provide appropriate protection against possible market excesses. Since 2008, the global community has therefore initiated a wave of actions, projects and policies to repair the features of the regulatory and supervisory structures that were liable for the crisis outbreak and its contagion. The dynamic of adverse developments did not allow systematic overhaul of the entire system prior to that, nor did it facilitate a comprehensive institutional discussion. As a result we face the danger of curing only what is visible and not necessarily what is the most important. For the same reason the risk of introducing more inconsistency into the system has substantially increased. As the credit crisis has shown, even ambitious regulation and tight supervision can failin this case especially in the banking sector, but the point is generally valid for all regulated activities. The impact of the problems first arising in the U.S. mortgage markets which then engulfed the banking sectors of most developed and many emerging countries also resulted in an extremely challenging period for those connected to the insurance industry. And while most insurance managers were trying to minimise the impact of the crisis on their business and their clients, those concerned with financial regulation and supervision became hyperactive, driven by policymakers who were worried that the impact on insurance could be worse than it ultimately turned out to be. Suddenly, highly sophisticated and complex issues became a subject matter of a heated political debate in public as well as private. Key actions taken in the midst of the soaring financial crisis gained in relevancy, especially when they were concerned not only with immediate fire-fighting, but also with longer-lasting contributions to more stable and resilient financial systems. The credit crisis and its consequences have doubtlessly inspired the systemic reviews recently undertaken worldwide. As is often the case after major financial infrastructure failures this caused a regulatory explosion. It is therefore no surprise that the problems revealed by the crisis are now being actively addressed. Some observers, however, seem to be surprised at the speed and intensity with which this has, and still is, occurring. However, we would posit that the bigger the failure, the more sweeping reforms are proposed and subsequently implemented. Consequently, given that the world was faced with the most devastating financial crisis since the Great Depression, it
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should not be surprising that we are going to experience a commensurately significant regulatory and supervisory overhaul. It is also surprising how the insurance industry has been drawn into some regulatory and supervisory discussions where it should play no (or at least a much less prominent) role as the key problems emanated from other parts of the financial services sector. It is equally surprising how much insurers are excluded from other discussions where they are very much affected by the outcome but considered to play no significant role. In this regard, there is something new in the current process: the global reach of the current considerations and the growth of existing institutions in scope and impact. This is an important new quality to our current endeavours to set the financial services sector right. The aim of this report is to map out and review the history and recent changes in the global institutional framework for financial regulation and supervision. The report does not suggest potential changes or make recommendations for change in the global institutional framework for financial regulation and supervision. As the title indicates, our focus is chiefly on insurance although it is self evident that the existing framework for global supervision and regulation is overwhelmingly a cross-sectoral one. Seen from a financial system-wide point of view, the same global set-up is in operation for the banking, insurance and securities sector. Such a situation has its idiosyncrasies and with it come positive and negative consequences. On the positive side, an overarching approach is expected to decrease any potential regulatory inconsistencies and reduce cross-sectoral arbitrage challenges. It should also limit the existence of regulatory loopholes. In practice we can actually observe that some of these effects indeed happen. On the negative side, however, it may increase the risk of regulatory capture by stronger interest groups or stronger sectors and may result in a poor reflection of the specificity of various financial sectors and actors, services and products. Given the situation the world economy and its institutional arrangements are in now, it should not be surprising that most of the global attention as well as specialised wisdom is focused on banking activities. Insurance, therefore, needs to protect its particularities and defend its business in complex global circumstances. It needs more effort than banks do to effectively deliver its message and be listened to, as it is much less known to the global decisionmaking bodies. It is important for the development of the insurance sector that its constituents have a thorough understanding, not only about the current regulation and its proposed revisions, but also of where new regulatory elements might come in and how existing and new institutions might deal with them. Sound business strategies demand a careful analysis of future scenarios and their impact. This requires market intelligence as much as it does regulatory intelligence. It also opens up the possibility of influencing future rules and norms in order to increase their quality and possibly in such a way that they are more readily compatible with the exigencies of companies. The Geneva Association has worked on regulatory and supervisory issues in insurance for many years, chiefly through the PROGRES Research Programme but at times also through other initiatives. It recently published a book on The Future of Insurance Regulation and Supervision (Liedtke and Monkiewicz, 2011), organises several conferences and seminars each year (including the annual High-Level Meeting between the worlds leading insurance supervisors and the CEOs of the largest insurance companies) and publishes articles and papers, including the biannual PROGRES Newsletter.1 This report is essentially split into two parts, one theoretical and one analytical. In the first part, Sections 2 and 3, it provides the background knowledge and theoretical explanation for the evolving institutional regulatory set-up. It pays particular attention to the theory of transnational networks which should help to understand the way the current system operates as well as its limitations. In part two, covering Sections 4 to 9, it concentrates on the analysis of the principal
1 The PROGRES Newsletters are available for free from www.genevaassociation.org, as are many other publications and information on insurance regulation and supervision.
Introduction
insurance-related components of the global architecture. In Section 10 it draws some conclusions and provide an outlook. The report is also supported by a set of annexes which provide more detailed information on the individual institutions and to serve as a reference.
PART I: Understanding financial regulation and its wider context
Evolution of the global financial setting after World War II: from treaties to networks
2. Evolution of the global financial setting after World War II: from treaties to networks
The contemporary global financial architecture is a direct outcome of the assumptions underlying post-war reform of the financial and economic architecture adopted in Bretton Woods, New Hampshire, back in 1944. In essence their philosophy was built up around three pillars (Leong, 2010, p. 1): liberal international trade regimes; currency convertibility with fixed exchange rates; closed domestic financial systems. Adopted rules aimed at the prevention of international economic instabilities, which were observed in the interwar period, were intended to offer a conducive framework for growth prospects. The new system was meant to be based as far as possible on formal, i.e. hard law arrangements in the form of governmental treaties and special purpose intergovernmental institutions. A central role in the financial arena was assigned to the IMF with the World Bank as an assisting body in post-war reconstruction and development finance. Neither, however, had any direct responsibility regarding financial systems, markets and institutions. These were left entirely to national jurisdictions being considered as unimportant for the world community. In effect, no formal international institutional framework in this area was established. The only truly global forum which played some role remained, paradoxically, the Bank for International Settlements (BIS), an interwar institution, which in spite of initial ideas of having it dissolved after World War II, continued throughout the entire post-war period to be the most valuable contact and discussion point of central banks. Trade liberalisation issues in the new set-up were supposed to be taken by the treaty-based International Trade Organisation. It turned out, however, rather quickly to be a politically unfeasible initiative and hence it was replaced with the General Agreement on Tariffs and Trade (GATT) negotiating platform. The original idea was only reborn 50 years later with the establishment of the World Trade Organization (WTO). In his Primer on The Essential Role of Insurance Services for Trade Growth and Development, Julian Arkell explains how trade issues, growth and insurance are intertwined. He makes a strong case for how relevant insurance services are around the world, not only in their own right, but as necessary and facilitating services for many other activities that impact trade.2 The collapse of the monetary part of the Bretton Woods architecture in the early 1970s saw the suspension of the convertibility into gold of the U.S. currency and a departure from the fixed exchange rates into flexible exchange rate systems. This led, on the one hand, to the de facto redefinition of the original role of the IMF, and on the other hand, to the progressive growth
2 Arkell (2011).
of international financial activities and transactions. It is worth noting perhaps that their rapid development outside national regulations and the risks they posed to the financial world were noticed by the international community quite late. As a result, international regulatory initiatives in the financial sector were largely absent from the political agenda throughout the 1950s and the 1960s. The 1970s heralded a new approach in this regard. At the regional level the scene setter became the European Union (EU) with its Single Financial Market project. The project which was launched in the late 1960s, led after some years, to widespread coordination of the financial regulations across member jurisdictions. In the insurance area, it was already seen in 1973 in the adoption of the first coordination directive of the insurance laws and regulations of the member countries with regard to non-life business. In 1979, a parallel coordination directive on life business which inter alia declared the mandatory separation in the operational activities of life and non-life businesses, came into force. Both defined principal regulatory standards to govern insurance activities and established binding supervisory rules for the member nation states. They were followed later on by other regional normative actions leading as a result to the situation in which the ever-growing part of the insurance regulatory and supervisory architecture in EU member countries had its regional framework. The coordination was initially largely motivated by market liberalisation rather than financial stability. At the global level, the need for some international regulatory intervention emerged contrary to European experience not as a drive towards more liberalisation and more freedom of national market access but as a reaction to stability concerns. However, it was not obvious before the spectacular failure of the privately-owned Herstatt Bank in Germany in 1974 which was intensively involved in cross-border currency settlement trading. Its liquidation, enforced by German regulators on 26 June 1974, led to some unexpected international financial turbulences having thier causes in the time differences between the home country and the countries of operational activities situated on the other Atlantic coast. While closed down in Germany, it still continued to take assignments in New York thus increasing its future bankruptcy obligations. This made the international community strongly aware of the necessity of some cross-border cooperation in financial activities. At the end of 1974, the G-10 countries responded to the cross-jurisdictional implications of this incident by mandating their central bank governors to set up at the BIS, the Committee on Banking Regulation and Supervisory Practicesrenamed afterwards the Basel Committee on Banking Supervision (BCBS). Members of the new committee were only the central bank governors of the G-10 countries. The Committee was perceived from its start exclusively as a platform for international cooperation on prudential regulation and supervision rather than as a supranational authority with some direct supervisory powers. It turned out after some years to be the most effective institutional innovation recorded in the regulatory area of the financial industry in the post-war period. The Committee became widely known in the financial world particularly because of some of its initiatives. It included inter alia the 1975 adoption of the principles of cross-border banking supervision based on group-wide approach (so-called Basel Concordat), the introduction in 1988 of the first ever international capital standard for banks (so called Basel I), subsequently refined in 2004 as Basel II and in 2010 as Basel III, and the development in 1997 of the Core Principles for Effective Banking Supervision (BCBS, 2006)comprehensive guidelines on effective supervisory systems in banking. Its original members were G-10 countries (Belgium, Canada, France, Germany, Italy, Japan, The Netherlands, Sweden, U.K. and the U.S.) and Switzerland, and at a later stage Luxembourg and Spain. In the wake of the current crisis the BCBS seriously expanded its membership in March 2009 to 20 countries by adding Australia, Brazil, China, India, Korea, Mexico and Russia. It did so again in June 2009 by adding to the list Argentina, Hong Kong, Indonesia, Saudi Arabia, Singapore, South Africa and Turkey. Thus, all G-20 member countries plus seven
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Evolution of the global financial setting after World War II: from treaties to networks
more have become represented in the body. The Committee has control over the formulation of supervisory standards, releasing guidelines and recommendations as well as endorsement of best practices in the field of banking in the expectation that they will be subsequently implemented in domestic banking systems. The regulatory output of the BCBS is entirely optional both for its non-members, which is understandable, as well as for its members which is less so. At the same time the experience has proven that its output is, by and large, voluntarily domesticated by most of the international community. Its recommended Basel I capital standard for instance has been adopted by over 120 jurisdictions. Interestingly enough the new body has not received any interstate treaty mandate. It currently does not rely on any bylaws either. Its principle is informality and flexibility. Initially BCBS exhibited a very low level of transparency in its activities. The original Basel I capital accord of 1988 was a result of the confidential international negotiations which were presented to local authorities as a fait accompli only after they had been finalised (Verdier, 2009, p.169). Gradually it became more open but until now the Committees only observers are the European Central Bank, the European Banking Authority, the European Commission, the IMF and the Financial Stability Institute. Its works are supported by a small secretariat headed by the Secretary General assisted by around 20 professionals. The apparent success of the BCBS led to the spread of similar initiatives to non-banking financial sectors: securities, insurance and pensions. In 1983 the International Organization of Securities Commissions (IOSCO) was set up and 10 years later, in 1994, the IAIS was born. Initially more of a platform for supervisors to exchange views and develop best practice approaches, the IAIS quickly became interested in promoting effective and globally consistent supervision of the insurance industry in order to develop and maintain fair, safe and stable insurance markets for the benefit and protection of policyholders. More recently, it added the desire to contribute to global financial stability to its official objectives. It took another 10 years, until 2004, before the International Organisation of Pension Supervisors (IOPS) was established. All of them began to play a leading role in the provision of international regulatory and supervisory codes and standards. In sharp contrast to BCBS however, they all displayed much more transparency in their operational models and were based on a principle of broad and open membership. Since 1999 these sectoral global standard-setting bodies have been complemented by another cross-sectoral vehiclethe Financial Stability Forum (FSF)set up at a G-7 initiative in the reaction to the Russian and Asian financial crises of 1998-1999. Its stated purpose was to: promote international financial stability; reduce systemic risk through enhanced information exchange and international cooperation in financial supervision and surveillance; and, improve the functioning of the financial markets. It has since become a specialised network structure focusing on the systemic aspects of financial activities, and a dedicated coordination platform in this regard. It brought together four types of members: representatives of the national authorities (treasury, central banks, supervisory agencies) from the member jurisdictions (Australia, Canada, France, Germany, Hong Kong, Italy, Japan, Netherlands, Singapore, U.K. and U.S.), international financial institutions (IMF, World Bank, BIS, Organisation for Economic Co-operation and Development [OECD]), regulatory and supervisory groupings (BCBS, IOSCO, IAIS) and the two special purpose committees of central banks experts existing at BIS. In implementing its programme, the FSF created a number of ad hoc working groups focusing on specific issues and developing recommendations. It included in particular, highly leveraged financial organisations, off-shore financial centres, deposit insurance and e-finance (Arner and Buckley, 2011, pp. 18-19).
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In addition, on 8 February 1999, the governors of the G-10 central banks approved the creation of a special Committee on the Global Financial System as a central banks forum for the monitoring and examination of issues related to the stability of the financial markets and systems. Specifically it was supposed to: identify and assess potential sources of stress in the global financial environment by a regular and systematic monitoring of developments; enhance the understanding of the functioning of financial markets and systems through monitoring and analytical activities; and, promote the development of effective and stable financial markets and systems through inter alia elaboration of corresponding policy recommendations.
In its analysis the Committee had to focus on interlinkages between monetary policy and financial stability, between institutions, markets and infrastructures as well as on the potential changes in financial intermediation. The purpose of the Committee was also to contribute to the increased transparency of financial markets by promoting the design, production and publication of statistics and other information by central banks, including through the BIS. In spite of such a broad mandate, the Committee has never ventured directly or indirectly into the insurance domain but has instead concentrated its efforts entirely on the banking sector.
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Modern financial services regulation and the theory of transnational networks: an explanatory framework
3. Modern financial services regulation and the theory of transnational networks: an explanatory framework
As a result, the global regulatory governance in the financial sector, which has gradually emerged, has come to rely chiefly on network-like bodies. Such development received its theoretical explanation in the theory of transnational networks developed and formulated at the end of the last century and the beginning of the current one. The theory remains particularly associated with the names of Anne-Marie Slaughter (Slaughter, 2004), Kal Raustiala (Raustiala, 2002) and David Zaring (Zaring, 1998). The theory basically claims that government networks are a key feature of world order in the twenty first century (Slaughter 2004, p. 1). In the most general sense they represent a pattern of regular and purposive relations among like government units working across the borders that divide countries from one another and that demarcate the domestic from international sphere (Slaughter 2004, p. 14). They may cover in such a broad approach a variety of areas such as regulation, judicial matters, executives level and legislation. In a more specific sense, these transnational regulatory government networks may be defined as informal multilateral forums that bring together regulatory agencies or departments to facilitate multilateral cooperation on issues of mutual interest within the authority of the participants (Verdier 2009, p. 118). The network theory claims that the state is not the only actor in the international system. With the development of networks, it is not disappearing either but it is disaggregating the conduct of its international activities into its component institutions. These in turn are increasingly interacting with their foreign counterparts (Slaughter 2004, p. 18). With the help of this disaggregation, the said networks are able to solve the globalisation paradox which we are facing today. Its essence lies in the need for more globally coordinated responses to various global challenges, on one hand, and inappropriateness of the centralised unitary world government, on the other hand (Slaughter 2004, p. 8). Thus, instead of a world government, they permit us to have global governance. This is because networks are decentralised and dispersed and involve the participants who are domestically accountable (Verdier 2009, p. 115). On the other hand, their apparent insulation from domestic political pressures and informal nature allows them to act with more efficiency than traditional international organisations (Arner and Buckley, 2011). Networks may be either horizontal or vertical (Slaughter 2004, pp. 18-21). Horizontal networks operate between the same political level governmental officials and units. They may be either information networks serving the purpose of information exchange, enforcement networks to help circumvent enforcement problems, or harmonisation networks for converging standards and norms. These last two are precisely the most representative for the financial regulatory area. Vertical networks on the other hand are principally enforcement networks. They emerge as an effect of governments delegating their jurisdictional authority in some areas to some supranational authority (Slaughter 2004, p. 21). Examples include delegation of some powers from national anti-monopolistic bodies to the European level or International Criminal Court which may take up and pursue the actions if the national level is unable or unwilling to carry out prosecution. With
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regard to financial regulations, it should be stressed perhaps that as of today the new phenomenon in the financial regulatory arena is the growing role and involvement of the top level political networks in the form of various Gs: G-7, G-10, G-20 (or G-20+ as it now stands). The potential of global financial regulatory networks is however not unlimited and they display certain deficiencies. First, they include limited democratic legitimacy and imperfect global representation. When, for example, the Basel Committee had developed and was enforcing its Basel I capital standard worldwide it represented only 11 jurisdictions selected in a non-transparent way. The network arrangements also include local accountability of national regulators making these to some degree politically dependent and thus impacting their ability for independent non-political thinking and action. Other deficiencies were the soft nature of the standards that were developed and the lack of formal and transparent enforcement mechanisms that could have been applied to implement them. Finally, it explains also their poor preparedness for resolving emerging conflicts and, more generally, managing crisis resolution (Verdier 2009, p. 115). Perhaps it is worth stressing that during the last financial crisis trans-border regulatory networks remained completely inactive and had nothing to offer apart from responding to political requests and delivering their proposals (Zaring, 2010). Addressing the weaknesses without destroying the merits of trans-border regulatory networks is a complex and demanding task. In some instances, however, it is a rewarding exercise. That is precisely the case with the soft nature of standards set by networks and the lack of their own enforcement mechanism. In this regard the international community was able to charge the IMF together with the World Bank with this task. The balance of interests among differing constituents changes over time and with regard to the institutional framework around them. As active agents in the networks they appreciate the discussion and decision processes as these exist right now. However, they also react to expectations about future developments, thus shifting their points of view with regard to expected changes in the framework around them or the institutional relations directly or indirectly affecting them. This is normal behaviour. Yet, it is more present in network structuresespecially those that have greater degrees of freedomthan more rigid arrangements. As a result, the current international financial architecture, taken as a totality of specialised organisations and arrangements supported by state-to-state contact groups, consists of various mechanisms and legal solutions. There are both, the hard law as well as the soft law provisions. Eric Pan, a recognised researcher in this area, has identified five different types of what he calls legal frameworks (see Table 1). These range from state-to-state contact groups, international organisations, trans-governmental regulatory networks, bilateral and regional networks to finally private sector standards-setting bodies. Still one more type of institutions of substantial importance should be added to the picture, the assessment and valuation establishments widely known as credit rating agencies. As seen from the following table, these various arrangements have a very diversified legal nature and different legal bases, spanning from hard law treaty-based bodies to soft law club-like agreements. They also have different organisational characteristics: from very large organisations employing thousands of people, to virtual creations with no standing employment. Additionally they perform very different tasks ranging from arranging political regulatory initiatives, to accomplishing standards development, their implementation and finally their quality assessment.
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Modern financial services regulation and the theory of transnational networks: an explanatory framework
Table international arrangements in in global financial Table1: 1:Current Current international arrangements global financial architecture architecture
International organisations IMF World Bank WTO OECD BIS State-to-state contact groups G-7 G-8 G-10 G-20 Protocols No secretariats Policy-making Trans-governmental networks BCBS IOSCO IAIS FSB MOU/informal Small secretariats Information sharing Policy coordination Policy administration Bilateral and regional networks FMRD RRD HLMFI ECRDC ERDFS EUI MOU/informal No secretariats Information sharing Policy coordination Private standard setting and opinion making bodies IASB S&P
Examples
Treaty-based Large secretariats Characteristics Policy administration Limited policy making Sovereign loans Economic development Regulatory Technical tasks assistance Standards enforcement FSAP Examples of achievements
Private sector experts
Crisis response Regulatory initiatives Networks creation Creation of BCBS FSB
Rules and standards Approximation on prudential aspects of rules and of banking standards Securities Mutual recognition Insurance Market access provision Development of Opening of sectoral prudential Russian market standards IFRS roadmap
Technical standards
IFRS New supervisory tools
Source: based on Pan E. (2010), Source: based on Pan (2010), p. 248 p. 248
Legend: IMFInternational Monetary Fund; WTOWorld Trade Organization; OECDOrganisation for Economic Legend: Development and Cooperation; G-7, G-8, G-10, G-20Group of Seven, Eight, Ten, Twenty; BCBSBasel Committee IMF - International Monetary Fund WTO - World Trade Organisation on Banking Supervision; IOSCOInternational Organisation of Securities Commissions; IAISInternational OECD - Organisation for Supervisors; Economic Development and Cooperation Association of Insurance FSBFinancial Stability Board; FMRDEU-U.S. Financial Markets G-7, G-8,Dialogue G-10, G20 - Group of Seven, Eight, Ten, Twenty Regulatory (2002); RRDEU-Japan Regulatory Reform Dialogue (2001); HLMFIEU-Japan High Level BCBS Basel Committee on Banking Supervision Meeting on Financial Issues (2001); ECRDCEU-China Regulatory Dialogue and Cooperation (2004); ERDFS IOSCO International Organisation of Securities Commissions EU-Russia Dialogue on Financial Services (2006); EUIEU-India Dialogue on Financial Services Regulation (2010). IAIS - International Association of Insurance Supervisors FSB - Financial Stability Board that within the various indicated arrangements, the principal role in It should be noted perhaps FMRD - EU-U. S. Financial Markets Regulatory Dialogue (2002) the regulatory production process is attributed to trans-governmental regulatory networks. Their RRD - EU-Japan Regulatory Reform Dialogue (2001) efficiency however is dependent on political support. the other hand, existing big international HLMFI- EU-Japan High Level Meeting on Financial Issues On (2001) ECRDC -organisations EU-China Regulatory Cooperation (2004) financial seem Dialogue to play and useful but only supporting roles in the management of ERDFS - EU-Russia Dialogue on (Pan, Financial Services (2006) international financial systems 2010, pp. 248-251). The main reason for this is the structure EUI - EU-India Dialogue on Financial Services Regulation (2010)
of their legal powers that largely still reflects the Bretton Woods philosophy focused on sovereign financial issues: effective state liquidity financing and the maintenance of the foreign exchange As is seen from the table attached these various arrangements verylargely diversified legal regime whereas global financial markets have shifted since then tohave become private. Their nature and legal base, spanning from hard law treaty-based bodies to soft law club like principal regulatory task has as a result become regulation of cross-border transactions by private agreements. They have also different organisational characteristics: from very large firms and persons and ensure the safety and soundness of financial institutions and intermediaries organisations employing thousands of people, to virtual creations with no standing that operate the financial markets (Pan, very 2010, p. 250).tasks ranging from arranging political employment. Additionally they perform different
regulatory initiatives, accomplishing standards development, implementation and finally but These various cooperation vehicles are, from a functionaltheir perspective, both independent their quality assessment.
interdependent and interconnected bodies. They frequently participate in each others activities It should be noted perhaps that within the indicated various arrangements principal roleain the providing specialised information, supplying idiosyncratic knowledge and offering different regulatory production process is attributed to trans-governmental regulatory networks. Their perspective. They are linked to each other in many different ways: through operational activities, efficiency however is dependent on political support. On the other hand, existing big coordination, oversight linkages or information linkages. They may be both substitutive and complementary to each other. They also frequently have the same or similar constituencies. 13 Some of them were set up via political kick off, some others however, have come into existence via secondary level decisions of existing bodies. Their principal composition within the current global regulatory set-up, together with their principle linkages, is displayed in Chart 1.
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perspective both independent, but interdependent and interconnected bodies. They are frequently participating in each others activities providing specialized information, supplying idiosyncratic knowledge and offering a different perspective. They are linked to each other in many different ways: through operational activities, through coordination, through oversight linkages or through information linkages. They may be both substitutive and complementary The for Global have Insurance Regulation andconstituencies. Supervision: The Changing Landscape to Institutional each other. Framework They also frequently the same or similar Some of them were set up via political kick off, some other however have come into existence via a sort of a secondary level decisions of already existing bodies. Their principal composition within the current global regulatory set up together with their principles linkages is displayed in Chart 1 on the page. Chart 1:next Institutional set-up of global financial regulatory architecture Chart 1: Institutional set-up for global financial regulatory architecture G-7, G-8, G-20 Political steering
SSS
BCBS
IOSCO
IAIS
IOPS
SPV
CGFS CPSS
FSB
Joint Forum
FATF
CSSS
IMF
BIS
World Bank
OECD
IASB
ECB
WTO
Source: The Geneva Association elaboration, Jan Monkiewicz Legend: SSSSectoral Standard Setters; SPVSpecial Purpose Vehicles; CSSSCross Sectoral Standard Setters; 14 BISBank for International Settlements; CGFSCommittee on Global Financial Systems; CPSSCommittee on Payment Settlement Systems; FATFFinancial Action Task Force on Money Laundering and Terrorism Financing; IOPSInternational Organization of Pension Supervisors; WTOWorld Trade Organization.
Todays international financial architecture is based on numerous institutions with different legal bases, mandates and powers. Prominent among them for the insurance sector are five bodies: the G-20, the FSB, the IMF, the OECD and the IAIS. We will consider them one by one in our subsequent analysis.
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PART II Analytical appreciation of developments under way at key institutions
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PART II Analytical appreciation of developments under way at key G-20from crisis committee to global steering committee institutions 4. G20 - from crisis committee to global steering committee
Background The G20 is currently the most important global forum for discussing, elaborating and coordinating international economic policies and giving directions of financial regulations. The G20 members include Argentina, Australia, Brazil, Canada, China, France, Germany, India, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United States and the EU which is represented by the President of the European Council and the President of the European Central Bank. Collectively the G20 countries account for over 80% of the world gross national product, over 80% of the world international trade including intra EU trade and over two thirds of the world population.
4. The G-20from crisis committee to global steering committee
Its history goes back to the G-7 Summit in Cologne in 1999 during which in the wake of the Asian crisis the G-7 decided to set up a special contact platform of finance ministers in order to facilitate better coordination of economic policies of leading advanced and emerging economies. G-7 was at that time the most important global economic coordinating body. It came to this position in 1986 when it superseded the G-5. Actually, the G-5 was historically Background the first state contact group which was arranging since 1975 regular heads of states summits focusing on global economic The G-20 is currently the developments. most important global forum for discussing, elaborating and
coordinating international economic policies and giving direction financial regulations. The After the end of the Asian crisis the G20 played rather modestfor role in the global economic G-20 members include Argentina, Australia, Brazil, Canada, China, France, Germany, India, governance and it has come into the prominence again only in 2008 when it finally replaced Indonesia, Russia, Saudi Arabia, South Africa, South Korea, Turkey,at U.K., the G-7 Italy, in its Japan, global Mexico, coordinating and steering capacity. This development initiated the request of the G7 was a clear recognition on its part of the need to better accommodate key the US. and the EU which is represented by the President of the European Council and the emerging countries in the Bank. framework of globalthe economic discussion and governance. President ofmarket the European Central Collectively G-20 countries account for over 80 It is worth noting perhaps that the national composition of various Gs G-5, G-7, G-8 or G-10 per cent of the world gross national product, over 80 per cent of the world international trade - was essentially based on the same hard core group of states. The G20 alters entirely this including intra-EU trade2). and over two thirds of the world population. proposition (see table
Table 2:2: The leading groups of states platforms Table The leading Groups of States platforms
G-5 Germany Japan France U.S. U.K.
G-7 Germany Japan France U.S. U.K. Italy Canada
G-8 Germany Japan France U.S. U.K. Italy Canada Russia
G-10 Germany Japan France U.S. U.K. Italy Canada Belgium Sweden Netherlands Switzerland
G20 Germany Japan France U.S. U.K. Italy Canada Russia Argentina Australia Brazil China India Indonesia Mexico Saudi Arabia South Africa South Korea Turkey
Source: Banque de France (2010), p. 125
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Its history goes back to the G-7 Summit in Cologne in 1999 during which, in the wake of the Asian crisis, the G-7 decided to set up a special contact platform of finance ministers in order to facilitate better coordination of economic policies of leading advanced and emerging economies. At that time, the G-7 was the most important global economic coordinating body having reached this position in 1986 when it superseded the G-5. The G-5 was historically the
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first state contact group which since 1975 had arranged regular heads-of-states summits focusing on global economic developments. After the end of the Asian crisis, the G-20 played a rather modest role in global economic governance and it came into prominence again only in 2008 when it finally replaced the G-7 in its global coordinating and steering capacity. This development initiated at the request of the G-7 was a clear recognition on its part of the need to better accommodate key emerging market countries in the framework of global economic discussion and governance. The national composition of various GsG-5, G-7, G-8 or G-10was essentially based on the same hardcore group of states. The G-20 alters this proposition entirely (see Table 2). Thus it definitely creates a new qualitative situation. As the group itself states, economic weight and broad membership gives it a high degree of legitimacy and influence over the management of the global economy and financial system. In addition to the G-20 members, several international organisations and institutions participate regularly in the meetings. They include the IMF represented by its managing director and chairman, the International Monetary and Financial Committee of IMF, the World Bank, OECD, the European Commission, WTO and the FSB. The G-20 also typically extends invitations to selected invitees who are formally chosen by the chairing country. In 2010 these invitations were offered to Ethiopia (chair of the New Partnership for Africas DevelopmentNEPAD), Malawi (chair of the African Union), Spain and Vietnam (chair of the Association of South-East Asian NationsASEAN). In 2012, the invitations were extended to Benin, Cambodia, Chile, Colombia and Spain. Governance and activities The G-20, like its predecessors, operates without a permanent secretariat or staff. Each year a selected G-20 country serves as the Chair. It is a responsibility of the Chair to establish a temporary office and take care of the secretarial, clerical and administrative affairs. The secretariat is responsible during its term for the coordination of the Groups various meetings taking place at different political and technical levels. All decisions of the Group must be taken unanimously, hence no formal voting system is in place. The meetings of the Group are closed-doors, but after each meeting a communiqu or declaration is published. Because of its informal nature, the G-20 has no formal enforcement mechanism at its disposal. All of its commitments are officially nonbinding (Nelson 2009, pp. 8-9). Between November 2008 and November 2010 the leaders summits have been organised twice a year reflecting urgency of necessary actions. Since 2011, however, only one annual summit has taken place. Up until 2012, the G-20 has held seven leaders summits: in Washington in November 2008, in London in April 2009, in Pittsburgh in September 2009, in Toronto in June 2010, in Seoul in November 2010, in Cannes in November 2011 and in Los Cabos in June 2012. Three next meetings are tentatively planned in Russia (2013), Australia (2014) and Turkey (2015). The Washington Summit held on 15 November 2008, focused primarily on immediate crisis management issues. G-20 leaders agreed also on the need to reform financial regulation in order to avoid future crises. In their Declaration on the Summit on Financial Markets and the World Economy (G-20, 2008a) the G-20 countries pledged inter alia to strengthen their regulatory regimes, prudential oversight and risk management, as well as to ensure that all financial markets, products and participants are regulated or subject to oversight. They announced future strong oversight of the credit rating agencies and committed themselves to transparent assessments of their national regulatory systems (G-20, 2008a). The Summit has also tasked the G-20 finance ministers to give priority in their agenda to six specific regulatory areas: 1. mitigating against pro-cyclicality in regulatory policy; 2. reviewing and aligning global accounting standards;
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G-20from crisis committee to global steering committee
3. strengthening the resilience and transparency of credit derivative markets and reducing their systemic risk; 4. reviewing compensation practices in financial institutions; 5. reviewing the mandates, governance and resource requirements of the international financial organisations; and, 6. defining the scope of systemically important institutions and determining their appropriate regulation or oversight. The declaration also included the set of defined actions to be taken in various areas. With regard to financial regulatory regimes, it requested the IMF and FSF and other regulators to urgently develop recommendations to mitigate pro-cyclicality. It further requested member countries to evaluate their regulatory systems via the Financial Sector Assessment Program in order to align them with modern requirements. It called for a review of the differentiated nature of regulation in the banking, securities and insurance sectors and the provision of necessary regulatory improvements. It demanded the inclusion of all systemically important institutions in the regulatory framework. Additionally, it requested national and regional authorities to review their resolution regimes and bankruptcy laws. With regard to prudential oversight, it announced the need for ensuring appropriate oversight of the credit rating agencies. It recommended the development of internationally consistent approaches for liquidity supervision by supervisors and central banks. It detailed several measures to be taken with respect to risk management including the need for financial firms to strengthen their internal controls and policies for sound risk management, better management of their liquidity risk and reassessment of their own risk management models. The Washington Summit also requested an urgent expansion of the FSF membership base to include the G-20 member countries which were not among its constituency. To better organise its broad area of activities the G-20 set up four working groups in Washington on: 1. enhancing sound regulation and increasing transparency (co-chaired by India and Canada); 2. reinforcing international cooperation and promoting integrity in financial markets (cochaired by Mexico and Germany); 3. reforming the IMF (co-chaired by South Africa and Australia); and, 4. the World Bank and other multilateral development banks (co-chaired by Indonesia and France). The second G-20 leaders Summit took place on 2 April 2009 in London. It concentrated on addressing the issues related to the financial crisis and resulting economic crisis (Arner and Buckley 2011, p. 27). The G-20 leaders committed to increase the funding of IMF and the multilateral development banks by US$1.1tn including a tripling of the IMF lending capacity from US$250bn to US$750bn. They also pledged US$5tn in fiscal stimulus spending. On the regulatory front the G-20 countries agreed to strengthen financial supervision and regulation not only by ensuring that their domestic systems are strong but also by establishing the much greater consistency and systematic cooperation between countries, and the framework of internationally agreed high standards that a global system requires (G-20, 2009a). In their declaration the leaders instructed regulators and supervisors among others, to protect consumers and investors, support market discipline, reduce the scope of arbitrage, avoid adverse impact on other countries and support competition and dynamism. In (yet another) Global Plan for Recovery and Reform (G-20, 2009b) the G-20 announced the establishment of a new bodythe FSB replacing the old Financial Stability Forum, with an enhanced mandate and powers. It also tasked the FSB and the IMF with providing an early warning system for macroeconomic and financial risks. Furthermore it called for the extension of regulation and oversight to all systemically important financial institutions, instruments and markets including hedge funds. It pledged to implement the FSF new principles on pay and compensation. Finally, it requested action to improve the quality, quantity
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and international consistency of capital in the banking sector. Additionally it called upon the accounting standard setters, mentioning in particular the IASB, to work urgently with regulators and supervisors to improve standards on valuation and provisioning and achieve a single set of global accounting standards. Finally it reiterated its determination to extend regulatory oversight to the credit rating agencies. In their third Summit in Pittsburgh 24-25 September 2009, the G-20 leaders concentrated their attention on global economic governance issues. They declared themselves the premier forum for international economic cooperation thus officially taking over the responsibilities from the G-7 and the G-8. They have further designated the FSB to be responsible for coordinating and monitoring the progress in financial regulation (Leaders Statement: The Pittsburgh Summit, G-20, 2009c). They also announced plans for reforming governance and tasks of the IMF and the World Bank and increasing the role of emerging markets in these institutions. It was a clear indication of the perception that the crisis was over and that more long-term elements needed to be tackled. The fourth G-20 Summit held in Toronto 26-27 June 2010 was the first gathering of the group in its new capacity as the premier forum for international economic cooperation. It focused its attention on four major areas: sustainable and balanced growth, financial sector reform, international financial institutions and development, fighting protectionism and promoting trade and investment (The G20 Toronto Summit Declaration, G-20, 2010a). With regard to the financial sector reform, the G-20 leaders agreed four pillars of the reform agenda, providing some framework for their various initiatives so far. The first pillar, covering regulatory issues, embraced new regulatory frameworks in banking and particularly work towards preparation of Basel III capital model. Additionally, it requested acceleration of the implementation of strong measures to improve regulatory oversight of hedge funds, credit rating agencies and over-thecounter derivatives. It also mentioned global accounting standards and FSB standards for sound compensation. The second pillar referred to an effective supervision. The leaders tasked FSB with preparing recommendations to strengthen its role, mandate, powers and resources. The third pillar referred to international assessment and peer reviews. The third pillar is resolution and issues related to systemically important financial institutions. The FSB was asked to consider and develop concrete policy recommendations to effectively address problems associated with, and resolve, systemically important financial institutions. The fourth pillar refers to transparent international assessment and peer reviews. The G-20 leaders expressed their support for IMF/ World Bank Financial Sector Assessment Program and pledged to support peer reviews through Financial Stability Board. (G-20 2010a, pp. 4-5). Generally speaking the debates in Toronto were a continuation of the issues discussed before. At the same time it laid the ground for the next summit in Seoul. The fifth G-20 Summit took place in Seoul 11-12 November 2010. It was a significant development in many respects. It was the first summit held in Asia and also the first one hosted by an emerging economy. Interestingly enough it was also the first summit preceded by the meeting of G-20 parliamentarians and G-20 business summit. With regard to the regulatory agenda, the biggest achievement of the Seoul meeting was an endorsement of the Basel III BCBS new capital requirements proposal with its liquidity and leverage elements. It also included the adoption of the timeline for its implementation worldwide. With this a major reform of the banking system had taken place. The meeting was also able to advance the issue of systemically important financial institutions and cross-border resolution regimes. The Seoul Summit Document has made it very clear in this regard: We reaffirmed our view that no firm should be too big or too complicated to fail and that taxpayers should not bear the costs of resolution (G-20, 2010b, p. 7). The document also outlined the need for special regulations with regard to global systemically important financial institutions (G-SIFIs) including their higher loss absorbency capacity to reflect their greater risk and more intensive supervisory oversight. The leaders agreed to subject these institutions to a mandatory process of international recovery and resolution planning. At the same time the meeting endorsed the need for overall increased supervisory intensity and effectiveness, and identified a set
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of necessary measures. Addressing the issue of the reform of international financial institutions, the Summit accepted inter alia modernisation of the IMF quota system to enhance the role of emerging economies. It also underscored the need for further reforms of the IMF mission and mandate. In particular it emphasised the need to review and modernise its surveillance function. The Cannes Summit, held a year later, 3-4 November 2011, focused primarily on macro development issues like growth, employment, energy, climate, international monetary system and the like. With regard to regulatory area, there was a clear continuation of the programme outlined during earlier summits. In its Communiqu (G-20, 2011), the G-20 leaders underlined in particular the importance of the too big to fail issue, the need for oversight of shadow banking and control of compensation practices. They also announced the agreement on the reform of the FSB to improve its ability to coordinate and monitor the financial regulation agenda. Last but not least, they underlined the need to eliminate existing gaps in the regulatory and supervisory domain. In addressing the issues of systemically important financial institutions, the G-20 approved the FSB proposed policy framework in this regard based on more effective and intensive supervision, requirements for cross-border cooperation and resolution planning, as well as new international standards on resolution regimes and additional loss absorbency. At the same time, the G-20 leaders endorsed the first list of G-SIFIs prepared by the FSB to be amended annually. Based on this work G-20 leaders instructed the FSB to prepare, in cooperation with BCBS, a report on extension of G-SIFIs framework to domestic systemically important banks by the G-20 finance meeting in April 2012. Finally they tasked the FSB to prepare in cooperation with BCBS, IOSCO and IAIS methodologies to identify systemically important non-bank financial institutions by the end of 2012. With respect to the FSB, the G-20 leaders underlined the key positive role of this body in promoting development and implementation of financial sector regulation. They decided to strengthen its capacities, resources and governance by: 1. giving it a legal personality and greater financial autonomy; 2. reforming its steering committee to reflect better global financial systems and ensure its effectiveness; and, 3. strengthening its coordinating role vis--vis other standard-setting bodies. The G-20 leaders recommended actions to develop consumer protection in the context of stability of the financial sector and the need for the development of macro prudential policy framework and tools. They called for cooperation with the OECD and authorised FSB, IMF and BIS to continue their involvement in this area. They reiterated at the same time the need for high quality global accounting standards and called on IASB and FSB to complete their convergence project. The seventh summit held in Los Cabos, Mexico, 18-19 June 2012, continued to concentrate on macro development issues in particular on the need to support growth and jobs creation and alleviate poverty. In this context the G-20 leaders specifically addressed the eurozone crisis. They called upon eurozone members of the G-20 to take all necessary policy measures to safeguard the integrity and stability of the area, improve the functioning of financial markets and break the feedback loop between sovereigns and banks(G-20, 2012a). The G-20 endorsed the steps for more integrated EU financial architecture, covering banking supervision, resolution regime and deposit insurance, recently called a banking union. These actions are believed to constitute an important part of the G-20 recipe for the support of economic stabilisation and the global recovery. With regard to the international financial architecture the leaders decided to substantially increase the financial resources placed at the disposal of the IMF and provided commitments exceeding US$450bn. They also reaffirmed at the same time the implementation of the Quota and Governance Reform of the IMF by January 2013 and to revise it again by January 2014. They also agreed on the enhancement of the current surveillance framework and a proposed an integrated surveillance
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decision. All this meant additional resources and powers for the IMF. As for the reform of the financial sector, the Mexican summit has not produced any new revolutionary ideas. The G-20 leaders basically reaffirmed their current priorities and workstreams: the Basel capital framework, the framework for G-SIFIs, resolution regimes, over-the-counter (OTC) derivatives, shadow banking and compensation practices. In this context the G-20 leaders requested that the FSB finalise, in consultation with the IAIS, its work on identification and policy measures for global systemically important insurers by April 2013. Additionally they tasked the FSB and IOSCO to prepare methodologies to identify other systemically important non-bank entities by the end of 2012 and the Committee on Payment and Settlement Systems (CPSS) and IOSCO to continue work on systemically important market infrastructure. At the same time, the G-20 requested that the IAIS develop a common framework for the supervision of internationally active insurance groups by the end of 2013. With regard to financial sector reform, the G-20 also endorsed the directions of the FSB reform and called for the full implementation of the recommendations by the next summit in St. Petersburg. Overall however, it is worth observing that the financial sector reform clearly had a back seat at the summit. Outlook To sum up, one can see a key role of the G-20 as a global steering interstate group. While some critics, especially from civil society and NGO environment, have focused on the problems of democratic legitimacy and representativeness, sometimes including a call for different governance, significant progress has been made in recent years.3 In contrast to its predecessors the G-20 is far more representative of the global community and it is also far more transparent while continuing to be very flexible and informal. To increase its legitimacy it supports such initiatives as on-site summits of parliamentarians, businesses and trade unions. It is also much better organised in terms of analytical and monitoring activities with the use of the IMF and FSB in particular. However, formidable challenges remain: so far the prime target of G-20 attention and action has been the recent global financial crisis that also gave birth to its current form. It seems that the cohesive forces that keep the group together and aligned for joint action are less present when other issues are dealt with than the fundamentals of global financial (and to a lesser extent economic) interests. It remains to be seen how far the G-20 will continue to be driven by chiefly financial themes and whether it can branch out successfully into other areas. It is also largely open at this stage whether the current composition of the G-20 (with the G-20+ as a sideline) will remain stable or whether it needs to open up further, perhaps creating a G-25 or G-30 in the process. The G-20 has, until now, spent a long time on discussions of regulatory and supervisory issues in finance and was able to trigger far-reaching reforms in a relatively short period of time; even while the crisis it wanted to address is still unfolding. From an insurance perspective, however, the most significant effects stem from new rules for global finance in general rather than specific insurance projects. The methodology of identifying G-SIFIslargely complete for bankingis still underway in insurance. It is not yet clear how significant a role insurance has in stabilising the economy and how much systemic risk is created by some insurance activities. Currently, the G-20 does not play as significant a role in some areas that are of critical importance to the well-being of citizens around the globe: sustainability, old-age security, long3 As the current Mexican Presidency of the G-20 explains (G-20, 2012b): It ...attaches great importance to strengthening the Groups dialogue and ties with countries and organizations outside of the Group. To this end, a Special Representative of the Mexican Presidency of the G20 has been appointed, who is responsible for exchanging views with groups not directly represented in the Group, such as non-member countries, international organizations, civil society with particular emphasis on young people, academia, and the business community, among others. The Mexican Presidency of the G20 hopes this approach will make the work of the Group more effective, inclusive and transparent.
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term care, health services provision, climate risks, natural catastrophes, etc. Interestingly enough, the Mexican Presidency of the G-20 wanted to address these shortcomings and explained its project Rethinking G20: Designing the Future (G-20, 2012c), which is an initiative of the Government of Mexico, set against the backdrop of the G20 Summit so that leaders in different disciplines may engage in a reflection on social, economic, political, environmental, scientific and world financial futures, and generate contributions to the design of future public policies of innovation and efficiency. Much will depend on how the bigger countries see the role of the G-20 developing and whether current outsiders tolerate a set-up that largely excludes them from (at least) the inner decisionmaking process. It seems highly likely that the G-20 will expand its area of focus as well as its composition and governance. Consequently, the insurance sector will have a significant interest in closely monitoring the G-20.
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The Financial Stability Board: a rebranded new global regulatory pillar
5. The Financial Stability Board: a rebranded new global regulatory pillar
Background The FSBa reincarnation of the FSF that has existed in the global financial architecture since the Asian crisis in 1999came into operation in 2009 due to a decision taken by the G-20 summit in London. It has become the direct successor of the FSFs portfolio of tasks and powers. The intention of this change was, as stated in the London Summit Declaration on Strengthening the Financial System (G-20, 2009d), to give the new body a stronger institutional basis and enhanced capacity to perform its functions better. Stronger institutional basis addressed the legitimacy concerns and enhanced capacity addressed its effectiveness concerns. This process had already been initiated before the London summit. In March 2009, the membership of the FSF was substantially expanded to include all G-20 countries. At its inception the FSF was an intergovernmental forum whose purpose was the promotion of financial stability in the international financial system by assessing its vulnerabilities, addressing and overseeing actions to address them and promoting coordination and information exchange among authorities responsible for financial stability. Its mandate and its organisational structure were largely determined by a special report prepared in 1998 by the then Bundesbank President, Hans Tietmeyer, at the request of the G-7. The first meeting of FSF took place in April 1999, the last in March 2009. Tasks As follow-up to the London G-20 summit, the members of the FSB adopted a new charter of the organisation. Under the general provisions it spelled out new objectives as well as its mandates and tasks. It specified that the objective of the new body was to coordinate at the international level the work of national financial authorities and international standard setting bodies (SSBs) in order to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies. It also indicated that the new organisation will address vulnerabilities affecting financial systems in the interest of global financial stability (FSB, 2009, Article 1). The charter lists eight mandates and tasks for the organisation. In addition to the original mandate of the FSF which focused on global standard-setting activities as well as coordination and information exchange among authorities responsible for financial stability, the FSB is mandated to: ... (c) monitor and advise on market development and their implications for regulatory policy; (d) advise on and monitor best practice in meeting regulatory standards; (e) undertake joint strategic reviews of the policy development work of the international standard setting bodies to ensure their work is timely, coordinated, focused on priorities and addressing gaps; (f) set guidelines for and support the establishment of supervisory colleges;
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(g) support contingency planning for cross-border crisis management, particularly with respect to systemically important firms; (h) collaborate with the International Monetary Fund (IMF) to conduct Early Warning Exercises; and (i) undertake any other tasks agreed by its Members in the course of its activities and within the framework of this Charter. (FSB, 2009, Article 2) The standard setting will undoubtedly remain an important part of the FSB agenda and it will continue, in particular, to administer its Compendium of Key Standards for Sound Financial Systems which became a powerful tool of global regulatory harmonisation and a source of crosssectoral consistency.
Table 3: 12 key regulatory standards of the FSF/FSB
Area Standard Macroeconomic Policy and Data Transparency (3) Monetary and financial policy transparency Fiscal policy transparency Data dissemination Code of Good Practices on Transparency in Monetary and Financial Policies Code of Good Practices on Fiscal Transparency Special Data Dissemination Standard/General Data Dissemination System Insolvency and Creditor Rights Principles of Corporate Governance International Financial Reporting Standards (IFRS/International Standards on Auditing (ISA) Principles for Financial Market Infrastructures FATF Recommendations on Combating Money Laundering and the Financing of Terrorism & Proliferation Core Principles for Effective Deposit Insurance Systems Core Principles for Effective Banking Supervision Objectives and Principles of Securities Regulation Insurance Core Principles IMF IMF IMF Issuing body
Institutional and Market Infrastructure (7) Insolvency Corporate governance Accounting and auditing Payment, clearing and settlement Market integrity Crisis resolution and deposit insurance WB OECD IASB/IAASB CPSS/IOSCO FATF BCBS/IADI
Financial Regulation and Supervision (3) Banking supervision Securities regulation Insurance supervision BCBS IOSCO IAIS
Yonsei Law School, August 30, 2010, pp. 24- 25 and own sources Source: FSB.
Source: Jeong Y. , 2010 Seoul summit and future of Financial Stability Board (FSB) as the fourth pillar,
These are the standards designated by the FSF and taken over subsequently by the FSB as key These are the standards designated by the FSF and taken over subsequently by the FSB as for sound recommended for priority implementation. They are believed keyfinancial for soundsystems financial and systems and recommended for priority implementation. They are to represent minimum requirements for good practice in a given area. In order to be approved believed as representing minimum requirements for good practice in a given area that countries encouraged to meet. To be approved by the FSB the standards need to for meet by the FSB, theare standards need to meet several criteria including their relevance a robust several criteria including their relevance for a robust financial system, their universality in financial system, their universality in applicability, their flexibility in implementation, their broad applicability, their flexibility in implementation, their broad endorsement and their endorsement and their assessability by national authorities. The list of the standards is periodically assessability by national authorities. The list of the standards is periodically reviewed and updated in order in to order avoid its (www.financialstabilityboard. org). To be effective reviewed and updated to obsolescence avoid obsolescence (http://www.financialstabilityboard.org/cos/ the approved standards are matched with their implementation enforcement. Until recently it key_standards.htm ). To be effective the approved standards are matched with their implementation relied on the close cooperation of the FSF with the IMF and the World Bank in using their enforcement. Until recently it relied in onthe theFinancial close cooperation of the FSF with the IMF and the World powers materialized principally Standards Assessment Program (FSAP) and
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Reports on the Standards Observance and Compliance (RSOC) and the conditionality instrument applied by the IMF in its financial lending assistance. Since April 2009 London Conference the FSB members committed themselves to implement the standards and avail additionally themselves to periodic peer reviews in this regard. Apart from maintaining its
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Bank in using their powers materialised principally in the Financial Sector Assessment Program (FSAP), the Reports on the Observance of Standards and Codes (RSOC) and the conditionality instrument applied by the IMF in its financial lending assistance. Since the April 2009 G-20 London Summit, the FSB members have committed themselves to implement the standards and additionally avail themselves to periodic peer reviews in this regard. Apart from maintaining its standard-setting involvement, the FSB received enhanced analytical and operational powers. It will also be responsible each year for the designation of systemically important global financial institutions. Governance Membership of the FSB includes three categories of members: regulatory, supervisory and central bank bodies; international financial institutions and international standard setters. It currently has 36 members and is based at BIS headquarters from which it receives clerical, financial and research support. Much of its 20-people secretariat is seconded and there is a critical need for expansion. After the G-20 Cannes summit, the FSB was granted a legal personality status. Member jurisdictions must meet certain commitments which will be evaluated and made available by the FSB. These commitments include: maintenance of financial stability; maintenance of the openness and transparency of the financial sector; implementation of international financial standards; and availability for periodic peer reviews using evidence of IMF/WB public FSAP reports.
Chart 2: Corporate set-up at FSB
Member Jurisdiction (24) (ARG, AUS, BRA, CAN, CHI, FRA, GER, HKG, IND, ITA, JPN, KOR, MEX, NED, RUS, SAU, SIN, SAF, SPN, TUR, UK, US, European Central Bank (ECB), European Commission (EC)
IFI (4) (BIS, IMF, OECD, WB)
ISSB (6) (BCBS, CPSS, CGFS, IASB, IAIS, IOSCO)
Plenary Meetings Chairperson Secretariat
Steering Committe e
Standing Committee for Vulnerabilities Assessment
Standing Committee for Supervisory and Regulatory Cooperation Cross-border Crisis Management Working Group
Standing Committee for Standards Implementation Expert Group on Non-Cooperation
Working Group on Compensation Working Group on OTC Derivatives
Source: Jeong Y. 2010, p. 22 Source: Jeong (2010), p. 22.
The Chair is appointed by the Plenary for a fixed term of three years renewably once. It has broad powers and mandates. He/she is in particular authorized to take all decisions and act as necessary to achieve the objectives of the FSB. He/she is the principal spokesperson for the FSB and represents FSB externally. Outlook
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The FSB is built concurrently around four structures: the Plenary, the Steering Committee, the Chairperson and the Secretariat. The organisation is effectively run by the Chairperson and assisted by the Secretary General. The Plenary is the supreme decision-making body of the FSB. In particular it approves the work programme, adopts its output (reports, standards, recommendations, etc.), decides on membership and appoints the chairperson. The Plenary is composed of high-level officials representing member jurisdictions, chairs of the main standardsetting bodies including IAIS, and high-level representatives of the IMF, the BIS, the World Bank and the OECD. The Plenary meets at least biannually every calendar year. In running the organisation, it may also establish standing committees and working groups. Currently there are three Standing Committees: on Vulnerabilities Assessment, for Supervisory and Regulatory Cooperation and for Standards Implementation. There are also three ad hoc working groups: Cross-border Crisis Management Working Group, Expert Group on Non-cooperation and Working Group on Compensation. The Chair is appointed by the Plenary for a fixed term of three years renewable once and has broad powers and mandates. In particular he/she is authorised to take all decisions and act as necessary to achieve the objectives of the FSB. He/she is the principal spokesperson for the FSB and represents FSB externally. Outlook The major new element of the FSB institutional set-up is a development of its regional outreach representation. At the June 2010 Toronto summit, the G-20 leaders called upon the FSB to expand upon and formalize its outreach activities beyond the membership of the G-20 to reflect the global nature of our financial system (G-20, 2010a, Annex 2, para. 34). To this end in November 2010 the FSB announced the establishment of six regional consultative groups (RCG) for the Americas, Asia, Commonwealth of Independent States, Europe, Middle East and North Africa and Sub-Saharan Africa. The idea is to give the FSB increased legitimacy of the projects undertaken, as well as a better feeling of the problems at the regional levels and at the same time to better communicate its activities to non-member jurisdictions. It increases the coverage of the FSB by an additional 70 or so economies. Symbolically these regional groups are co-chaired by the representatives of member and non-member jurisdictions. The first meetings of these groups took place at the end of 2011 and a second wave of meetings took place in May 2012. Their real influence is still largely unknown and remains to be evaluated later. What is important at this stage is that with the six RCGs altogether, 112 additional institutions participate from 65 jurisdictions beyond the FSB membership. The FSB is still waiting for the final decisions of the G-20 on its future capacity, resources and governance. A special High-Level Group has submitted recommendations for the endorsement at the G-20 summit in Los Cabos. These recommendations aim at placing the FSB on an enduring organizational footing, with legal personality and greater financial autonomy, while maintaining strong links with the BIS (G-20, 2012d, para. 7). The Working Group recommended that the FSB remain a flexible, member-driven, multiinstitutional and multidisciplinary institution whose decisions continue to be made by consensus. The Working Group considered the conversion of the organisation into a treaty-based intergovernmental organisation not to be an appropriate solution at the moment. Instead it proposed to give it a legal personality by the creation of the association under Swiss law. It also called for reinforcing certain elements of the FSB mandate while preserving its special liaison role between the political level and the regulatory policy. The said reinforcement should encompass inter alia strengthening the role of the organisation through forward-looking vulnerabilities assessments and coordination of policy initiatives within the macroprudential perspectives. It should also include standard-setting initiatives regarding financial stability to address regulatory gaps and
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cross-sectoral considerations. Additionally it should cover the enhancement of implementation monitoring capacity with respect to the commitments undertaken by the G-20 leaders. Finally the Working Group recommended more transparency, consultation and communication. That should include an implementation of the mechanism for public consultation with market participants and other stakeholders, application of round tables, hearings, etc. It should also include FSBs regional consultative groups as a mechanism for non-FSB members to provide their input. For insurers, the formal and real relation between the FSB and the IAIS (see also Chapter 9) will be crucial. The more the internal focus of the FSB will remain on banking matters, the more the IAIS can and will act as the expert body that would assume special insurance issues as they are handed down from the G-20 to the FSB and then to the IAIS. However, some decision processes will happen de facto in ways that can vary from the perceived official set-up and with national and regional institutions playing a role as well as mechanisms that in reality define and maybe redefine wordings like consultation, in coordination with, etc. It will remain a challenge to pinpoint exactly where and how the critical decisions are prepared and then taken. Insurers will need to be fully involved on all levels and close to the processes if they want to make their special expertise usable and if they expect their views to be taken into consideration.
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The International Monetary Fund: from monetary to financial system oversight
6. The International Monetary Fund: from monetary to financial system oversight

Background The IMF is the multilateral treaty organisation conceived in 1944 as a major guardian of the Bretton Woods monetary system of fixed exchange rates. It was directed to play a major role in protecting against international instabilities caused by competitive devaluations. The essence of the new monetary system, described as par value regime, was fixing the U.S. dollar against gold at $35 per ounce and all other member countries pegging their currencies to the U.S. dollar at fixed rates. Changes in these rates beyond the 1 per cent band required prior notification and consent of the Fund. This system collapsed ultimately in 1973 when the U.S. decided unilaterally to abandon the gold standard of its currency. For the IMF it meant a need for reformulation of its mission, tasks and powers. This took place in 1973 and was reflected in the adoption of the completely rewritten Articles of the Agreement of the IMF. According to the changes the IMF was transformed from a purely international monetary institution to an international financial institution. Apart from the international monetary system and the balance of payment stability issues, it started to cover debt restructuring, financial markets regulations, supervision of banks and capital markets and finally crises prevention. Thus with the changes incurred it has ultimately become the centre of the international financial system (Lastra, 2010, p. 1). The objectives of the IMF as defined in Article I of its 300-page Articles of Agreement (IMF, 2011a) include: promotion of international monetary cooperation through consultation and collaboration; facilitation of the expansion and balancing of international trade; assistance in the establishment of multilateral system of payments and the elimination of foreign exchange restrictions; and, provision of Funds resources for assisting member countries in their balance of payments adjustments. Governance The IMF has a very complex governance structure. Its Articles of Agreement set out a threetier decision-making process composed of the Board of Governors, the Executive Board and the Managing Director. The Board of Governors is the highest policy-making body. It is a plenary, composed of the representatives of all the member countries, which meets once a year. It is advised on its activities by the International Monetary and Financial Committee (IMFC), a sort of 24 members steering committee whose composition reflects directly the composition of the Executive Board. The IMFC usually meets twice a year and discusses matters affecting the global economy and providing guidance to the IMF work programme. The Executive Board is responsible for the daily operation of the Fund. It is a 24-member body which meets at least three times a week. Five members of the Executive Board are directly appointed by the largest
33
shareholders of the Fund: France, Germany, Japan, U.K. and the U.S. The remaining ones are elected by the Board of Governors. The Executive Board is chaired by the Managing Director who runs effectively operational activities of the Fund. He/she is a de facto chief executive officer supervising some 3,000 staff secretariat. He/she is elected for a five year renewable term by the Executive Board. Currently, the decision-making bodies of the IMF are additionally under an informal political influence of major economic jurisdictions, in particular, the G-20 Group (see Chart 3).
Chart 3: IMF corporate governance
Source: Weiss (2011), p. 4.
The staff of the Fund are organised into about 30 departments. Financial sector issues are under the functional and special services departments. They include in particular the Finance, Fiscal Affairs and Monetary and Capital Markets Departments. The decision-making process at the IMF is based on a majority voting and in some cases such as the admission of new member, or amendments to the Articles of Agreement, requires a super majority of 85 per cent. Voting system is sometimes perceived as highly undemocratic as voting powers of individual countries are non-equal and are set in direct relation to their quota share in the subscribed capital of the Fund. As a result 10 key member countries control over 50 per cent of the votes and 35 countries control around 80 per cent the votes (see Table 4). With a voting share of 16.75 per cent the U.S. is the only country able to block major IMF decisions alone.
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Table 4: IMF members with largest voting powers (as of August 2012)
Member United States Japan Germany France United Kingdom China Italy Saudi Arabia Canada Russia
Source: IMF. (2012), p. 8 Source: IMF (2012).
Quota share in % 17. 69 6. 56 6. 12 4. 51 4. 51 4. 00 3. 31 2. 93 2. 67 2. 50
Voting share in % 16. 75 6. 23 5. 81 4. 29 4. 29 3. 81 3. 16 2. 80 2. 56 2. 39
Objectives and tasks
members: financial assistance, technical assistance and surveillance. It is worth underlining that they are both interconnected and interdependent. Financial assistance to the very nature of core the IMF which byit its virtue vis--vis is a classical The IMF objectives arebelongs implemented through its three functions that performs credit union (Delonis, p. 564). Member countries deposit with the IMF quotas its members: financial2004, assistance, technical assistance and the surveillance. It is worth of underlining that they are of both interconnected andwhich interdependent. hard currency and some their own currency they could use thereafter when in need inFinancial case of balance of belongs payments If their individual quotas are insufficient they may assistance to problems. the very nature of the IMF which by its virtue is a classical grab additional financial facilities. extreme cases these may dramatically deviate from the credit union (Delonis 2004, p. 564).In Member countries deposit with the IMF quotas of hard currencyquota. and some of their own which could be used by 3,000 them thereafter when countrys For example thecurrency 2010 loan to Greece was over per cent the sizeinof its need in case of the balance of Ireland payments problems. If their individual quotas quota are insufficient national quota, the 2011 loan to was over 2,000 per cent its national (Weiss, 2011, they may grab additional financial facilities. In extreme cases these may dramatically deviate p. from 14). These financial instruments are normally collateralised by some conditions imposed on the the countrys quota. For example the 2010 loan to Greece was over 3000% of the size borrowers. The IMF role seenloan in ensuring the repayment of the as well as in correcting of its national quota, theis 2011 to Ireland was over 2000% of loans its national quota (Weiss borrowers policies. Thus it is an important tool of the Funds influence over the borrowing 2011, p. 14). These financial instruments are normally collateralized by some conditions imposed on the 2011, borrowers. ItsThe roleIMF it is has seen in ensuring the repayment of the as well role countries (Weiss, p. 11). several financing programmes andloans their relative as particularly in correcting borrowers policies. Thus it is an important tool of Fund influence changes depending on global circumstances. Most popular are Stand-By Arrangements (SBAS) over the borrowing countries (Weiss 2011, p. 11). The IMF has several financing programs for short-term balance of payments problems (one year) and Extended Fund Facilities (EFFS) for and their relative role is changing depending on the global circumstances. Most popular are longer-term balance of payments (three and more During the last financial crisis, Stand-By Arrangements (SBA) problems for short-term balance of years). payments problems (1-year) and two new borrowing facilities were introducedFlexible Line (FCL) and Precautionary Extended Fund Facility (EFF) for longer-term balance of Credit payments problems (3 and more years). During the last crisis two new borrowing facilities introduced Flexible Credit Line (PCL), bothfinancial to address the prospective needs of the were Member States with no actual Credit of Line (FCL) and Precautionary Line (PCL), both toin address the prospective balance payments problems. The totalCredit loan portfolio of the IMF July 2011 was close to 80bn needs of the member states with no actual balance of payments problems. Total loan SDR special drawing rights (SDR) (Weiss, 2011, p. 13). portfolio of the IMF in July 2011 was close to 80 billion SDR (Weiss 2011, p. 13).
Objectives and tasks
With a voting share of 16.77% the U.S. is the only country able to block major IMF decisions The IMF objectives are implemented through the three core functions it performs vis--vis its alone.
The IMF IMF offers also offers assistance to Member States in support their development. The also technical to the member states technical assistance in of support of their It development. accounts for about 20 per of20% the of annual operating budget of the It isIt most It accounts forcent about the annual operating budget of organisation. the organisation. is most often in provided in of themacroeconomic area of macroeconomic policy, fiscal financial policy, financial often provided the area policy, fiscal policy, sector sector policy and policy and economic statistics (Weiss 2011, p. financial 14). Bothassistance financial assistance and assistance technical are economic statistics (Weiss, 2011, p. 14). Both and technical assistance are the privilege of the member states and they are provided subject to their the privilege of Member and are provided subjectin to this a voluntary The nature voluntary request. The States nature of they surveillance is different respect request. as it bears a ofmandatory surveillance is different in this respect as it bears a mandatory character. From the financial character. It is more of a duty of the members. From the financial regulatory point regulatory point of view key function of help the IMF. The IMF plays a fundamental of view surveillance is a surveillance key function is of a the IMF. With the of this function the IMF plays a fundamental role in the enforcement of the financial regulatory standards across the globe. role in the enforcement of financial regulatory standards across the globe. Their diffusion is based Their diffusion is based currently on the regulatory loop encompassing sta ndards setting currently on the regulatory loop encompassing standard-setting bodies: FSB, IMF and the national jurisdictions with the overall political guidance and leadership role of the G-20 countries 29 (see Chart 4).
Surveillance is a very complex and sophisticated tool which rests at the centre of the IMF as the international monetary and financial system hub. Its legal framework is defined under Article IV of the Articles of Agreement. The indicated article imposes, on the one hand, certain obligations
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on the Member States, and on the other hand, gives the Fund the powers to oversee the compliance by the members with these obligations (Lastra, 2010, p. 5). The principles of surveillance and its bodies: FSB, IMF and the national jurisdictions with the overall political guidance and scope have been evolving over time. Since 2007 leadership role of the G20 countries (see Chart 4). only it explicitly covers domestic economic and financialSurveillance policies is including financial sector issues (Decision of the Executive Board of 15 a very complex and sophisticated tool which rests at the centre of the IMF as the international monetary and financial system hub. Its legal framework is defined under June 2007 on Bilateral Surveillance of Member Policies). In the 1970s surveillance activities of Article IV of the Articles of Agreement. The indicated article imposes, on one hand, certain obligations on the member states, and on the other hand, Fund structural the powers to the Fund centred primarily on macroeconomic policies. Ingives the the 1980s, policies became oversee the compliance by the members with these obligations (Lastra 2010, p. 5). The relevant due principles to the debt crisis. Inand theits 1990s, in view the transformation processes of surveillance scope have been of evolving over time. Only since 2007 it the emphasis explicitly covers domestic economic and financial policies including financial sector issues was on institutional and legal reform (Lastra, 2010, p. 12). Nowadays regulation and supervision (Decision of the Executive Board of 15 June 2007 on Bilateral Surveillance of Member of financial systems and prevention become hot spot. Policies). In the crisis seventies surveillancehave activities of the a Fund centred Within primarily the on framework of policies. the 1980s structural policies became relevant of duemacroeconomic to the debt surveillance,macroeconomic as a rule the IMF In staff annually review the soundness policies crisis. In the 1990s in view of the transformation processes the emphasis was on institutional and financialand system in member countries, on regulation the findings of its field missions. The review legal reform (Lastra 2010, p. 12). based Nowadays and supervision of financial systems and crisis prevention became a hot spot. Within the framework of the surveillance of these policies is followed by discussions of the mission team with the local authorities for the IMF staff as a rule reviews annually the soundness of macroeconomic policies and the financial system, based on the findings of its of field missions the member countries. The additional information and for the presentation the mainin findings.
Chart 4: IMF in a global financial sector regulatory loop
Chart 4: IMF in a global financial sector regulatory loop
G20 Informal political Steering Group 19 countries + EU Overall political guidance IMF International organisation 192 MEMBER COUNTRIES Enforces implementation of IFSs FSB International body established by the G-20 24 countries + 4 IFIs + SSBs Oversight and coordination of standard-setting process
review of these policies is followed by the discussions of the mission team with the local authorities for additional information and for the presentation of the main findings.
NATIONAL JURISDICTIONS Incorporation in domestic regulation and practice
STANDARD-SETTING BODIES BCBS CGFS IMF IOSCO CPSS WB IAIS IASB
Elaboration of IFSs Source: Giovanoli M. (2009)
Source: Giovanoli (2009).
Finally the reports are discussed at the IMF Executive Board and the summaries of the 30 discussions are forwarded to member governments. The conclusions of the report may be published but only if the country agrees. It should be noted however that the IMF surveillance recommendations are neither binding nor directly enforceable. Their effectiveness therefore depends primarily on peer pressure by other member countries and other side instruments such as conditional financial assistance. An ever growing role in the surveillance of the financial system is played by the IMF-World Bank FSAP. It was only put in place in 1999 in response to the Asian financial crisis. A part of the FSAP is the Financial System Stability Assessment in which the issues of macroeconomic stability and systemic risk emanating from the financial sector are addressed. Another part of the FSAP is the Reports on the Observance of Standards and Codes (ROSCs). They basically assess to what extent countries observe certain internationally recognised standards and codes. The reference points today are the 13 key standards approved by the FSF/FSB and recognised thereafter by the Fund. One of these standards is the Insurance Core Principles produced by
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the IAIS. As indicated by Francois Gianviti ROSCs bridge the gap between technical assistance and surveillance (Gianviti, 2002, p. 49) as they normally provide directions for necessary and surveillance (Gianviti 2002, p. 49) as they normally provide in their text directions of reinforcement or improvements. The FSAP programme has been a key tool for the assessment necessary reinforcement or improvements. The FSAP program has been a key tool for the of strength and weaknesses of the financial system of IMF member countries. Altogether assessment of the strength and weaknesses of the financial system more of IMF member than three-quarters of Fund members have volunteered for these assessments (IMF, p. 2). countries. Altogether more than 3/4 of the Fund members have 2009, volunteered for these By the end of 2008, 730 national financial standards been assessed and another 100 were 730 national assessments (Vials, Brook 2009, p. 2).had Until the end of 2008 there were underway. Banking supervision ranked most among them over 20Most per cent of financial standards assessed andprominently another 100 were still with underway. prominent among all assessments completed. This was followed by monetary and fiscal transparency (12.5 per cent them ranked banking supervision with over 20% of all assessments completed. It was of all standards assessed), systems per cent of the total), and accounting auditing assessed), followed by thepayment monetary and(12 fiscal transparency (12.5% of alland standards (11.6 per cent of the total). Securities regulation and insurance supervision were near the end ofof the total). payment systems (12% of the total), and accounting and auditing (11.6% the priority list (see regulation Table 5). Insurance-related outstanding from FSAP ranked Securities and insurancerecommendations supervision were close to the end of the priority list (see much higher. in 2002-2004 and 2005-2007, for which respective data are available, overmuch higher. table Both 4). Insurance-related recommendations outstanding from FSAP ranked 40 per cent ofin the recommendations were addressed to therespective banking supervision. Insurance over was 40% of the Both 2002-2004 and 2005-2007 for which data are available recommendations were of addressed to the supervision. Insurance was second on the second on the list with an average about 17 per centbanking (IMF, 2009, p. 16). list with an average of about 17% (Vials, Brook 2009, p. 16).
Table 5: Financial standards assessments completed and underway (end 5: December 2008) standards assessments completed and underway (end December Table Financial
2008)
Standards assessed Monetary and fiscal policy transparency Banking supervision Securities regulation Insurance supervision Payment systems AML/CTF Accounting and auditing Corporate governance Insolvency and creditor rights Total
Assessments completed 98 152 71 63 88 72 85 64 37 730
Assessments underway 1 9 2 3 2 45 15 7 11 95
Source: Vials, Source: IMF (2009), p. 21. Brook (2009), p. 21
Outlook
Outlook
It FSAP is perhaps interesting toprinciple, note thatstrongly while FSAP and ROSC are in principle related to While and ROSCs are, in related to the surveillance function strongly from surveillance function from the legal point of view they belong the technical a legal point of view, they belong to the technical assistance instruments and as to such are offered assistance instruments and as country such offered at the request the member country only. However under a at the request of the member only. However since aof decision of the Board in September decision of the Board in September 2010 it has been made mandatory (with a frequency of 2010, it has been made mandatory (with a frequency of every five years) for the 25 countries every five years) for the twenty five countries whose financial systems are considered whose financial systems are considered systemically important (Tower, 2011, p. 78). The said list systemically important (Tower 2011, p. 78). The said list includes Australia, Austria, Belgium, includes Australia, Austria, Belgium, Brazil, Hong Kong, Italy, Japan, India, Ireland, Luxembourg, Brazil, Hong Kong, Italy, Japan, India, Ireland, Luxembourg, Mexico, the Netherlands, Mexico, the Netherlands, Russia, Singapore, South Korea, Spain, Sweden, Switzerland, Turkey, Russia, Singapore, South Korea, Spain, Sweden, Switzerland, Turkey, the UK and the U. S. the U.K. and the U.S. This list covers 15 of the G-20 member jurisdictions and a majority of the It covers 15 of the G20 member jurisdictions and a majority of the FSB members. In total FSB members. In total they represent 90 per cent of the world financial system and 80 per cent of they represent 90% of the world financial system and 80% of the global economic activity the global economic activity (IMF, 2010). These mandatory FSAP reviews for the purpose of the (IMF Press release 27 September, 2010). These mandatory FSAP reviews for the purpose of financial stability assessment will, according to the according Board decision, focus on three core elements: the financial stability assessment will, to the Board decision, focus on three core evaluation elements:of the source, probability and potential impact of the main risks in the near term; evaluation of the source, probability and potential impact of the main risks in the near assessment of each countrys financial stability framework including financial sector term; supervision; and, assessment of each countrys financial including financial sector assessment of the authorities capacity to manage and stability resolve a framework crisis. supervision; This decision of the Board is a recognition of the central role of financial systems in the assessment of the capacity to manage aglobal nd resolve thecrisis. domestic economy of its members, as authorities well as in the overall stability of the economy (IMF,
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2010). The recent financial crisis has provoked a number of other ideas regarding the future role of the IMF. Apart from its traditional functions, they clearly push in the direction of its deeper involvement in the global financial system issues including macroprudential oversight and cross-border crisis management (Lastra, 2010; Eichengreen, 2009). A key issue is coordination of its powers in this area with the FSB and their effective cooperation. The framework of this collaboration has been set forth in a joint letter of the Managing Director of the IMF and the Chairman of the FSB of 13 November 2008 to the G-20. According to the declaration of this joint letter: 1. Surveillance of the global financial system is the responsibility of the IMF; 2. Elaboration of the international financial sector supervisory and regulatory policies and standards, and coordination across the various standard setting bodies, is the principal task of the FSF. The IMF participates in this work and provides respective input as a member of the FSF; 3. Implementation of policies in the financial sector is the responsibility of national authorities, who are accountable to national legislatures and governments. The IMF assesses authorities implementation of such policies through FSAPs, ROSCs and Article IV; 4. The IMF and the FSF will cooperate in conducting early warning exercises. The IMF assesses macro-financial risks and systemic vulnerabilities. The FSF assesses financial system vulnerabilities, drawing on the analyses of its member bodies, including the IMF. Where appropriate, the IMF and FSF may provide joint risk assessments and mitigation reports. (Giovanoli, 2009, p. 115). On the one hand and as explained above, the IMF is a deeply political institution and driven by the interests of its members to secure the IMFs primary purpose, i.e. to ensure the stability of the international monetary system: the system of exchange rates and international payments that enables countries (and their citizens) to transact with one other (IMF, 2012). According to the IMF, this system is essential for promoting sustainable economic growth, increasing living standards, and reducing poverty. Consequently, the IMF sees itself following a larger mission which has been further enhanced during the recent global crisis by covering the full range of macroeconomic and financial sector issues that affect global stabilitywhich brings it in close contact with the (often differing) political aims of its members. On the other hand, the IMF carries out its special country missions with fierce independence and is feared for imposing strict constraints on the targets of its interventions. In future, it is expected to play an ever more active and growing role beyond its traditional tasks.
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The Organisation for Economic Co-operation and Development: in search for the new mission
7. The Organisation for Economic Co-operation and Development: in search for the new mission
Background The OECD is the only treaty-based international organisation so far with the explicit insurance agenda. The OECD was set up formally in 1960 as a successor to the Organization for European Economic Cooperation (OEEC) which had been created in 1948 to help administer the Marshall Plan for Europe in the aftermath of World War II. Since its inception the OECD has been a club of advanced economies committed to democracy and market economies. It had originally 20 funding members of which 18 were European states, U.S. and Canada. Starting with 1990s the OECD increased its membership base by ten new Member Statesto 34. This process is going to continue with Russia, China and Brazil on the interest list. The mission of the OECD is rather generally defined. In Article 1 of its founding treaty (called Convention) the aims of the OECD are described as promotion of policies designed: (a) to achieve the highest sustainable economic growth and employment and a rising standard of living in Member countries, while maintaining financial stability, and thus to contribute to the development of the world economy; (b) to contribute to sound economic expansion in Member as well as non-member countries in the process of economic development; and (c) to contribute to the expansion of the world trade on a multilateral, non-discriminatory basis in accordance with international obligations. (OECD, 1960) Governance The major statutory body of the Organisation is the Council composed of all the members. Daily management rests in the hands of the Secretary General appointed by the Council for a term of five years. S/he heads a Secretariat of several hundred collaborators. The Secretariat is structured into over a dozen directorates which include the: Centre for Entrepreneurship, SMEs and Local Development; Centre for Tax Policy and Administration; Development Co-operation Directorate; Directorate for Education; Directorate for Employment, Labour and Social Affairs; Directorate for Financial and Enterprise Affairs; Directorate for Science, Technology and Industry; Economics Department; Environment Directorate; Public Governance and Territorial Development Directorate;
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Statistics Directorate; Trade and Agriculture Directorate; General Secretariat; Executive Directorate; Public Affairs and Communication Directorate. A characteristic of the OECD is that there are a lot of activities going on in various committees and working parties with the involvement of the Member countries. Insurance agenda Since its inception the OECD has been actively developing an insurance agenda but in 1962 the OECD Insurance Committee was formed. In 2005 it was renamed the Insurance and Private Pensions Committee. Currently the work of this committee focuses on liberalisation of the insurance markets, private pensions, private health insurance, governance, financial education, mitigation and compensation of catastrophic and environmental risks (including terrorism), monitoring of insurance and reinsurance markets as well as their regulatory framework. The Committee is supported in its work by the Directorate for Financial and Enterprise Affairs. To promote the development of cooperation and information exchange and to develop sound policies in the area of large risks, the OECD established a special purpose Network on Financial Management of Large Scale Catastrophes. The Network benefits additionally from the guidance and intellectual support of the High Level Advisory Board. It is composed of experts from governments, the private sector and academia. It also includes representatives of several insurance companies. The OECD also remains active in the area of statistics. In November 1982, the Insurance Committee established a working group on insurance statistics. Since 1992, the statistical data have been made available through the Insurance Statistics Yearbook. Outlook During the recent financial crisis, the OECD substantially intensified its cooperation with the G-20. It was encouraged by the fact that all G-20 members except for Saudi Arabia and Argentina are involved in the OECD either as members or due to enhanced cooperation agreements. It was specifically mentioned by the finance ministers, during their meetings in 2009-2011, in the context of energy subsidies, tax transparency, economic development and financial services. Since the G-20 leaders summit in Pittsburgh in September 2009, the OECD has been invited to all meetings of this group. It was also able to expand its area of expertise and advice to the G-20 in the area of capital flows, tax havens, employment policies, growth and development policiesand recently to the financial consumer protection principles successfully approved by the G-20 during the Cannes leaders summit in November 2011. Of the international institutions discussed so far in this report, the OECD is arguably the one with the most limited impact in tackling the financial crisis and the current global regulatory challenges, even though, in its own words it provides a forum in which governments can work together to share experiences and seek solutions to common problems (Our mission, http:// www.oecd.org/about/). While it doubtlessly has excellent economic credentials and is a guardian of many important economic (and even social) statistics, its direct involvement in the financial discussions has been rather narrow. From an insurance point of view, it is the general economic role of the OECD that remains of most interest, with important activities in the areas of employment, environmental economic issues, tax and public finance questions and possibly pensions at the forefront.
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The Joint Foruma disappearing regulatory body?
8. The Joint Forum a disappearing regulatory body?

Background The Joint Forum was set up in 1996 under the aegis of the BCBS, IOSCO and the IAIS to carry forward the work initiated by the Tripartite Group in 1995. The Group was formed at the initiative of the BCBS and was composed of bank, securities and insurance supervisors, each of them acting in their personal capacity. These supervisors with distinct backgrounds drew on their specific experiences in supervising different financial institutions to work on cross-sectoral financial conglomerates to which they dedicated their first report released in June 1995 before converting into a more formalised groupthe Joint Forum on Financial Conglomerates. In 1998, its name was shortened to the Joint Forum in recognition of its new mandate that went beyond financial conglomerates and covered regulatory issues of common interest to all three sectors. Mandate The current mandate of the Joint Forum focuses on the support of banking, insurance and securities supervisors in particular where risks exist across the three supervised sectors or where regulatory gaps emerge. To carry out its activities the Joint Forum: addresses and promotes understanding of issues common to the three sectors, including the supervision of financial conglomerates; analyses cross-sectoral market and regulatory developments; analyses cross-sectoral gaps and inconsistencies in regulation and supervision; develops guidance and principles and identifies best practices on cross-sectoral technical regulatory and policy issues to reduce opportunities for regulatory arbitrage; facilitates cooperation, coordination and information sharing among its Parent Committees. Governance The Joint Forum is composed of an equal number of senior bank, insurance and securities supervisors from each of its member jurisdictions. In 2012, its membership included Australia, Belgium, Canada, France, Germany, Italy, Japan, Netherlands, Spain, Switzerland, U.K. and the U.S. represented by the Federal Reserve Board, the Securities and Exchange Commission and the National Association of Insurance Commissioners (NAIC). It also includes representatives of the BCBS, IOSCO and the IAIS. The EU Commission is granted an observership status. The Forum meets three times a year and its chairmanship rotates between the three sectoral committees every two years. Activities The Joint Forum is known for its reports on cross-sectoral issues. In 2010, it published its Review on the Differentiated Nature and Scope of Financial Regulation (Joint Forum, 2010), bringing the attention to the cross-sectoral differences and resulting consequences. In September 2012,
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it published its revised report on the Principles for the Supervision of Financial Conglomerates (Joint Forum, 2012). Four new workstreams were introduced in 2012: Mortgage Insurance, Longevity Risk, Point of Sale Disclosure and Coordination of Preconditions. Outlook An important part of the Joint Forum mandate was cross-sectoral regulatory coordination and cross-sectoral gap analysis. With the new powers allocated finally at the Los Cabos summit to the FSB, it seems that this agenda of the Joint Forum is largely gone. The FSB now operates more directly with the three sister organisations BCBS, IAIS and IOSCO, and as such reduces the role of the Joint Forum. Currently the Joint Forum is chaired by the IAIS through Therese M. Vaughan, the CEO of NAIC. It remains to be seen whether this will bring more insurance issues to the forefront and whether it may lead to a longer-term shift in the Forums work. Today, the Joint Forum seems partly in search for its future place among the international institutions existing in the same space and the associated regulatory mission. The Forum apparently moves back to its origins and refocuses its attention to cross-border financial conglomerates and cross-border and cross-sectoral supervisory colleges. This is an issue of great relevance to large IAIGs that currently lead discussions at the IAIS about the supervisory structure and specific rules affecting them.
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The International Association of Insurance Supervisors: maturing for the new challenges
9. The International Association of Insurance Supervisors: maturing for the new challenges
Background The IAIS is the only truly global body focusing its attention entirely and exclusively on the regulatory and supervisory issues of the insurance sector. It was founded in 1994, 20 years after the BCBS and roughly 10 years after IOSCO was formed. Its relatively late arrival upon the global regulatory and supervisory scene was a reflection of a number of insurance specific factors. It was primarily a reflection of the relatively low level of trans-nationalisation of national insurance markets. For a number of economic, social and political reasons, insurance markets remained largely nations-based (Davies and Green, 2008, pp. 72-73). It was also a reflection on the institutional characteristics of the sectoral regulators and supervisors which in many jurisdictions were, until the 1990s, a part of government ministries (typically the ministry of finance). As such, they had little independence and desire to go for international coordination which might also have bypassed existing political structures. Arguably it was also a consequence of the unique regulatory and supervisory set-up in the U.S., the largest insurance market in the world. This market has been characterised by the absence of federal powers in this area and the exclusive regulatory and supervisory authority of individual states. These however have no constitutional rights to enter into any international agreements, which at times made the interaction with their global peers more difficult and required a special solution for their interaction (also later with and through the IAIS). Additionally many of the U.S. insurance commissioners, especially those responsible for states without internationally relevant insurance groups, do not see the benefit of enhancing their international cooperation, particularly through local taxpayers moneys. A first change of attitude took place in the 1990s and much must be accredited to the activities of the NAIC and its leaders at the time, who were de facto a major driving force in bringing the IAIS into existence. The IAIS first domicile was Washington D.C. from where it moved to Basel two years later. Objectives According to its current By-laws the Association has two major objectives: (a) to promote effective and globally consistent supervision of the insurance industry in order to develop and maintain fair, safe and stable insurance markets for the benefit and protection of policyholders; and to (b) contribute to global financial stability. (IAIS, 2010a, Article 2) The last objective was only added in 1999 after the creation of the FSF. It exposed the IAIS to the debates on the potential systemicity of the insurance industry and its financial stability relevance (Davies and Green, 2008, p. 73). The emergence of the FSF has accelerated the enhancement of the cross-sectoral cooperation of the IAIS with the BCBS and IOSCO. It apparently accelerated
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the adoption, in 1999, of the first Insurance Core Principles list, similar in spirit and structure to the Core Principles of Banking Supervision that the BCBS introduced in 1997 and the Objectives and Principles of Securities Regulation from IOSCO of 1998. It also helped to maintain the cohesion and coordination when the second version of the enhanced Insurance Core Principles was adopted in 2003. At the end of 2011, the third version of Insurance Core Principles, Standards, Guidance and Assessment Methodology was approved by the IAIS (IAIS, 2011a). How dynamic this process has been can be gleaned from the development of the volume of pages produced in each iteration: the first version in 1999 accounted for a few pages only, the second around 50 pages, while the last one runs to over 400 pages. This is also an indicator of the growing complexity of interpretation and implementation of the 26 standards present on the list. The Insurance Core Principles have been used since 2000 by the IMF/World Bank in their FSAP project as the benchmark and thus they play a major role as the international implementation device. The objectives of the IAIS are accomplished by a number of activities including the development of principles, standards and guidance for insurance supervisors, encouraging their implementation, promoting the cooperation among supervisory authorities and cooperation with other relevant international organisations (IAIS, 2010a, Article 2). Governance The IAIS constituency is split into members and observers. Members of the Association are in principle, insurance industry regulators and supervisors. Additionally the By-laws allow specifically for the membership of the NAIC, the U.S. Federal Insurance Office and the international organisations made up of governments or statutory bodies which receive recommendation for membership from the Executive Committee (IAIS, 2010a, Article 6). At the end of 2011, the list of these organisations included the IMF, The World Bank, the OECD and the European Commission. Altogether at the end of 2011, the membership of the Association comprised insurance regulatory and supervisory authorities representing 190 jurisdictions from about 130 countries, 57 of them representing the U.S. Furthermore, since 2011 it also includes the European Insurance and Occupational Pensions Authority (EIOPA). It effectively covers around 97 per cent of the global insurance market which means that its legitimacy to represent the global insurance supervisory community is extremely high. Since 1999, members of the IAIS are supplemented by observers who accounted, at the end of 2011, for 120 institutions. They also include a number of international bodies such as the Association of Mutual Insurers and Insurance Cooperatives (AMICE), Insurance Europe (formerly CEA), Federacin Interamericana de Empresas de Seguros (FIDES), Institute of International Finance (IIF), International Actuarial Association (IAA), World Federation of Insurance Intermediaries (WFII) and The Geneva Association. Corporate governance of the IAIS is quite typical in its general set-up. Major authority is vested in the General Meeting of the members. It decides by a simple majority. A two-third majority is required only for the most important decisions. These include amendments of the By-laws, adoption of principles, standards and guidance and the dissolution of the Association (Article 12). The General Meeting is held every calendar year. Effective management of the Association is in the hands of the Executive Committee (ExCo), composed of 9-24 voting members and elected by the General Meeting. The ExCo elects from within its members a chair and a vice-chair. Geopolitical considerations and the perceived need for balanced geographical representation play an important role in allocating these seats to individual jurisdictions, as is the case for the chairs of the most prominent and influential committees (see Chart 5).
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Chart 5: IAIS organisational structure
Source: IAIS website (as per November 2012).
The Executive Committee oversees the work of four other committees: the Technical Committee, responsible for standard setting; the Implementation Committee, responsible for standards implementation; the Budget Committee, overseeing the budgetary matters; and the Financial Stability Committee, concentrating on financial stability issues. This last committee was added to the structure in 2010 and reflects the growing role of the stability work and concerns within the Association in the aftermath of the financial crisis. Much of its work is currently driven by the FSB and the G-20 desire to identify potential systemically important financial institutions (SIFIs) in all parts of the financial sector, including insurance. The work of the ExCo, specialised committees and working parties is assisted by the office staff (around 30 people) of the Secretariat, headed by the Secretary General and his two deputies. However many of the activities within the Association are performed by its member organisations, i.e. the supervisory authorities themselves. It allows the IAIS, on the one hand, to maintain low expenses and keep better pace with the national and international developments through bodies that are directly involved while, on the other hand, it privileges larger and richer bodies at the expense of the others, thus adding an element of internal asymmetry to the whole Association. One strong workstream for the IAIS is the development of the Insurance Core Principles (ICPs), which are not legally binding but de facto high-level good practices of the insurance activities and its supervision. With the support of the IMF/World Bank and their FSAP projects, the ICPs help to converge national regulatory and supervisory set-ups. Besides them, the IAIS concentrates increasingly on cross-border and systemic issues. Thus it is currently in the process of developing the Common Framework (ComFrame) for the supervision of IAIGs. It is additionally entrusted by the FSB with devising an appropriate methodology for the possible identification of G-SIFIs in insurance including creating a list of such entities, similar to that existing for banks. Since 2007, the IAIS has also been heavily engaged in developing international cooperation and information exchange for supervisory purposes with the help of special multilateral
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agreements and dedicated institutional frameworks. At the end of 2011, 21 member jurisdictions had already signed the Multilateral Memorandum of Understanding (MMoU) (IAIS, 2011b). The list of signatories includes important bodies such as BaFin/Germany, the Australian Prudential Regulation Authority (APRA), the Autorit de contrle prudentiel (ACP/France), the Comisin Nacional de Seguros y Finanzas (CNSF/Mexico) and the Financial Services Agency (FSA/Japan). The IAIS has always underlined its desire for transparency in its activities for key stakeholders. In 2007, along with the development of periodic meetings with executives of large insurers, systematic observer hearings were introduced which provide a structured way, especially for the important and influential Technical Committee, to discuss key issues with observers from the industry. Outlook During the recent crisis the IAIS has functioned as an efficient platform for the exchange of information between supervisors in relation to the monitoring and management of the difficulties at AIG. AIG had sizeable insurance operations under its roof and was considered by many as the largest insurer in the world despite its structure and supervision as a thrift and its operation as a financial conglomerate with a high-risk business next to its prominent insurance operations. It is expected that for potentially similarly transnational crisis cases in the future, the IAIS will play an important role as a communication platform for supervisory coordination and possibly joint action. The IAIS has been very active in the course of the recent global financial crisis and the subsequent regulatory debate under the political guidance of the G-20. In response to the G-20 Washington Action Plan, in February 2009 it produced a 13-page report which addressed Action Plan items of its two Working GroupsNo 1 and No 2 (IAIS, 2009): 1. With respect to Working Group 1, Strengthening transparency and accountability and enhancing sound regulation In Action Plan item I, the IAIS offered to share expertise regarding core insurance prudential requirements on technical provisions and investments with other sectors. It also reported on its joint work with the BCBS and IOSCO on the identification of regulatory gaps and areas for enhanced supervision of cross-sector financial conglomerates (IAIS, 2009, p. 2). Additionally it informed the G-20 about its new focus on the supervision of internationally active insurance groups. On item II of this Working Group the IAIS reviewed its activities and intentions to promote further the standards of prudential requirements for insurance including the implementation of its solvency standards. It also indicated its intention to review all its supervisory papers against lessons learnt from the financial crisis (IAIS, 2009, p. 4). With regard to macroprudential surveillance it indicated that it has a Financial Stability Task Force to facilitate discussion and coordination of work efforts in response to the FSF and G20 recommendations (IAIS, 2009, p. 6). Additionally it announced its decision to enhance the Global Reinsurance Market Report on macroprudential risks analysis. 2. With respect to Working Group 2, Reinforcing international cooperation. In Action Plan item I the IAIS explained to the G-20 that it is already developing guidance on the use of supervisory colleges for insurance groups and that it is working with the BCBS and the FSF regarding supervisory colleges for cross-sectoral consistency. On Action Plan item II, dealing with supervisory cooperation, the IAIS reported on its taking steps to accelerate the operation of its MMoU system. It also stressed its facilitating role in group supervision and cross-border crisis management framework. On Action Plan item IIIInternal Cooperationdistortions due to temporary measuresthe IAIS, while acknowledging the benefits of government intervention during the crisis, expressed its support for raising awareness on possible intra-sectoral and cross-sectoral distortions. It
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also took an active stance after the London Summit of the G-20. It strongly supported the G-20 declaration and recommendations. At the same time, its management indicated that the IAIS has already taken a number of steps to reinforce insurance regulation in support of G-20 goals. These include: a. enhancing group and cross-sectoral supervision and preparing a new focus on internationally active insurance groups; b. incorporating lessons drawn from the crisis in IAIS standards; c. developing the use of supervisory colleges for insurance groups consistent with FSB protocols; d. accelerating the implementation of IAIS Memorandum of Understanding (MMoU) for the exchange of information between insurance supervisors; e. facilitating the implementation of standards by providing supervisory assessment mechanisms. The IAIS is a major international standard setteralbeit with limited legal authority but pronounced de facto powersspecifically and exclusively for the insurance industry. In implementing its mission it also cooperates with other standard setters in this area and its role has grown considerably during the global financial crisisa trend that is expected to continue in the future. An interesting development is the partnership with a new international organisation representing the supervisory and regulatory authorities of over 40 Islamic jurisdictions and key market participants. The supervisors of these markets and key insurance operators came together in 2002 and decided to set up their own international organisationthe Islamic Financial Services Board (IFSB), which among others, develops standards for the insurance sector that comply with Islamic law (especially the Islamic insurance concept of Takaful). The IFSB currently has a membership base of close to 200 entities, including many market participants and over 40 regulatory and supervisory authorities. In 2006, the IAIS and the IFSB developed a Joint Paper on Issues in Regulation and Supervision of Takaful. In 2008, the two organisations signed a working agreement enhancing their cooperation in the area of prudential regulations for the companies offering Takaful (Brown, 2009, p. 964).
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Conclusions and outlook for the future
10. Conclusions and outlook for the future
The foregoing description indicates that the global institutional set-up in insurance regulatory and supervisory framework is a complex and evolving structure based to a growing degree on soft, network-like bodies with sometimes limited democratic mandates and political legitimisation. On the one hand, this makes it more flexible and responsive to the new challenges in the standardmaking phase; while on the other hand, it requires a much more elaborate system for the implementation of the global standards once approved. The network structures are de facto a global instrument of financial policies as promoted by advanced jurisdictions. As of today, the emerging economies play only a very limited role in them. Hence the regulatory programme is basically reflecting the priorities and concerns of the former (i.e. the advanced economies) and not necessarily representing the latter (i.e. the emerging markets). Nor do network structures necessarily manifest the overall perceptions or views of the global community. The absence of a single global regulatory body for all aspects of world finance leads to increased regulatory gaps, overlaps, inconsistencies and loopholes with additional costs to the industries involved and their clients. It also leads to a greater need for cooperation and coordination and more complex mechanisms to conduct global discussions and to achieve common solutions. The existing global institutional set-up for global financial regulation has been undergoing some important and far-reaching changes triggered by the financial crisis. Not all of them are at their final stage yet but a big picture is already emerging. We could arguably summarise this as follows: 1. Global governance of the worlds financial architecture and the regulation of the international financial system post-crisis has been transferred from (a somewhat less imposing) G-7 to the G-20 which considerably enhanced its political standing. It also impacted the global agenda and its modus operandi: there are already some attempts of creating de jure or de facto (much needed) secretariat facilities. It is also present in the introduction of a quasi mandatory mutual peer review programme and FSAP Reviews for systemically important jurisdictions. The transfer of political direction from the G-7 to the G-20 was accompanied by the upgrade of its decision-making level. It is no longer a responsibility and agenda-setting element of the finance ministers gatherings but it has become an important part of the agenda of the G-20 leaders summits. This indicates a process of shifting financial policies from the operational to the strategic decisionmaking level and shows a substantial upgrading of its political dimension. The shift of global economic governance from the G-7 to the G-20 created a new situation for the global financial community which has to take into account the increased governing role of previously invisible stakeholdersnamely the large emerging-market economies.
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In the future this also means new priorities for the international regulatory agenda which may include better regulation from the perspective of protection of national strategic industries, financial inclusion, consumer protection, impact on growth and employment, poverty eradication, etc. 2. Technical know-how on financial matters and the important systemic risk issues is provided to the G-20 leaders mainly by the IMF and the FSB. Recently, the OECD has pitched for a larger role in this regard and is seen by some analysts as the possible future G-20 secretariat. The first two organisations, IMF and FSB, are clearly under the heavy influence of bank-based thinking and bank-based orientation with central banks being among their most influential stakeholders. Insurance issues represent a minor part of their portfolio and find less interest, both among key stakeholders as well as staff. Insurance expertise is also much limited and their membership does not offer much expectation for change in this respect. Therefore the insurance world needs to intensify its efforts to bring more insurance knowledge both to the IMF and the FSB. This is particularly relevant as both of these bodies have a growing role in the global supervisory set-up and heavily influence the work of other institutions, in particular the IAIS. Both of them are already entrusted with the development of some instruments for macro prudential oversight and systemic risk assessment. They are inter alia working on financial stability assessment, designing an early warning system and the use of stress testing instruments. They will have an important role in defining the design of the overall macro-prudential system including the one for the insurance industry. 3. Specific non-insurance organisations and their roles: a. IMF: Today, the IMF has the clear mandate among international institutions to lead due to its track record and immense concentration of intellectual, financial and regulatory powers. With its dramatically increased financial resources during the crisis, new auditing and oversight powers with regard to the financial systems of the most important Member States, and the newly expanded role in the monitoring of financial stability, the IMF is at the core of the global financial architecture and its governance. From this perspective its strong banking bias and underdeveloped insurance expertise are serious shortcomings of the existing global regulatory arrangement and should be addressed in the future to allow for the development of efficient and effective rules that take insurance specificities appropriately into account. The IMF is seen by many as the leading candidate for becoming the future World Financial Organization with farther reaching powers and an umbrella for other institutions that are currently set up using their own processes. b. FSB: As a result of the recent financial crisis, the FSB has become the most privileged financial network in the regulatory set-up, with a substantially enlarged membership base and newly enhanced roles and powers. The expansion of its position, partly at the expense of a treaty-based IMF, is a clear illustration of the expanded role of networks in a regulatory area in a post crisis world. The FSB insurance-related expertise, though limited, is judged by many observers to be well above that of the IMF. Its regulatory role in the financial sector has become of critical importance. As of today, it is the most important global financial institution for developing the rules that are meant to safeguard global financial stability and where financial standards may be coordinated and converged while inconsistencies are eliminated. c. OECD: The OECD, like the IMF, is a treaty-based organisation. In contrast to the IMF, however, it is much more diversified in its portfolio and much less bank inclined. An important role in its workstreams since its inception has been occupied by insurance. The OECD Insurance and Private Pensions Committee remains a unique world forum for the discussion of the social and economic role of insurance
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Conclusions and outlook for the future
development. The Organisation is also a forerunner in insurance statistics. The OECD secretariat is additionally activating a number of other insurance-linked initiatives like large risks management, corporate governance, financial education and financial safety net issues. In future the OECD, if properly supported, might take over a part of the role the IMF currently occupies with regard to the insurance industry, especially in the realm of old-age provision. d. IAIS: As the key global insurance institution, the central role for the technical level of global regulatory set-up is and will remain with the IAIS. The Association has substantially enhanced its position already in the critical months before but also during and after the recent financial crisis. This was particularly due to its work on financial stability and international group (IAIG) supervision. Its future fortunes will depend to a certain degree on the results of the search for global systemically important financial institutions in insurance. If some groups are designated, then the IAIS will be a natural caretaker and the logical choice as the global supervisory authority. In the development of its global regulatory functions, the IAIS is seriously constrained by the unique insurance regulatory layout existing in the U.S., the largest insurance market in the world and lead country for the global financial regulatory and supervisory institutions. The state-based regulatory system and the resulting fragmentation of the regulatory front in the U.S. are not very conducive for joint international regulatory projects in insurance. Nor does it provide a good environment for the U.S. to install itself together with EU in the drivers seat of the movement for more global regulatory convergence. This will make it extremely challenging in the foreseeable future for the IAIS to produce a unitary global solvency standard for insurance and thus something that would mirror the Basel type developments in banking of the past years. The emergence of the new Federal Insurance Office signals some changes in this regard but how far and how fast they will impact the status quo remains to be seen. Insurersand especially those operating in many different jurisdictions (also known as Internationally Active Insurance Groups, IAIGs)should define soon what kind of financial architecture they would desire and which powers should reside with which institution. While the industry is largely concentrating its attention on the issue of systemic financial risk and the possible designation of potentially G-SIFIs from among its numbers and a series of important but technical projects instigated by the IAIS (e.g. ComFrame), it is rather passive when it comes to being involved in the larger institutional debates. And yet, it will be the shape and powers of the newly created or enhanced global institutions that will define the global financial architecture and the regulatory frameworks. These in turn will define the possible business strategies and actions open to insurance operators. It would be wise to construct quickly a clear picture of what would help and what would hinder the insurance industry in delivering on its socio-economic role.
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Annex 1.
Bank for International SettlementStatutes

(of 20 January 1930; text as amended on 27 June 2005)4
Chapter I Name, Seat and Objects Article 1 There is constituted under the name of the Bank for International Settlements (hereinafter referred to as the bank) a Company limited by shares. Article 2 The registered office of the Bank shall be situated at Basle, Switzerland. Article 3 The objects of the Bank are: to promote the co-operation of central banks and to provide additional facilities for international financial operations; and to act as trustee or agent in regard to international financial settlements entrusted to it under agreements with the parties concerned. Chapter II Capital Article 4 (1) The authorised capital of the Bank shall be three thousand million Special Drawing Rights (SDR), as defined from time to time by the International Monetary Fund. 5 (2) It shall be divided into 600,000 shares of equal nominal value, consisting of three tranches of 200,000 shares each. (3) The nominal value of each share and the amount remaining to be paid up shall be stated on the face of the share certificates which may be issued by the Bank pursuant to Article 16. Article 5 The two first tranches of 200,000 shares each have already been issued. Article 6 The Board, upon a decision taken by a two-thirds majority, may, when it considers it advisable, issue on one or more occasions a third tranche of 200,000 shares and distribute them in accordance with the provisions of Article 8. Article 7 (1) Twenty-five per cent only of the value of each share shall be paid up at the time of subscription. The balance may be called up at a later date or dates at the discretion of the Board. Three months notice shall be given of any such calls.
4 Amendments to the original text of the Statutes of 20 January 1930 were adopted by Extraordinary General Meetings held on 3 May 1937, 12 June 1950, 9 October 1961, 9 June 1969, 10 June 1974, 8 July 1975, 14 June 1993, 13 September 1994, 8 November 1999, 8 January 2001, 10 March 2003 and 27 June 2005. The amendments adopted in 1969 and 1975were sanctioned in accordance with the conditions laid down in Article 1 of the Convention respecting the Bank for International Settlements One SDR is the equivalent to the sum of US$ 0. 632, Euro 0. 410, Japanese yen 18. 4 and Pound sterling 0. 0903 as approved by the Executive Board of the IMF, effective 1 January 2006; this decision is subject to revision every five years.
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(2) If a shareholder fails to pay any call on a share on the day appointed for payment thereof the Board may, after giving reasonable notice to such shareholder, forfeit the share in respect of which the call remains unpaid. A forfeited share may be sold on such terms and in such manner as the Board may think fit and the Board may execute a transfer in favour of the person or corporation to whom the share is sold. The proceeds of sale may be received by the Bank, which will pay to the defaulting shareholder any part of the net proceeds over and above the amount of the call due and unpaid. Article 8 (1) The capital of the Bank may be increased or reduced on the proposal of the Board acting by a two-thirds majority and adopted by a two-thirds majority of the General Meeting. (2) In the event of an increase in the authorised capital of the Bank and of a further issue of shares, the distribution among countries shall be decided by a two-thirds majority of the Board. The central banks of Belgium, England, France, Germany, Italy and the United States of America, or some other financial institution of the last-named country acceptable to the foregoing central banks, shall be entitled to subscribe or arrange for the subscription in equal proportions of at least fifty-five per cent of such additional shares. (3) In extending invitations to subscribe for the amount of the increase in capital not taken up by the banks referred to in clause (2), consideration shall be given by the Board to the desirability of associating with the Bank the largest possible number of central banks that make a substantial contribution to international monetary co-operation and to the Banks activities. Article 9 Shares subscribed in pursuance of Article 8 by the banks referred to in clause (2) of that Article may be placed at the Banks disposal at any time for the purposes of cancellation and the issue of an equivalent number of shares. The necessary measures shall be taken by the Board by a twothirds majority. Article 10 No shares shall be issued below par. Article 11 The liability of shareholders is limited to the nominal value of their shares. Article 12 (1) The shares shall be registered and transferable in the books of the Bank. (2) No share may be transferred without the prior consent of the Bank and of the central bank, or the institution acting in lieu of a central bank, by or through whom the shares in question were issued. Article 13 The shares shall carry equal rights to participate in the profits of the Bank and in any distribution of assets under Articles 51, 52 and 53 of the Statutes. Article 14 The ownership of shares of the Bank carries no right of voting or representation at the General Meeting. The right of representation and of voting, in proportion to the number of shares subscribed in each country, may be exercised by the central bank of that country or by its nominee. Should the central bank of any country not desire to exercise these rights, they may be exercised by a financial institution of widely recognised standing and of the same nationality, appointed by the Board, and not objected to by the central bank of the country in question. In cases where there is no central bank, these rights may be exercised, if the Board thinks fit, by an appropriate financial institution of the country in question appointed by the Board. Article 15 Shares may be subscribed or acquired only by central banks, or by financial institutions appointed by the Board in accordance with the terms and conditions laid down in Article 14.
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Annex 1. Bank for International SettlementStatutes
Article 16 The Bank may at its discretion issue share certificates to its shareholders. Article 17 Ownership of shares of the Bank implies acceptance of the Statutes of the Bank. Article 18 The registration of the name of a shareholder in the books of the Bank establishes the title to ownership of the shares so registered. Article 18(A) (Transitional provisions) In accordance with the resolutions of the Extraordinary General Meeting held on 8 January 2001 and in order to implement Article 15 of the Statutes as amended, the Bank will, on a compulsory basis, repurchase each share which, as of that date, is registered in the name of a shareholder other than a central bank (a private shareholder), against payment of compensation of CHF 16,000 for each share, as follows: (1) On 8 January 2001, the registration of each private shareholder will be cancelled in the books of the Bank. As from this cancellation, every private shareholder will lose all rights appertaining to shares which are repurchased (including all rights to the payment of any future dividend), subject to the provisions of Article 54; every private shareholder will receive, in exchange for every share which is ipso jure transferred to the Bank, a statutory right to the payment of the amount of compensation referred to above. (2) With a view to the payment of the compensation, the Bank will promptly send each private shareholder a notice inviting that private shareholder: (a) to provide written confirmation that he or she has not transferred or otherwise disposed of any share registered on 8 January 2001 in his or her name; (b) to provide written instructions for payment of the compensation by the Bank; and (c) to return the corresponding share certificates to the Bank. (3) Upon receiving a complete response to the notice sent out pursuant to Article 18(A)(2), and after it has carried out all appropriate verifications, the Bank will pay each private shareholder the amount of compensation due to that shareholder. If a private shareholder has transferred or otherwise disposed of any share for which he or she is the registered shareholder prior to 8 January 2001, and the Bank is aware of that transfer, the Bank will pay the amount of compensation due from it to the successor in title of the registered shareholder after it has carried out all appropriate verifications. If there is any doubt as to any entitlement to compensation in respect of any share, or if there is no response or only an incomplete response to the notice sent by the Bank pursuant to Article 18(A)(2), the Bank may, on such terms as it may deem appropriate, place in escrow the amount of compensation until such time as the interested parties appropriately establish their rights. Any transfer of a share which has not been notified to the Bank before the date on which the compensation is paid will have no effect with regard to the Bank. (4) The Board will redistribute, in the manner in which it considers appropriate, the shares repurchased from private shareholders either (a) by offering them for sale to central bank shareholders against payment of an amount equal to that of the compensation paid to the private shareholders, or (b) by offering them for subscription as bonus shares by central bank shareholders in proportion to the number of shares held (including, if applicable, any share purchased pursuant to (a) above), it being understood that this redistribution may be achieved by a combination of (a) and (b). (5) The Board is authorised to take all decisions it deems necessary in connection with the implementation of these transitional provisions, including delegating to the General Manager as appropriate responsibility for practical execution.
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Chapter III Powers of the Bank Article 19 The operations of the Bank shall be in conformity with the monetary policy of the central banks of the countries concerned. Before any financial operation is carried out by or on behalf of the Bank on a given market or in a given currency, the Board shall afford to the central bank or central banks directly concerned an opportunity to dissent. In the event of disapproval being expressed within such reasonable time as the Board shall specify, the proposed operation shall not take place. A central bank may make its concurrence subject to conditions and may limit its assent to a specific operation, or enter into a general arrangement permitting the Bank to carry on its operations within such limits as to time, character and amount as may be specified. This Article shall not be read as requiring the assent of any central bank to the withdrawal from its market of funds to the introduction of which no objection had been raised by it, in the absence of stipulations to the contrary by the central bank concerned at the time the original operation was carried out. Any Governor of a central bank, or his alternate or any other Director specially authorised by the central bank of the country of which he is a national to act on its behalf in this matter, shall, if he is present at the meeting of the Board and does not vote against any such proposed operation, be deemed to have given the valid assent of the central bank in question. If the representative of the central bank in question is absent or if a central bank is not directly represented on the Board, steps shall be taken to afford the central bank or banks concerned an opportunity to express dissent. Article 20 The operations of the Bank for its own account shall only be carried out in currencies deemed suitable by the Board. Article 21 The Board shall determine the nature of the operations to be undertaken by the Bank. The Bank may in particular: (a) buy and sell gold coin or bullion for its own account or for the account of central banks; (b) hold gold for its own account under earmark in central banks; (c) accept the custody of gold for the account of central banks; (d) make advances to or borrow from central banks against gold, bills of exchange and other short-term obligations of prime liquidity or other approved securities; (e) discount, rediscount, purchase or sell with or without its endorsement bills of exchange, cheques and other short-term obligations of prime liquidity, including Treasury bills and other such government short-term securities as are currently marketable; (f) buy and sell exchange for its own account or for the account of central banks; (g) buy and sell negotiable securities other than shares for its own account or for the account of central banks; (h) discount for central banks bills taken from their portfolio and rediscount with central banks bills taken from its own portfolio; (i) open and maintain current or deposit accounts with central banks; (j) accept: (i) deposits from central banks on current or deposit account; (ii) deposits in connection with trustee agreements that may be made between the Bank and Governments in connection with international settlements; (iii) such other deposits as in the opinion of the Board come within the scope of the Banks functions. The Bank may also: (k) act as agent or correspondent of any central bank;
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(l) arrange with any central bank for the latter to act as its agent or correspondent. If a central bank is unable or unwilling to act in this capacity, the Bank may make other arrangements, provided that the central bank concerned does not object. If in such circumstances it should be deemed advisable that the Bank should establish its own agency, the sanction of a two-thirds majority of the Board will be required; (m) enter into agreements to act as trustee or agent in connection with international settlements, provided that such agreements shall not encroach on the obligations of the Bank towards third parties; and carry out the various operations laid down therein. Article 22 Any of the operations which the Bank is authorised to carry out with central banks under the preceding Article may be carried out with banks, bankers, corporations or individuals of any country provided that the central bank of that country does not object. Article 23 The Bank may enter into special agreements with central banks to facilitate the settlement of international transactions between them. For this purpose it may arrange with central banks to have gold earmarked for their account and transferable on their order, to open accounts through which central banks can transfer their assets from one currency to another and to take such other measures as the Board may think advisable within the limits of the powers granted by these Statutes. The principles and rules governing such accounts shall be fixed by the Board. Article 24 The Bank may not: (a) issue notes payable at sight to bearer; (b) accept bills of exchange; (c) make advances to Governments; (d) open current accounts in the name of Governments; (e) acquire a predominant interest in any business concern; (f) except so far as is necessary for the conduct of its own business, remain the owner of real property for any longer period than is required in order to realise to proper advantage such real property as may come into the possession of the Bank in satisfaction of claims due to it. Article 25 The Bank shall be administered with particular regard to maintaining its liquidity, and for this purpose shall retain assets appropriate to the maturity and character of its liabilities. Its short-term liquid assets may include bank-notes, cheques payable on sight drawn on first-class banks, claims in course 18 of collection, deposits at sight or at short notice in first-class banks, and prime bills of exchange of not more than ninety days usance, of a kind usually accepted for rediscount by central banks. The proportion of the Banks assets held in any given currency shall be determined by the Board with due regard to the liabilities of the Bank. Chapter IV Board and Management Article 26 The Board shall determine the strategic and policy direction of the Bank, supervise the management, and fulfil the specific tasks given to it by these Statutes, and shall take the decisions necessary to carry out these responsibilities. Article 27 The Board shall be composed as follows:
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(1) The Governors for the time being of the central banks of Belgium, France, Germany, Great Britain, Italy and the United States of America (hereinafter referred to as ex-officio Directors). Any ex-officio Director may appoint one person as his alternate who shall be entitled to attend and exercise the powers of a Director at meetings of the Board if the Governor himself is unable to be present. (2) Six persons representative of finance, industry or commerce, appointed one each by the Governors of the central banks mentioned in clause (1), and being of the same nationality as the Governor who appoints him. If for any reason the Governor of any of the six institutions above mentioned is unable or unwilling to serve as Director, or to make an appointment under the preceding paragraph, the Governors of the other institutions referred to or a majority of them may invite to become members of the Board two nationals of the country of the Governor in question, not objected to by the central bank of that country. Directors appointed as aforesaid, other than ex-officio Directors, shall hold office for three years but shall be eligible for reappointment. (3) Not more than nine persons to be elected by the Board by a two-thirds majority from among the Governors of the central banks of countries in which shares have been subscribed but of which the central bank does not delegate ex-officio Directors to the Board. The Directors so elected shall remain in office for three years but may be re-elected. Article 28 In the event of a vacancy occurring on the Board for any reason other than the termination of a period of office in accordance with the preceding Article, the vacancy shall be filled in accordance with the procedure by which the member to be replaced was selected. In the case of Directors other than ex-officio Directors, the new Director shall hold office for the unexpired period only of his predecessors term of office. He shall, however, be eligible for re-election at the expiration of that term. Article 29 Directors must be ordinarily resident in Europe or in a position to attend regularly at meetings of the Board. Article 30 No person shall be appointed or hold office as a Director who is a member or an official of a Government unless he is the Governor of a central bank and no person shall be so appointed or hold office who is a member of a legislative body unless he is the Governor or a former Governor of a central bank. Article 31 (1) Meetings of the Board shall be held not less than six times a year. At least four of these shall be held at the registered office of the Bank. (2) In addition, decisions of the Board may be taken by means of teleconferencing or videoconferencing, or by correspondence, unless at least five Directors request that the decisions be referred to a meeting of the Board. Article 32 A member of the Board who is not present in person at a meeting of Directors may give a proxy to any other member authorising him to vote at that meeting on his behalf. Article 33 Unless otherwise provided by the Statutes, decisions of the Board shall be taken by a simple majority of those present or represented by proxy. In the case of an equality of votes, the Chairman shall have a second or casting vote. The Board shall not be competent to act unless a quorum of Directors is present. This quorum shall be laid down in a regulation adopted by a two-thirds majority of the Board. BIS Statutes 21
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Article 34 The members of the Board may receive, in addition to out-of pocket expenses, a fee for attendance at meeting and/or a remuneration, the amounts of which will be fixed by the Board, subject to the approval of the General Meeting. Article 35 The proceedings of the Board shall be summarised in minutes which shall be signed by the Chairman. Copies of or extracts from these minutes for the purpose of production in a court of justice must be certified by the Chairman of the Board or any other person designated by the Board. A record of decisions taken at each meeting shall be sent within eight days of the meeting to every member. Article 36 The Board shall represent the Bank in its dealings with third parties and shall have the exclusive right of entering into engagements on behalf of the Bank. It may, however, delegate this right to the Chairman of the Board, to another member or other members of the Board, to the General Manager or to any other member or members of the permanent staff of the Bank, provided that it defines the powers of each person to whom it delegates this right. Article 37 The Bank shall be legally committed vis--vis third parties by the signatures of the Chairman of the Board and another member of the Board, or by the signatures of the General Manager and a member of the staff of the Bank who has been duly authorised by the Board to sign on behalf of the Bank, or by the signatures of two members of the staff of the Bank who have been duly authorised by the Board to sign on behalf of the Bank. Article 38 The Board shall elect from among its members a Chairman and one or more Vice-Chairmen, one of whom shall preside at meetings of the Board in the absence of the Chairman. At the meeting at which the Board elects its Chairman, the Chair shall be taken by the longestserving member of the Board present. The members of the Board so elected shall remain in office for a maximum of three years, and may be re-elected. Article 39 (1) A General Manager and a Deputy General Manager shall be appointed by the Board on the proposal of the Chairman of the Board. Each appointment shall be made for a maximum of five years and may be renewed. (2) The General Manager (chief executive officer) will carry out the policy determined by the Board and will be responsible to the Board for the management of the Bank. (3) The Deputy General Manager will assist the General Manager in the management of the Bank and will exercise the responsibilities of the General Manager in his absence. (4) Neither the General Manager nor the Deputy General Manager shall hold any other office which, in the judgement of the Board, might interfere with his duties to the Bank. (5) Unless otherwise determined by the Board, the General Manager and Deputy General Manager shall be entitled to attend and speak at all meetings of the Board. When attending Board meetings, the General Manager, or in his absence, the Deputy General Manager, shall also be entitled to make proposals to the Board and, if he so desires, to have his opinions specially recorded in the minutes. Article 40 (1) The departmental organisation of the Bank shall be approved by the Board on the proposal of the General Manager.
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(2) The Heads of Departments and any other officers of similar rank shall be appointed by the Board on the proposal of the General Manager. (3) The remainder of the staff shall be appointed by the General Manager. Article 41 In carrying out his responsibilities, the General Manager shall be assisted by an advisory committee (Executive Committee). The committee will be chaired by the General Manager and will further comprise the Deputy General Manager, the Heads of Department, and all other officers of similar rank appointed by the Board. The terms of reference for the committee shall be approved by the Board. Article 42 Except in respect of the core responsibilities of the Board, including those matters for which a two-thirds majority of the Board is required under these Statutes, the Board may, on a temporary basis, delegate certain of its powers to one or more committees chosen from among its members. Article 43 The Board may appoint one or more advisory committees chosen wholly or partly from among its members. Chapter V General Meeting Article 44 General Meetings of the Bank may be attended by nominees of the central banks or other financial institutions referred to in Article 14. Voting rights shall be in proportion to the number of shares subscribed in the country of each institution represented at the meeting. The Chair shall be taken at General Meetings by the Chairman of the Board or in his absence by a Vice-Chairman. At least three weeks notice of General Meetings shall be given to those entitled to be represented. Subject to the provisions of these Statutes, the General Meeting shall decide upon its own procedure. Article 45 Within four months of the end of each financial year of the Bank, an Annual General Meeting shall be held upon such date as the Board may decide. The meeting shall take place at the registered office of the Bank. Voting by proxy will be permitted in such manner as the Board may have provided in advance by regulation. Article 46 The Annual General Meeting shall be invited: (a) to approve the Annual Report, the Balance Sheet upon the Report of the Auditors, and the Profit and Loss Account, and any proposed changes in the remuneration, fees or allowances of the members of the Board; (b) to make appropriations to reserve and to special funds, and to consider the declaration of a dividend and its amount; (c) to elect the Auditors for the ensuing year and to fix their remuneration; and (d) to discharge the Board from all personal responsibility in respect of the past financial year. Article 47 Extraordinary General Meetings shall be summoned to decide upon any proposals of the Board: (a) to amend the Statutes; (b) to increase or decrease the capital of the Bank; (c) to liquidate the Bank.
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Chapter VI Accounts and Profits Article 48 The financial year of the Bank will begin on 1st April and end on 31st March. The first financial period will end on 31st March, 1931. Article 49 The Bank shall publish an Annual Report, and at least once a month a Statement of Account in such form as the Board may prescribe. The Board shall cause to be prepared a Profit and Loss Account and Balance Sheet of the Bank for each financial year in time for submission to the Annual General Meeting. Article 50 The Accounts and Balance Sheet shall be audited by independent auditors. The Auditors shall have full power to examine all books and accounts of the Bank and to require full information as to all its transactions. The Auditors shall report to the Board and to the General Meeting and shall state in their Report: (a) whether they have obtained all the information and explanations they have required; and (b) whether, in their opinion, the Balance Sheet and the Profit and Loss Account dealt with in the Report are properly drawn up so as to exhibit a true and fair view of the state of the Banks affairs according to the best of their information and the explanations given to them, and as shown by the books of the Bank. Article 51 The yearly net profits of the Bank shall be applied as follows: (1) Five per cent of such net profits, or such proportion of five per cent. as may be required for the purpose, shall be paid to a reserve fund called the Legal Reserve Fund until that Fund reaches an amount equal in value to ten per cent of the amount of the paid-up capital of the Bank for the time being. (2) Thereafter the net profits shall be applied in or towards payment of the dividend which is declared by the General Meeting on the proposal of the Board. The portion of the net profits so applied shall take into account the amount (if any) which the Board decides to draw from the Special Dividend Reserve Fund of the Bank pursuant to Article 52. (3) After making provision for the foregoing, one-half of the yearly net profits then remaining shall be paid into the General Reserve Fund of the Bank until it equals the paid-up capital. Thereafter forty per cent shall be so applied until the General Reserve Fund equals twice the paid-up capital; thirty per cent until it equals three times the paid-up capital; twenty per cent until it equals four times the paid-up capital; ten per cent until it equals five times the paid-up capital; and from that point onward, five per cent. In case the General Reserve Fund, by reason of losses or by reason of an increase in the paid-up capital, falls below the amounts provided for above after having once attained them, the appropriate proportion of the yearly net profits shall again be applied until the position is restored. (4) The disposal of the remainder of the net profits shall be determined by the General Meeting on the proposal of the Board, provided that a portion of such remainder may be allotted to the shareholders by way of a transfer to the Special Dividend Reserve Fund. Article 52 Reserve Funds The General Reserve Fund shall be available for meeting any losses incurred by the Bank. In case it is not adequate for this purpose, recourse may be had to the Legal Reserve Fund provided for in clause (1) of Article 51.
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The Special Dividend Reserve Fund shall be available, in case of need, for paying the whole or any part of the dividend declared pursuant to clause (2) of Article 51. These reserve funds, in the event of liquidation, and after the discharge of the liabilities of the Bank and the costs of liquidation, shall be divided among the shareholders. Chapter VII General Provisions Article 53 (1) The Bank may not be liquidated except by a threefourths majority of the General Meeting. (2) In the event of the liquidation of the Bank, the obligations assumed by the Bank under the Staff Pension Scheme and any related special funds, in particular the corresponding liability as published in the latest Balance Sheet or Statement of Account, shall enjoy priority over the discharge of any other liabilities of the Bank, irrespective of whether or not the pension fund of the Bank, which covers the relevant obligations, has separate legal personality at the time of liquidation. Article 54 (1) If any dispute shall arise between the Bank, on the one side, and any central bank, financial institution, or other bank referred to in the present Statutes, on the other side, or between the Bank and its shareholders, with regard to the interpretation or application of the Statutes of the Bank, the same shall be referred for final decision to the Tribunal provided for by the Hague Agreement of January, 1930. (2) In the absence of agreement as to the terms of submission either party to a dispute under this Article may refer the same to the Tribunal, which shall have power to decide all questions (including the question of its own jurisdiction) even in default of appearance by the other party. (3) Before giving a final decision and without prejudice to the questions at issue, the President of the Tribunal, or, if he is unable to act in any case, a member of the Tribunal to be designated by him forthwith, may, on the request of the first party applying therefor, order any appropriate provisional measures in order to safeguard the respective rights of the parties. (4) The provisions of this Article shall not prejudice the right of the parties to a dispute to refer the same by common consent to the President or a member of the Tribunal as sole arbitrator. Article 55 (1) The Bank shall enjoy immunity from jurisdiction, save: (a) to the extent that such immunity is formally waived in individual cases by the Chairman of the Board, the General Manager, the Deputy General Manager, or their duly authorised representatives; or (b) in civil or commercial suits, arising from banking or financial transactions, initiated by contractual counterparties of the Bank, except in those cases in which provision for arbitration has been or shall have been made. (2) Property and assets of the Bank shall, wherever located and by whomsoever held, be immune from any measure of execution (including seizure, attachment, freeze or any other measure of execution, enforcement or sequestration), except if that measure of execution is sought pursuant to a final judgment rendered against the Bank by any court of competent jurisdiction pursuant to sub-paragraph 1(a) or (b) above. (3) All deposits entrusted to the Bank, all claims against the Bank and the shares issued by the Bank shall, without the express prior agreement of the Bank, wherever located and by whomsoever held, be immune from any measure of execution (including seizure, attachment, freeze or any other measure of execution, enforcement or sequestration).
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Article 56 For the purposes of these Statutes: (a) central bank means the bank or banking system in any country to which has been entrusted the duty of regulating the volume of currency and credit in that country; or, in a cross-border central banking system, the national central banks and the common central banking institution which are entrusted with such duty; (b) the Governor of a central bank means the person who, subject to the control of his Board or other competent authority, has the direction of the policy and administration of the bank; (c) a two-thirds majority of the Board means not less than two-thirds of the votes (whether given in person or by proxy) of the whole directorate; (d) country means a sovereign state, a monetary zone within a sovereign state or a monetary zone extending over more than one sovereign state. Article 57 Amendments of any Articles of these Statutes other than those enumerated in Article 58 may be proposed by a two-thirds majority of the Board to the General Meeting and if adopted by a majority of the General Meeting shall come into force, provided that such amendments are not inconsistent with the provisions of the Articles enumerated in Article 58. Article 58 Articles 2, 3, 8, 14, 19, 24, 27, 44, 51, 54, 57 and 58 cannot be amended except subject to the following conditions: the amendment must be adopted by a two-thirds majority of the Board, approved by a majority of the General Meeting and sanctioned by a law supplementing the Charter of the Bank.
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Board of Directors Chairman of the Board Christian Noyer (Governor of the Bank of France) Administrative Committee Nomination Committee
Annex 2.
CH-4002 Basel Tel.: +41 61 280 8080 Fax: +41 61 280 9100
Banking and Risk Management Committee General Manager Jaime Caruana Deputy General Manager Herv Hannoun Board Secretariat3 Hermann Greve
Audit Committee
Internal Audit Thomas Winsnes
Legal Service Head Gnter Pleines Peter Dittus Deputy Secretary General Jim Etherington Deputy and Director of Policy, Coordination & Administration Philip Turner Policy and Coordination Dietrich Domanski Deputy and Director of Research & Statistics Claudio Borio Stephen G Cecchetti Deputy Louis de Montpellier Secretary General Basel Committee on Banking Supervision4 Secretary General Wayne Byres Head and Economic Adviser
Banking Department
General Secretariat
Monetary and Economic Department Financial Stability Board (FSB)6 Secretary General Svein Andresen
Financial Stability Institute (FSI)
General Counsel Diego Devos
Chairman Josef Toovsk
Deputy General Counsel William Flynn
Representative Office for Asia and the Pacific Asset Management Jacob Bjorheim Communications Ruth Scheithauer Human Resources Jozef Van t dack Banking Operational Services Jeremy Barson
Chief Representative Eli Remolona
Risk Control Jens Ulrich
Treasury Jean-Franois Rigaudy Building, Security and Logistics Yogesh Anand
Representative Office for the Americas
Compliance & Operational Risk2 Franois-Marie Brure
Committee on Payment and Settlement Systems5 Head of Secretariat Vacant
International Association of Insurance Supervisors (IAIS)6 Secretary General Yoshihiro Kawai
Chief Representative Gregor Heinrich Financial Analysis Jean-Pierre Matt Information Management Services Christian Rime
Finance David Williams Meeting Services Rory Macfie
Committee on the Global Financial System5 Head of Secretariat Ingo Fender Statistics and Research Support Paul Van den Bergh
International Association of Deposit Insurers (IADI)6 Secretary General Carlos Isoard
Bank for International SettlementOrganigram
Markets Committee5 Secretary Corrinne Ho

27 July 2012 - 1/1
Reports to Deputy General Manager Reports to Deputy General Manager and has a right of direct access to the Audit Committee on compliance matters 3 Reports to the Secretary General on administrative and personnel matters 4 Reports to the Joint Meeting of Governors and Heads of Supervision 5 Secretariats of Committees reporting to the Global Economy Meeting of Governors 6 Secretariats hosted by the BIS 7 Reports to the Deputy General Manager on matters related to financial reporting and statements of the Bank
Organisation chart
Governors and Heads of Supervision
Capital Planning Capital Monitoring and QIS Ratings & Securitisation
August 2011
Core Principles Group Basel Consultative Group Anti Money Laundering Expert Group
Cross-border Bank Resolution
Audit Subgroup
Research Task Force
Accounting Task Force
Definition of Capital
Risk Management & Modeling
Operational Risk
Monitoring of standards
Supervisory colleges
Basel Committee on Banking Supervision

Joint Forum
Policy Development Group
Trading Book
Standards Implementation Group
Leverage Ratio
Liquidity
Risk - weighted assets
Remuneration
Quantitative Impact Study
FX Settlement Risk
Annex 3. Basel Committee on Banking Supervision Bank for Intermational SettlementOrganisation Chart
Annex 3.
Basel Committee on Banking Supervision Bank for International Settlement Organisation Chart
Group on replacement of IAS39
Macroprudential Supervision Group
Trade Finance
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Annex 4.
Financial Stability BoardCharter

Having regard to: (1) the initial mandate given to the Financial Stability Forum by the Finance Ministers and Central Bank Governors of the Group of Seven (20 February 1999); (2) the broadened mandate given by the Heads of State and Government of the Group of Twenty (London Summit, 2 April 2009, Declaration on Strengthening the Financial System); (3) the call of the Heads of State and Government of the Group of Twenty to re-establish the Financial Stability Board with a stronger institutional basis and enhanced capacity (London Summit, 2 April 2009, Declaration on Strengthening the Financial System); and Recognising the need to promote financial stability by developing strong regulatory, supervisory and other policies and fostering a level playing field through coherent implementation across sectors and jurisdictions. We, the Members of the Financial Stability Board, have set forth the following Charter: I. General provisions Article 1. Objectives of the Financial Stability Board The Financial Stability Board (FSB) is established to coordinate at the international level the work of national financial authorities and international standard setting bodies (SSBs) in order to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies. In collaboration with the international financial institutions, the FSB will address vulnerabilities affecting financial systems in the interest of global financial stability. Article 2. Mandate and tasks of the FSB (1) As part of its mandate, the FSB will: (a) assess vulnerabilities affecting the global financial system and identify and review on a timely and ongoing basis the regulatory, supervisory and related actions needed to address them, and their outcomes; (b) promote coordination and information exchange among authorities responsible for financial stability; (c) monitor and advise on market developments and their implications for regulatory policy; (d) advise on and monitor best practice in meeting regulatory standards; (e) undertake joint strategic reviews of the policy development work of the international standard setting bodies to ensure their work is timely, coordinated, focused on priorities and addressing gaps; (f) set guidelines for and support the establishment of supervisory colleges; (g) support contingency planning for cross-border crisis management, particularly with respect to systemically important firms; (h) collaborate with the International Monetary Fund (IMF) to conduct Early Warning Exercises; and (i) undertake any other tasks agreed by its Members in the course of its activities and within the framework of this Charter. (2) The FSB will promote and help coordinate the alignment of the activities of the SSBs to address any overlaps or gaps and clarify demarcations in light of changes in national and regional regulatory structures relating to prudential and systemic risk, market integrity and investor and consumer protection, infrastructure, as well as accounting and auditing.
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Annex 4. Financial Stability Board Charter
Article 3. Consultation In the development of the FSBs medium- and long-term strategic plans, principles, standards and guidance, the FSB will consult widely amongst its Members and with other stakeholders including private sector and non-member authorities. The consultation process will include regional outreach activities to broaden the circle of countries engaged in the work to promote international financial stability. II. Members Article 4. Members (1) The following bodies are eligible to be a Member: (a) National and regional authorities responsible for maintaining financial stability, namely ministries of finance, central banks, supervisory and regulatory authorities; (b) International financial institutions; and (c) International standard setting, regulatory, supervisory and central bank bodies. The eligibility of Members will be reviewed periodically by the Plenary in the light of the FSB objectives. (2) Current Members of the FSB are listed in Annex A. Article 5. Commitments of Members (1) Member jurisdictions commit to: (a) pursue the maintenance of financial stability; (b) maintain the openness and transparency of the financial sector; (c) implement international financial standards; and (d) undergo periodic peer reviews, using among other evidence IMF/World Bank public Financial Sector Assessment Program reports. The FSB will report on these commitments and the evaluation process. (2) In support of the mission laid down in Article 2, (1) (e), the standard setting bodies will report to the FSB on their work without prejudice to their existing reporting arrangements or their independence. This process should not undermine the independence of the standard setting process but strengthen support for strong standard setting by providing a broader accountability framework. (3) The international financial institutions will participate as Members in the FSB in accordance with their respective legal frameworks and policies. III. Organisation Article 6. Structure of the FSB The FSB consists of the following internal structures: (a) the Plenary; (b) the Steering Committee; (c) the Chairperson; and (d) the Secretariat. The Plenary Article 7. Responsibilities of the Plenary (1) The Plenary is the decision-making body of the FSB. (2) Decisions by the Plenary shall be taken by consensus. (3) The Plenary: (a) decides on the manner in which the Plenary conducts its affairs; (b) approves the work programme of the FSB; (c) adopts reports, principles, standards, recommendations and guidance developed by the FSB;
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(d) decides on Membership of the FSB; (e) appoints the Chairperson; (f) decides to amend this Charter; and (g) decides on any other matter governing the business and affairs of the FSB. Article 8. Representation and attendance (1) Representation at the Plenary shall be at the level of central bank governor or immediate deputy; head or immediate deputy of the main supervisory/regulatory agency; and deputy finance minister or deputy head of finance ministry. Plenary representatives also include the chairs of the main SSBs and committees of central bank experts, and high-level representatives of the IMF, the World Bank, the Bank for International Settlements (BIS) and the Organisation for Economic Co-operation and Development. (2) All Members shall be entitled to attend the Plenary Meetings. The Chair shall preside over the Plenary Meetings. (3) The Chair can extend, after consultation with Members, ad-hoc invitations to representatives of non-FSB Members to attend the whole or part of the Plenary Meetings. In the context of specific sessions of the Plenary, the Chair can also invite, after consultation with Members, representatives of the private sector. Article 9. Convocation (1) The Chair shall convene at least two Plenary Meetings every calendar year, normally in March and in September. (2) Additional extraordinary meetings may be held as circumstances arise, at such time and place as the Chair may designate, following consultation with Members. (3) Regional Meetings of the FSB may also be held, as appropriate. Article 10. Seat assignments (1) The number of seats in the Plenary assigned to Member jurisdictions reflects the size of the national economy, financial market activity and national financial stability arrangements of the corresponding Member jurisdiction. (2) Delegations with more than one seat have one representative seated at the back. Representatives sitting at the back have the rights of the table. Representation at the table can be changed according to the topic discussed. Article 11. Standing Committees and working groups (1) To support the FSBs missions, the Plenary may establish Standing Committees and working groups as necessary and mandate them. (2) The chairs of Standing Committees are selected from and appointed by the Plenary at the Chairs recommendation. They report to the Plenary on their work programs. The chairs of working groups are appointed by the Plenary at the Chairs recommendation. (3) Membership in Standing Committees and working groups is decided by the respective chairs in consultation with the Chair with due regard to the effectiveness, balanced representation and the mandate of the respective Standing Committee or working group. Membership is normally drawn from the Members of the Plenary. (4) A Member jurisdiction can, in consultation with the Chair, decide whether its representation in a Standing Committee is through a Member or through a relevant agency of the Member jurisdiction that is not a designated FSB Member. (5) The chairs of Standing Committees and working groups can extend ad-hoc invitations to non-members to attend the whole or part of their meetings. (6) The FSB Secretariat supports the work of Standing Committees and working groups. (7) Current Standing Committees and working groups of the FSB are listed in Annex B of the Charter.
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Steering Committee Article 12. Composition and appointment (1) The composition of the Steering Committee is decided by the Plenary at the proposal of the Chair in a manner that ensures maximum effectiveness in taking forward the FSBs work while having regard to balanced representation in terms of geographic regions and institutional functions. (2) The composition of the Steering Committee shall be reviewed periodically in accordance with the criteria set out in the previous section. Article 13. Responsibilities and authorities of the Steering Committee (1) The Steering Committee shall provide operational guidance between the Plenary Meetings to carry forward the directions of the FSB. (2) The Chair shall convene at least four Steering Committee Meetings every calendar year at such time and place as the Chair may designate. (3) The Steering Committee may establish working groups as needed which may include representatives of non-FSB members. (4) The duties of the Steering Committee include the following: (a) to monitor and guide the progress of FSBs ongoing work; (b) to promote coordination across and commission work from the Standing Committees and other working groups; (c) to ensure effective information flow to all Members; (d) to conduct for the consideration of the Plenary joint strategic reviews of he policy development work of the international SSBs; and (e) to take forward, in consultation with the Plenary, directly any other work necessary for the FSB to fulfil its mandate. Chairperson Article 14. Appointment and Responsibilities (1) The Chair is appointed by the Plenary from Members for a term of three years renewable once. (2) The Chair shall have recognised expertise and standing in the international financial policy arena. (3) The Chair convenes and chairs the meetings of the Plenary and of the Steering Committee. The Chair oversees the Secretariat. (4) The Chair is the principal spokesperson for the FSB and represents the FSB externally. The Chair shall be informed of all significant matters that concern the FSB. More generally, the Chair shall take all decisions and act as necessary to achieve the objectives of the FSB in accordance with the directions given by the Plenary. (5) The Chair, in the discharge of the functions as the Chair, shall owe the duty entirely to the FSB and to no other authorities or institutions. Secretariat Article 15. Secretariat (1) The Secretariat shall be directed by the Secretary General. (2) The Secretary General shall be appointed by the Plenary at the proposal of the Chair. (3) The Secretary General shall be under the responsibility, and shall act in accordance with the instructions, of the Chair. The Chair is responsible for providing general direction to the Secretary General, in accordance with any directions given by the Plenary. (4) In appointing the Secretariat staff, the Secretary General shall, subject to the importance of securing the highest standards of efficiency and of technical competence, pay due regard to the importance of a balanced composition in terms of geographic regions and institutional functions.
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(5) The Secretary General and the Secretariat staff, in the discharge of their functions, shall owe their duty entirely to the FSB and to no other authorities or institutions. (6) The main responsibilities of the Secretariat shall be the following: (a) to support the activities of the FSB, including its Standing Committees and working groups; (b) to facilitate cooperation between Members and between the FSB and other institutions; (c) to ensure efficient communication to Members and others; (d) to manage the financial, material and human resources allocated to the FSB (including the appointment of staff who may be seconded by Members); (e) to maintain the records, administer the website and deal with the correspondence of the FSB; and (f) to carry out all other functions that are assigned by the Chair or the Plenary. (7) The Secretariat shall be located in Basel at the BIS. IV. Final provisions Article 16. Legal Effect This Charter is not intended to create any legal rights or obligations. Article 17. Effective date This Charter shall come into effect on 25 September 2009. ____________________
Annex A List of FSB Members

A. Member Jurisdictions Argentina Central Bank of Argentina Australia Department of the Treasury Reserve Bank of Australia Brazil Ministry of Finance Central Bank of Brazil Securities and Exchange Commission of Brazil Canada Department of Finance Bank of Canada Office of the Superintendent of Financial Institutions (OSFI) China Ministry of Finance Peoples Bank of China China Banking Regulatory Commission France Ministry of Economy, Industry and Employment Bank of France Autorit des Marchs Financiers (AMF)
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Germany Ministry of Finance Deutsche Bundesbank Bundesanstalt fr Finanzdienstleistungsaufsicht (Bafin) Hong Kong SAR Hong Kong Monetary Authority India Ministry of Finance Reserve Bank of India Securities and Exchange Board of India Indonesia Bank Indonesia Italy Ministry of the Economy and Finance Bank of Italy Commissione Nazionale per le Societ e la Borsa (CONSOB) Japan Ministry of Finance Bank of Japan Financial Services Agency Korea Bank of Korea Financial Services Commission Mexico Ministry of Finance and Public Credit Bank of Mexico Netherlands Ministry of Finance Netherlands Bank Russia Ministry of Finance Central Bank of the Russian Federation Federal Financial Markets Service Saudi Arabia Saudi Arabian Monetary Agency Singapore Monetary Authority of Singapore South Africa Ministry of Finance Spain Ministry of Economy and Finance Bank of Spain Switzerland Swiss Federal Department of Finance Swiss National Bank Turkey Central Bank of the Republic of Turkey
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United Kingdom HM Treasury Bank of England Financial Services Authority United States Department of the Treasury Board of Governors of the Federal Reserve System Securities and Exchange Commission European Central Bank European Commission _______________________ B. International Financial Institutions* Bank for International Settlements (BIS) International Monetary Fund (IMF) Organisation for Economic Co-operation and Development (OECD) World Bank C. International Standard-Setting, Regulatory, Supervisory and Central Bank Bodies Basel Committee on Banking Supervision (BCBS) Committee on Payment and Settlement Systems (CPSS) Committee on the Global Financial System (CGFS) International Accounting Standards Board (IASB) International Association of Insurance Supervisors (IAIS) International Organisation of Securities Commissions (IOSCO)
Annex B List of Standing Committees and ad-hoc working groups

Standing Committees (3) Standing Committee on Assessment of Vulnerabilities Standing Committee for Supervisory and Regulatory Cooperation Standing Committee for Standards Implementation
Ad-hoc working groups (3) Cross-border Crisis Management Working Group Expert Group on Non-cooperative Jurisdictions Working Group on Compensation
* The acceptance of membership by the international financial institutions in the FSB is subject to the approval of their respective governing bodies.
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Annex 5. International Monetary Fund Organisation Chart
Annex 5.
International Monetary Fund Organization Chart
International Monetary Fund Organisation Chart

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International Monetary Fund Organization Chart

as of May 26, 2011 International Monetary and Financial Committee Board of Governors Joint IMF-World Bank Development Committee 1
Executive Board
Independent Evaluation Office
Managing Director Deputy Managing Directors

Investment Office-Staff Retirement Plan Office of Budget & Planning Office of Internal Audit and Inspection
Area Departments African Department Asia and Pacific Department Regional Office for Asia and the Pacific European Department Offices in Europe Middle East and Central Asia Department Western Hemisphere Department
Functional and Special Services Departments Finance Department Fiscal Affairs Department Institute for Capacity Development Joint Vienna Institute Singapore Training Institute Middle East Center for Economics and Finance (in Kuwait) Legal Department Monetary and Capital Markets Department Strategy, Policy and Review Department Research Department Statistics Department
Information & Liaison External Relations Department Fund Office United Nations 2
Support Services Human Resources Department Secretary's Department Technology and General Services Department
Annex 5. International Monetary Fund Organisation Chart

1 Known formally as the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real
Resources to Developing Countries.

2 Attached to the Office of Managing Director.
http://www.imf.org/external/np/obp/orgcht.htm[27/08/2012 15:55:25]
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Annex 6.
Convention on the Organisation for Economic Co-operation and Development

Convention
PARIS 14th December 1960 THE GOVERNMENTS of the Republic of Austria, the Kingdom of Belgium, Canada, the Kingdom of Denmark, the French Republic, the Federal Republic of Germany, the Kingdom of Greece, the Republic of Iceland, Ireland, the Italian Republic, the Grand Duchy of Luxembourg, the Kingdom of the Netherlands, the Kingdom of Norway, the Portuguese Republic, Spain, the Kingdom of Sweden, the Swiss Confederation, the Turkish Republic, the United Kingdom of Great Britain and Northern Ireland, and the United States of America; CONSIDERING that economic strength and prosperity are essential for the attainment of the purposes of the United Nations, the preservation of individual liberty and the increase of general well-being; BELIEVING that they can further these aims most effectively by strengthening the tradition of co-operation which has evolved among them; RECOGNISING that the economic recovery and progress of Europe to which their participation in the Organisation for European Economic Co-operation has made a major contribution, have opened new perspectives for strengthening that tradition and applying it to new tasks and broader objectives; CONVINCED that broader co-operation will make a vital contribution to peaceful and harmonious relations among the peoples of the world; RECOGNISING the increasing interdependence of their economies; DETERMINED by consultation and co-operation to use more effectively their capacities and potentialities so as to promote the highest sustainable growth of their economies and improve the economic and social well-being of their peoples; BELIEVING that the economically more advanced nations should co-operate in assisting to the best of their ability the countries in process of economic development; RECOGNISING that the further expansion of world trade is one of the most important factors favouring the economic development of countries and the improvement of international economic relations; and DETERMINED to pursue these purposes in a manner consistent with their obligations in other international organisations or institutions in which they participate or under agreements to which they are a party; HAVE THEREFORE AGREED on the following provisions for the reconstitution of the Organisation for European Economic Co-operation as the Organisation for Economic Cooperation and Development: Article 1
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Annex 6. Convention on the Organisation for Economic Co-operation and Development
The aims of the Organisation for Economic Co-operation and Development (hereinafter called the Organisation) shall be to promote policies designed: (a) to achieve the highest sustainable economic growth and employment and a rising standard of living in Member countries, while maintaining financial stability, and thus to contribute to the development of the world economy; (b) to contribute to sound economic expansion in Member as well as non-member countries in the process of economic development; and (c) to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accordance with international obligations. Article 2 In the pursuit of these aims, the Members agree that they will, both individually and jointly: (a) promote the efficient use of their economic resources; (b) in the scientific and technological field, promote the development of their resources, encourage research and promote vocational training; (c) pursue policies designed to achieve economic growth and internal and external financial stability and to avoid developments which might endanger their economies or those of other countries; (d) pursue their efforts to reduce or abolish obstacles to the exchange of goods and services and current payments and maintain and extend the liberalisation of capital movements; and (e) contribute to the economic development of both Member and non-member countries in the process of economic development by appropriate means and, in particular, by the flow of capital to those countries, having regard to the importance to their economies of receiving technical assistance and of securing expanding export markets. Article 3 With a view to achieving the aims set out in Article 1 and to fulfilling the undertakings contained in Article 2, the Members agree that they will: (a) keep each other informed and furnish the Organisation with the information necessary for the accomplishment of its tasks; (b) consult together on a continuing basis, carry out studies and participate in agreed projects; and (c) co-operate closely and where appropriate take co-ordinated action. Article 4 The Contracting Parties to this Convention shall be Members of the Organisation. Article 5 In order to achieve its aims, the Organisation may: (a) take decisions which, except as otherwise provided, shall be binding on all the Members; (b) make recommendations to Members; and (c) enter into agreements with Members, non-member States and international organisations. Article 6 1 . Unless the Organisation otherwise agrees unanimously for special cases, decisions shall be taken and recommendations shall be made by mutual agreement of all the Members.
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2. Each Member shall have one vote. If a Member abstains from voting on a decision or recommendation, such abstention shall not invalidate the decision or recommendation, which shall be applicable to the other Members but not to the abstaining Member. 3. No decision shall be binding on any Member until it has complied with the requirements of its own constitutional procedures. The other Members may agree that such a decision shall apply provisionally to them. Article 7 A Council composed of all the Members shall be the body from which all acts of the Organisation derive. The Council may meet in sessions of Ministers or of Permanent Representatives. Article 8 The Council shall designate each year a Chairman, who shall preside at its ministerial sessions, and two Vice-Chairmen. The Chairman may be designated to serve one additional consecutive term. Article 9 The Council may establish an Executive Committee and such subsidiary bodies as may be required for the achievement of the aims of the Organisation. Article 10 1. A Secretary-General responsible to the Council shall be appointed by the Council for a term of five years. He shall be assisted by one or more Deputy Secretaries-General or Assistant Secretaries-General appointed by the Council on the recommendation of the Secretary-General. 2. The Secretary-General shall serve as Chairman of the Council meeting at sessions of Permanent Representatives. He shall assist the Council in all appropriate ways and may submit proposals to the Council or to any other body of the Organisation. Article 11 1. The Secretary-General shall appoint such staff as the Organisation may require in accordance with plans of organisation approved by the Council. Staff regulations shall be subject to approval by the Council. 2. Having regard to the international character of the Organisation, the Secretary-General, the Deputy or Assistant Secretaries-General and the staff shall neither seek nor receive instructions from any of the Members or from any Government or authority external to the Organisation. Article 12 Upon such terms and conditions as the Council may determine, the Organisation may: (a) address communications to non-member States or organisations; (b) establish and maintain relations with non-member States or organisations; and (c) invite non-member Governments or organisations to participate in activities of the Organisation. Article 13 Representation in the Organisation of the European Communities established by the Treaties of Paris and Rome of 18th April, 1951, and 25th March, 1957, shall be as defined in Supplementary Protocol No. 1 to this Convention. Article 14 1. This Convention shall be ratified or accepted by the Signatories in accordance with their respective constitutional requirements.
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Annex 6. Convention on the Organisation for Economic Co-operation and Development
2. Instruments of ratification or acceptance shall be deposited with the Government of the French Republic, hereby designated as depositary Government. 3. This Convention shall come into force: a) before 30th September, 1961, upon the deposit of instruments of ratification or acceptance by all the Signatories; or (b) on 30th September, 1961, if by that date fifteen Signatories or more have deposited such instruments as regards those Signatories; and thereafter as regards any other Signatory upon the deposit of its instrument of ratification or acceptance; (c) after 30th September, 1961, but not later than two years from the signature of this Convention, upon the deposit of such instruments by fifteen Signatories, as regards those Signatories; and thereafter as regards any other Signatory upon the deposit of its instrument of ratification or acceptance. 4. Any Signatory which has not deposited its instrument of ratification or acceptance when the Convention comes into force may take part in the activities of the Organisation upon conditions to be determined by agreement between the Organisation and such Signatory. Article 15 When this Convention comes into force the reconstitution of the Organisation for European Economic Co-operation shall take effect, and its aims, organs, powers and name shall thereupon be as provided herein. The legal personality possessed by the Organisation for European Economic Co-operation shall continue in the Organisation, but decisions, recommendations and resolutions of the Organisation for European Economic Co-operation shall require approval of the Council to be effective after the coming into force of this Convention. Article 16 The Council may decide to invite any Government prepared to assume the obligations of membership to accede to this Convention. Such decisions shall be unanimous, provided that for any particular case the Council may unanimously decide to permit abstention, in which case, notwithstanding the provisions of Article 6, the decision shall be applicable to all the Members. Accession shall take effect upon the deposit of an instrument of accession with the depositary Government. Article 17 Any Contracting Party may terminate the application of this Convention to itself by giving twelve months notice to that effect to the depositary Government. Article 18 The Headquarters of the Organisation shall be in Paris, unless the Council agrees otherwise. Article 19 The legal capacity of the Organisation and the privileges, exemptions, and immunities of the Organisation, its officials and representatives to it of the Members shall be as provided in Supplementary Protocol No. 2 to this Convention. Article 20 1. Each year, in accordance with Financial Regulations adopted by the Council, the SecretaryGeneral shall present to the Council for approval an annual budget, accounts, and such subsidiary budgets as the Council shall request.
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2. General expenses of the Organisation, as agreed by the Council, shall be apportioned in accordance with a scale to be decided upon by the Council. Other expenditure shall be financed on such basis as the Council may decide. Article 21 Upon the receipt of any instrument of ratification, acceptance or accession, or of any notice of termination, the depositary Government shall give notice thereof to all the Contracting Parties and to the Secretary-General of the Organisation. IN WITNESS WHEREOF, the undersigned Plenipotentiaries, duly empowered, have appended their signatures to this Convention. DONE in Paris, this fourteenth day of December, Nineteen Hundred and Sixty, in the English and French languages, both texts being equally authentic, in a single copy which shall be deposited with the depositary Government, by whom certified copies will be communicated to all the Signatories.
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Annex 7. IAISBy-Laws
Annex 7.
IAISBy-Laws
International Association of Insurance Supervisors (IAIS) BY-LAWS (2010 Edition)

I. General provisions Article 1: Name, headquarters and duration An association by the name of International Association of Insurance Supervisors (hereinafter the Association) domiciled in Basel, Switzerland, is hereby established pursuant to Article 60 of the Swiss Civil Code. The Association is a non-profit organisation. The duration of the Association is unlimited. Article 2: Objectives of the Association (1) The objectives of the Association are to (a) promote effective and globally consistent supervision of the insurance industry in order to develop and maintain fair, safe and stable insurance markets for the benefit and protection of policyholders; and to (b) contribute to global financial stability. (2) In furtherance of its objectives, the Association will, in particular, (a) develop principles, standards and guidance for the supervision of insurance markets, which Members should strive to apply taking into account the specific circumstances of their markets; (b) encourage the implementation and practical application of its principles and standards; (c) develop methodologies for the assessment of the observance of its principles and standards, and facilitate assessment processes; (d) encourage broader contacts and co-operation amongst insurance supervisors, facilitating mutual assistance, education and training on insurance supervision and the exchange of supervisory information; (e) engender awareness of common interests and concerns amongst insurance supervisors and identify potential risks that may affect insurance supervision; (f) liaise and co-operate with other international organisations, particularly those involved in issues of financial markets supervision and promotion of financial growth, stability and integrity; and
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(g) represent a body of informed opinion within the field of insurance supervision and, where appropriate, to communicate such views, ideas and experience to third parties. (3) The Association will operate in an open and transparent manner setting an appropriate example of transparency, administrative due process and governance, while maintaining the ability for supervisors to exchange information in confidence. In the development of the Associations medium- and long-term strategic plans, principles, standards and guidance, the Association will consult widely amongst its members and observers and make its consultation procedures transparent. Article 3: Legal personality (1) The Association has a separate legal personality. It shall, in particular, have the power to (a) contract; (b) sue and be sued in its own name; (c) acquire and dispose of movable and immovable property; and (d) take such other actions as may be necessary or useful for its purposes and activities, within the bound of these By-laws. (2) The Association shall be represented and legally committed in its dealings with third parties either by the signature of the Chair of the Executive Committee or by any other officer of the Association duly authorised by the Chair of the Executive Committee to sign on behalf of the Association. Article 4: Definitions In these By-laws, unless the context otherwise indicates: (a) Executive Committee means the Executive Committee referred to in Articles 14 to 16 of the By-laws; (b) FIO means the Federal Insurance Office of the United States Department of the Treasury established under the Public Law of the United States; (c) General Meeting means the General Meeting of Members referred to in Articles 11 to 13 of these By-laws; (d) insurance includes reinsurance and insured private pensions; (e) Jurisdiction means any nation, state, country, territory, province, or geographical area which has its own enforceable laws governing the incorporation or operation of insurers; (f) Member means an entity that has in force a membership with the Association in accordance with these By-laws; (g) NAIC means the National Association of Insurance Commissioners organised under the General Corporation Law of the State of Delaware; (h) Observer means a person that has in force an observership with the Association in accordance with these By-laws; (i) officer of the Association means a member of the Executive Committee, the Secretariat, any other employee of the Association or any person duly authorised to act on behalf of the Association; Secretariat means the Secretariat referred to in Article 17 of these By-laws; and
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(j)
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(k) supervisor includes regulator, supervision includes regulation. Article 5: Financial resources
supervisory
includes
regulatory
and
(1) The financial resources of the Association shall comprise (a) annual fees collected from its Members and Observers; and (b) donations, grants or other sources of revenue. (2) The financial resources of the Association shall be used exclusively for pursuing the objectives of the Association and shall be applied solely to the operating and capital costs of the Association and the constitution of adequate reserves. (3) The Association is liable within its assets. Members and Observers shall have no rights to the assets of the Association and shall not be responsible for the liabilities of the Association. II. Members and Observers Article 6: Members (1) The Association is comprised of its Members. (2) The following entities are eligible to be a Member: (a) an insurance industry supervisor who exercises its function within its Jurisdiction, as long as such supervisor or regulator does not actively underwrite, sell, or otherwise provide insurance; (b) the NAIC; (c) the FIO; (d) an international organisation made up of governments or statutory bodies that the Executive Committee may recommend to be eligible for membership for the purpose of furthering the objectives of the Association. (3) Subject to paragraphs (4) and (5), a Member shall have the right to vote and otherwise participate in the affairs of the Association. This right may be exercised through a representative who shall be a person wholly or principally employed by that Member. (4) For the NAIC and its members, they shall vote as follows: (a) the NAIC shall not have a right to vote; and (b) the NAIC may, at any one time, designate up to a maximum of 15 of its members who may exercise their rights to vote. (5) For an organisation referred to in paragraph (2)(d), (a) it shall not have the right to vote; and (b) no person who is wholly or principally employed by it shall be a member of the Executive Committee. Article 7: Observers (1) The following persons are eligible to be an Observer:
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(a) an international, regional or national organisation, a component element of which has an interest in insurance and insurance supervision, regardless of whether the organisation is directly responsible for insurance law or its administration; (b) any other person, entity, or organisation, private or public, with an interest in the business or supervision of insurance, and includes any company, association, educator, educational institution, or natural person. (2) An Observer may participate in the affairs of the Association in a manner determined by the Executive Committee. (3) An Observer shall not vote. Article 8: Annual fees (1) A Member or an Observer shall pay to the Association an annual fee for each financial year. The annual fee shall be paid before the 1 April in the year to which the fee relates. (2) Where a Member or an Observer has any amount of annual fee owing to the Association for less than two (2) years, the rights of the Member or Observer in the Association under these By-laws shall be suspended starting from the date specified in the notice provided by the Secretariat to the respective Member or Observer. Receipt of full payment from such Member or Observer of all current and past due annual fees shall serve to immediately remove the suspension of rights. (3) Where a Member or an Observer has any amount of annual fee owing to the Association for two (2) years, the membership or observership shall immediately be terminated effective upon notice provided by the Secretariat to the respective Member or Observer. (4) The Executive Committee may, upon good cause shown as determined by it, reinstate rights suspended under paragraph (2) or prevent the termination of membership or observership under paragraph (3). (5) The annual fees payable by each Member shall be determined by the General Meeting based on the recommendation of the Executive Committee. (6) The annual fees payable by Observers shall be determined by the General Meeting based on the recommendation of the Executive Committee. (7) The amount of the annual fees payable by Members should (a) reflect the market and economic development of Members; (b) encourage Jurisdictions to become Members and participate in the activities of the Association; and (c) not affect the ability of the Association to act independently. Article 9: Admission, resignation, and cancellation (1) Any application for admission as a Member or an Observer shall be made in writing addressed to the Secretary General who will forward the application to the Executive Committee for consideration. The General Meeting, after considering the recommendation of the Executive Committee, may accept, defer consideration of, or reject an application.
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(2) The Executive Committee may request an applicant to supply any additional information it considers necessary to allow it to assess whether the applicant meets the criteria to be admitted as a Member or Observer. (3) Once an application for admission has been approved by the General Meeting, the applicant shall be a Member or an Observer, whichever applicable, when it has paid the necessary annual fee. (4) At its discretion, the Executive Committee may allow an applicant to provisionally participate in IAIS activities if that applicant has received the recommendation of the Executive Committee to be accepted and has paid the necessary annual fee but whose admission awaits the required approval by the General Meeting. An applicant who provisionally participates while pending approval does not receive any voting rights. The Executive Committee may withdraw the allowance for such participation of an applicant at any time. The term of provisional participation terminates once the applicant is approved or rejected for admission as a Member or Observer by the General Meeting. (5) Any Member or Observer may resign by giving prior written notice to the Secretary General. Any such resignation shall take effect immediately upon the receipt of the notice or on a later date specified in the notice. Any obligation as a Member or an Observer shall cease upon resignation. No refund of any portion of the annual fee shall be paid for any resignation. (6) Any proposal to cancel a person or an entitys status as a Member or an Observer shall be made in writing by a Member addressed to the Secretary General who will forward the proposal to the Executive Committee for consideration. The General Meeting, after considering the recommendation of the Executive Committee, may cancel a person or an entitys status as a Member or an Observer (a) where the entity is no longer eligible to be a Member or and Observer; (b) when the General Meeting deems that the entity has deliberately acted in a manner that is detrimental to the Association; or (c) on any other grounds that it deems fit, with or without disclosing the grounds of cancellation to the entity. III. Organisation Article 10: Structure of the Association The Association consists of the following organs: (a) the General Meeting of Members; (b) the Executive Committee and its committees and subcommittees; and (c) the Secretariat. a) General Meeting of Members Article 11: Attendance All Members and Observers shall be entitled to attend General Meetings. The Executive Committee may, however, designate part of the proceedings as restricted to Members only.
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The Chair of the Executive Committee (or in the absence of the Chair, the Vice Chair) shall preside over General Meetings. Article 12: Authorities of the General Meeting (1) The General Meeting may, by a two-thirds majority of Members casting a vote, decide (a) to amend the By-laws; (b) on the location of the offices of the Association; (c) to adopt principles, standards, and guidance developed by the Association or other persons or entities not already adopted by the Executive Committee under Article 15(6) (f); and (d) to dissolve the Association. (2) The General Meeting may, by a simple majority of Members casting a vote, (a) decide upon the manner in which a General Meeting conducts its affairs; (b) approve, defer consideration of, or reject applications for participation in the Association; (c) cancel a person or an entitys status as a Member or an Observer; (d) elect members of the Executive Committee; (e) approve the annual budget and fees to be paid by Members and Observers and business plan of the Association; and (f) appoint an independent auditor for the Association; (g) approve the audited financial statements and the annual report of the Association, and release members of the Executive Committee from their responsibilities in respect of the past financial year; and (h) decide on any other matter governing the business and affairs of the Association. Article 13: Convocation (1) The Association shall convene at least one (1) General Meeting every calendar year, referred to as the Annual General Meeting, at such time and place as the Executive Committee may designate. (2) Additional General Meetings, referred to as Extraordinary General Meetings, may be called by the Executive Committee or by one-fifth of the Members upon thirty (30) days prior notice to all Members. An Extraordinary General Meeting may be carried out through a written procedure, including electronic transmission. Actions at any Extraordinary General Meeting shall be limited to the subject stated in the notice therefor. b) Executive Committee Article 14: Composition, appointment, term of office, and voting (1) The Executive Committee shall comprise (a) a minimum of nine (9) and a maximum of twenty-four (24) voting members elected by the General Meeting; and
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(b) non-voting members, if they are not already voting members under paragraph (a): (i) the currently presiding Chair of the Technical Committee; (ii) the currently presiding Chair of the Implementation Committee; and (iii) the currently presiding Chair of the Budget Committee. (2) Every member of the Executive Committee shall be a natural person who is wholly or principally employed by a Member. (3) A person elected to be a voting member of the Executive Committee shall be elected for a term of two (2) years. A voting member of the Executive Committee may be re-elected by the General Meeting after the expiry of his or her term. (4) Where a member of the Executive Committee resigns or, for any other reason, is unable to continue serving as a member till the expiration of his or her term, the Executive Committee may appoint another person to fill the vacancy. (5) The Executive Committee shall be limited to no more than one person per Member, and in principle per Jurisdiction. The Executive Committee shall be composed of an appropriate representation of the different geographic areas and different types insurance markets, particularly in respect of the market sizes and development. (6) The Executive Committee shall elect from within its members a Chair and a Vice Chair of the Executive Committee. A person elected to be the Chair or the Vice Chair of the Executive Committee shall be elected for a term of two (2) years, or until the expiry of his or her term as a voting member of the Executive Committee, whichever is earlier. The Chair or the Vice Chair of the Executive Committee may be re-elected after the expiry of his or her term if he or she continues to be a voting member of the Executive Committee. (7) A quorum of the Executive Committee shall consist of a majority of its voting members. A voting member of the Executive Committee may appoint in writing a proxy, who shall be a natural person who either is wholly or principally employed by the same Member as the voting member or is another member of the Executive Committee, to vote on his or her behalf. (8) Decisions of the Executive Committee shall be taken by a simple majority of its voting members casting a vote. The person acting as Chair at a meeting of the Executive Committee shall in the case of an equality of votes have a casting vote in addition to a deliberative vote. Decisions by the Executive Committee may be made during a meeting or through written procedure, including electronic transmission. For the adoption of principles, standards and guidance as referred to in Article 15(6) (f), the vote shall be taken in a session which is open to all IAIS Members and a two-thirds majority of all Executive Committee voting members is required. Article 15: Responsibilities and authorities of the Executive Committee (1) Members of the Executive Committee shall act in the best interests of the Association. (2) The Executive Committee shall take all decisions necessary to achieve the objectives of the Association in accordance with the directions given by the General Meeting. (3) The Executive Committee shall establish the following committees:
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(a) a Technical Committee, which shall, among other things, develop international principles, standards, guidance and other documents related to insurance supervision; (b) an Implementation Committee, which shall work on issues related to assistance in implementation of IAIS principles, standards and guidance with particular emphasis on emerging markets; (c) a Budget Committee, which shall propose an annual budget and annual fees of Members and Observers to the Executive Committee, foreseeing all financial, relevant and material activities of the Association. This Committee shall report periodically to the Executive Committee on the financial situation of the Association. (d) an Audit Committee, which shall review the internal controls of the Association and monitor that its activities achieve their objectives through effective and efficient operations and are compliant with applicable procedures and resolutions. This Committee shall report directly to the Executive Committee and deliver an annual report to the General Meeting. (4) The Executive Committee shall appoint a Chair for each of the Committees referred to in paragraph (3), except for the Audit Committee, which shall consist of at least three (3) members appointed by the Executive Committee. The appointment process shall be carried out in a transparent manner in accordance with procedures established by the Executive Committee, taking into consideration Article 16(3). (5) The Technical Committee, the Implementation Committee and the Budget Committee shall report to the Executive Committee through their respective Chairs. (6) The duties of the Executive Committee include the following: (a) to prepare amendments to the By-laws to be made by the General Meeting; (b) to call a General Meeting; (c) to consider applications for participation in the Association and make recommendations to the General Meeting in relation to such applications; (d) to prepare a program of activities of the Association, an annual report and an annual budget including the fees to be paid by Members and Observers to be approved by the General Meeting; (e) to ensure that principles, standards and guidance to be adopted by the Association have been subject to an adequate consultation process among IAIS Members and Observers; (f) to adopt principles, standards and guidance developed by the Association or other persons or entities, unless either the Executive Committee decides to defer such decision to the General Meeting or at least 10% of Members who have the right to cast a vote at the General Meeting request in writing by the end of the consultation process to defer such decision to the General Meeting; (g) to assure effective and efficient working structures that fulfil the Associations mandate, while balancing yearly budgets; (h) to recommend to the General Meeting decisions regarding the business and affairs of the Association; (i) (j) to prepare the programme of the annual conference and to take key decisions for the preparation of the Conference; to appoint the Secretary General and oversee the functioning of the Secretariat;
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(k) to carry out other duties assigned to it by the General Meeting; and (l) to do all things necessary to ensure the sound functioning and furtherance of the objectives of the Association.
Article 16: Committees, subcommittees and working parties (1) The Executive Committee, Technical Committee and Implementation Committee may establish under them subcommittees or working parties that help to carry out their respective duties. (2) A Committee which establishes a subcommittee or a working party shall appoint a Chair for the subcommittee or working party. The appointment process shall be carried out in a transparent manner in accordance with procedures established by the Executive Committee. (3) A Chair of a Committee, subcommittee and working party shall be a natural person who is wholly or principally employed by a Member. Chairs of all Committees, subcommittees and working parties taken collectively shall reflect as far as possible a balance of geographical areas and supervisory approaches. c) Secretariat Article 17: Secretariat (1) The Secretariat shall be directed by the Secretary General appointed by the Executive Committee, and shall act in accordance with the instructions of the Executive Committee. (2) The main responsibilities of the Secretariat shall be the following: (a) to support the activities of the Association; (b) to ensure efficient communication among Members and Observers and others; (c) to maintain and reinforce the Association; (d) to facilitate cooperation with other institutions; (e) to manage the financial, material and human resources of the Association in a proper way and in accordance with the authorised budget; and (f) to carry out all other functions that are assigned by the Executive Committee. (3) The expenses for the operation of the Secretariat shall be borne by the Association. IV. Annual conference Article 18: Annual conference (1) The Association shall hold an annual conference annually or at such other interval as the General Meeting may determine. The languages of the annual conference shall be at least English, French and Spanish. An annual conference may be held in conjunction with the Annual General Meeting referred to in Article 13 or at such other time as determined by the General Meeting. (2) Subject to conditions set out by the Executive Committee, which includes the payment of a registration fee, persons who are neither Members nor Observers may attend the whole or any part of the annual conference.
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(3) The annual conference is directed by the representative of the Member hosting the conference, in collaboration with the Chair of the Executive Committee and the Secretariat. If needed the Executive Committee may appoint another person to direct the annual conference. V. Final provisions Article 19: Indemnification (1) The General Meeting may decide, on the recommendation of the Executive Committee, that the Association will indemnify current or former officers of the Association against costs and charges in respect of a civil, criminal or administrative proceeding to which he/she is made a party of by reason of being or having been an officer of the Association, if that person acted honestly and in good faith in fulfilment of his or her duties with a view to the best interests of the Association. (2) The Executive Committee shall establish reasonable limits on the indemnification provided and it may purchase and maintain insurance to cover this risk. The Executive Committee may advance funds to current or former officers of the Association to cover the cost of his or her involvement in a proceeding. Article 20: Dissolution The Members at a General Meeting may at any time decide to dissolve the Association. Liquidation shall be carried out by the Executive Committee unless entrusted by the General Meeting to other persons. Any surplus assets of the Association shall be applied in accordance with a decision taken by the General Meeting that dissolves the Association. Article 21: Financial year The financial year shall run from 1 January to 31 December. Article 22: Governing law and dispute resolution (1) The laws of Switzerland shall govern these By-laws. (2) All disputes arising in connection with these By-laws shall be settled by arbitration in accordance with the United Nations Commission on International Trade Law Arbitration Rules as in force on the day on which these By-laws were approved by Members at the General Meeting. The number of arbitrators shall be three; the seat of arbitration shall be Basel, Switzerland; the language to be used in the arbitral proceedings shall be English. (3) These By-laws were adopted by the General Meeting on 29 October 2010 and shall come into effect on that date, and shall replace the By-laws approved by the General Meeting on 24 October 2009. International Association of Insurance Supervisors (IAIS) Yoshihiro Kawai Secretary General
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References and selected bibliography
Ackerman, J. (2010) The new architecture of financial regulation: will it prevent another crisis?, FMG-Deutsche Bank Conference, London, October, Special Paper 194. Alford, D. (2010) Supervisory colleges: the global financial crisis and improving international supervisory coordination, University of South Carolina, 30 January. Arkell, J. (2011) The Essential Role of Insurance Services for Trade Growth and Development A Primer from The Geneva Associations Programme on Regulation and Supervision, Geneva: The Geneva Association. Arner, D.W. and Buckley, R.P. (2011) Redesigning the Architecture of the Global Financial System, University of Hong Kong Faculty of Law Research Paper, No. 2011/008. Attinger, B.J. (2011) Crisis Management and Bank Resolution. Quo Vadis Europe, ECB Legal Working Paper No. 13, ECB, December. Bank of England (2011) Instruments of macroprudential policy. A Discussion Paper, Bank of England, December. BCBS (2006) Core Principles for Effective Banking Supervision. BIS (2011) Macroprudential regulation and policy, BIS Papers No. 60, December. _____ (2011) Principles for the supervision of financial conglomeratesConsultative document, Basel Committee on Banking Supervision, The Joint Forum, December. _____ (2010) Assessing the macroeconomic impact of the transition to stronger capital and liquidity requirementsInterim report, Macroeconomic Assessment Group, FSB/BCBS, Interim Report, BIS, August. Banque de France (2010) Financial crisis, economic crisis, Documents and debates, No. 3, Banque de France, January. Begg, I. (2009) Regulation and Supervision of Financial Intermediaries in the EU: The Aftermath of the Financial Crisis, Journal of Common Market Studies, 47:5, pp. 1107-1128. Bhatia, A.V. (2011) Consolidated Regulation and Supervision in the United States, IMF Working Paper WP/11/23. Bismuth, R. (2010) The Independence of Domestic Financial Regulators: An Underestimated Structural Issue in International Financial Governance, Gttingen Journal of International Law, 2:1, pp. 93-110. Available at Borio, C. (2011a) Central banking post crisis: What compass for uncharted waters?, Monetary and Economic Department, BIS Working Papers No. 353.
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_____ (2011b) Rediscovering the macroeconomic roots of financial stability policy: journey, challenges and a way forward, Monetary and Economic Department, BIS Working Papers No. 35. Bradlow, D. (2010) Assessing International Financial Reform, American University, Washington College of Law Research Paper, No. 09-29. Brown, E.F. (2009) The Development of International Norms for Insurance Regulation, Brooklyn Journal of International Law, 34:3, pp. 954-982. Buckley, R.P. (2007) The Institutional Weaknesses in the International Financial System, UNSW Law Research Paper No. 2007-14. Bush, O., Farrant, K. and Wright, M. (2011) Reform of the International Monetary and Financial System, Band of England Financial Stability Paper, No. 13, December. Carney, M., Tucker, P., Hildebrand, P., de Larosire, J., Dudley, W., Turner, A. and Ferguson, R.W. Jr (2011) Regulatory Reforms and Remaining Challenges, Group of Thirty, Washington DC, Occasional Paper 81, 2011. Carrasco, E.R. (2010) The Global Financial Crisis and the Financial Stability Forum: The Awakening and Transformation of an International Body, University of Iowa Legal Studies Research Paper No. 10-06, January. Claessens, S. (2009) The Financial Crisis: Policy Challenges for Emerging Markets and Developing Countries, PEGGED, Policy Paper No. 6, March. Clark, A., and Large A. (2011) Macroprudential Policy: Addressing the Things We Dont Know, Group of Thirty, Washington DC, Occasional Paper 83. DHulster, K. (2011) Cross Border Banking Supervision: Incentive Conflicts in Supervisory Information Sharing between Home and Host Supervisors, The World Bank, Policy Research Working Paper No.5871, November. Davies, H. and Green, D. (2008) Global Financial Regulation. The Essential Guide, Cambridge, Polity Press. DeBellis, M. (undated) Global Financial Standards and the European Union. Delonis, R.P. (2004) International Financial Standards and Codes: Mandatory Regulation without Representation, International Law and Politics, 2004, Vol. 36, pp. 563-581. Eichengreen, B. (2009) Out of the Box Thoughts about the International Financial Architecture, IMF Working Paper, WP/09/116, May. Enria, A. and Teixeira, P.G. (2011) A new institutional framework for financial regulation and supervision, in Cannata F. and Quagliariello M. (eds.), (2011) Basel III and Beyond: A Guide to Banking Regulation after the Crisis, London: Risk Books. Ferro, G. (2010) Insurance regulation and the credit crisis. Whats new, The Journal of Applied Research in Finance , Vol. II, No. 1 (3), pp. 16-26. FSB http://www.financialstabilityboard.org/about/overview.htm FSB (2012) Overview of Progress in the Implementation of G20 Recommendations for Strengthening Financial Stability, Report of the Financial Stability Board to G20 Leaders, 19 June. _____ (2011) Macroprudential Policy Tools and Frameworks, Progress Report to G20, 27 October 2011. _____ (2011) Intensity and Effectiveness of SIFI Supervision. Progress report on implementing the recommendations on enhanced supervision, FSB, 27 October.
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_____ (2009) Financial Stability Board Charter. Frait, J. and Komarkova, Z. (2011) Financial stability, systemic risk and macroprudential policy, Financial stability report 2010-2011, Czech National Bank. G-20 Information Centre http://www.g20.utoronto.ca/summits/index.html G-20 (2012a) G20 Finance Ministers Statement. The G20 welcomes major policy actions in Europe. _____ (2012b) Dialogue with Other Actors and Side Events, Broader Discussion. _____ (2012c) Rethinking G20: Designing the Future, Mexico Summit Meeting. _____ (2012d) Communiqu: Meeting of Finance Ministers and Central Bank Governors. _____ (2011) Communiqu: G20 Leaders Summit. _____ (2010a) The G20 Toronto Summit Declaration. _____ (2010b) The Seoul Summit Document. _____ (2009a) G20 summitleaders statement. _____ (2009b) The Global Plan for Recovery and Reform, 2 April 2009. _____ (2009c) Leaders Statement: The Pittsburgh Summit. _____ (2009d) Declaration on Strengthening the Financial SystemLondon Summit, 2 April 2009. _____ (2008a) Declaration on the Summit on Financial Markets and the World Economy. _____ (2008b) London Summit Communiqu: Global Plan for Recovery and Reform. Galati, G. and Moessner, R. (2011) Macroprudential policya literature review, BIS Working Papers No. 337, February. Gianviti, F. (2002) Evolving role and challenges of the International Monetary Fund, in M. Andenas and J. Norton (eds) International Monetary and Financial Law upon Entering the New Millenium: A Tribute to Sir Joseph and Ruth Gold, The British Institute of International and Comparative Law. Giovanoli, M. (2009) The reform of the international financial architecture after the global crisis, International Law and Politics, 42:81, pp. 81-123. _____ (2000) A new architecture for the global financial market. Legal Aspects of International Financial Standard Setting, in M. Giovanoli (ed.) International Monetary Law, Issues For The New Millennium, Oxford University Press, p. 59. Goodhart, C.A.E. (2011) The macroprudential authority: powers, scope and accountability, OECD Journal, Financial Market Trends, Vol. 2011, Issue 2. Gordon, N.J. and Muller, C. (2010) Confronting Financial Crisis: Dodd-Franks Dangers and the Case for a Systemic Emergency Insurance Fund, The Centre for Law and Economic Studies, Columbia University School of Law, Working Paper No. 374, September. Group of Thirty (2010) Enhancing Financial Stability and Resilience, Macroprudential Policy, Tools and Systems for the Future, Group of Thirty, Washington D. C. _____ (2009) Financial Reform. A Framework for Financial Stability, 15 January. _____ (2009) Reform of the International Monetary Fund, Washington, DC: Group of Thirty. Hagan, S., Moghadam, R. and Twedie, A. (2010) The Funds MandateThe Future Financing Role: Reform Proposals, Finance, Legal, and Strategy Policy and Review Department, IMF, 29 June.
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Hanson, S.G., Kasyap, A.K.and Stein, J.C. (2010) A Macroprudential Approach to Financial Regulation, The University of Chicago Booth School of Business, The Initiative on Global Markets, Working Paper No. 58. IAIS (2011a) Insurance Core Principles, Standards, Guidance and Assessment Methodology, October 2011 (revised October 2012). _____ (2011b) Multilateral Memorandum of Understanding on Cooperation and Information Exchange (IAIS MMoU), February. _____ (2011c) Insurance and Financial Stability, IAIS, November. _____ (2010a) By-laws, 2010 edition. _____ (2010) Macroprudential Surveillance and (Re)Insurance. Global Reinsurance Market Report. Mid-year edition, 26 August. _____ (2009) IAIS Follow-up Response to the G20 Washington Action Plan. _____ (2003) Stress-testing in (re)insurance supervision, GRMR, Edition 2011, IAIS, 23 December 2011. IIF and Oliver Wyman (2011) The implications of financial regulatory reform for the insurance industry, August. IMF (2012) Standards and Codes: The Role of the IMF, IMF Factsheet, 30 March. Washington, DC: IMF. _____ (2011a) Articles of Agreement of the International Monetary Fund. _____ (2011b) Peoples Republic of China: Financial System Stability Assessment, IMF Country Report No. 11/321, November. Washington, DC: IMF. _____ (2010) IMF Expanding Surveillance to Require Mandatory Financial Stability Assessments of Countries with Systemically Important Financial Sectors, Press Release No. 10/357, 27 September. _____ (2009) The Financial Sector Assessment Program After Ten Years: Experience and Reforms for the Next Decade, 28 August. Washington DC: IMF. _____ (2009) Initial Lessons of the Crisis for the Global Financial Architecture and the IMF, Prepared by the Strategy, Policy, and Review Department and approved by Reza Moghadam, 18 February. Washington DC: IMF. Jeong, Y.-C. (2010) Seoul Summit and Future of Financial Stability Board (FSB) as the Fourth Pillar, Yonsei Law School, August 2010, pp. 18-42. Joint Forum (2012) Principles for the supervision of financial conglomeratesfinal report. _____ (2010) Review on the Differentiated Nature and Scope of Financial Regulation. Jordan, C. and Majnoni, G. (2002) Financial Regulatory Harmonization and the Globalization of Finance, World Bank Policy Research Working Paper, No. 2919, October. Kelly, C. and Cho, S. (2011) Promises and Perils of New Global Governance: A Case of the G20, Brooklyn Law School Legal Studies Paper No. 243. Kern, A. (1997) The International Supervisory Framework for Financial Services: An Emerging International Legal Regime, ESRC Centre for Business Research, University of Cambridge, Working Paper No. 81, December. Lastra, R.M. (2010) The role of the IMF as a global financial authority, Queen Mary University of London, School of Law Legal Studies Research Paper No. 55/2010.
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Leong, J. (2010) Combating Financial Crisis: Building Super-structures of International Financial Regulation, Wong Partnership, 6 October. Levine, R. (2010) The governance of financial regulation; reform lessons from the recent crisis, BIS Working Papers No. 329, November. Liedtke, P.M. and Monkiewicz, J. (eds.) (2011) The Future of Insurance Regulation and SupervisionA Global Perspective, Palgrave Macmillan. Lim, C., Columba, F., Costa, A., Kongsamut, P., Otani, A., Saiyid, M., Wezel, T. and Wu, X. (2011) Macroprudential Policy: What Instruments and How to Use Them? Lessons from Country Experiences, IMF Working Paper, WP/11/238. Masciandaro, D., Pansini R.V. and Quintyn, M. (2011) The Economic Crisis: Did Financial Supervision Matter?, IMF Working Paper, WP/11/261. Washington DC: IMF. Mattli, W. and Woods, N. (eds) (2009) The Politics of Global Regulation. Princeton: Princeton University Press. Moghadam, R. (2010) Rethinking the IMFs Mandate: Asking for Your Views, IMF Direct, 2010/03/14. _____ (2009) Global Safety Nets: Crisis Prevention in an Age of Uncertainty, IMF Direct, 2010/09/09. Moshirian, F. (2010) The Global Financial Crisis and the Evolution of Markets, Institutions and Regulation. Nelson, R.M. (2009) The G-20 and International Economic Cooperation: Background and Implications for Congress, CRS, R 40977, 10 August. Washington DC: Congressional Research Service. Nier, E.W., Osiski, J., Jcome, L.I. and Madrid, P. (2011) Institutional Models for Macroprudential Policy, IMF Staff Discussion Note, 1 November, SDN/11/18. Washington DC: IMF. _____ (2011) Towards Effective Macroprudential Policy Frameworks: An Assessment of Stylized Institutional Models, IMF Working Paper, WP/11/250. Washington DC: IMF. OECD (2012) Insurance: http://www.oecd.org/insurance/insurance/ _____ (2010) Insurance Statistics Yearbook. _____ (1960) Convention on the Organisation for Economic Co-operation and Development. Pan, E. (2010) Challenge of International Cooperation and Institutional Design in Financial Supervision: Beyond Transgovernmental Networks, Chicago Journal of International Law, 11:1, pp. 243-283, Summer 2010. _____ (2009) Four Challenges to Financial Regulatory Reform, Villanova Law Review, Vol. 55, 10 December 10, and Cardozo Legal Studies Research Paper No. 280. Private Sector Taskforce of Regulated Professions and Industries (2011) Regulatory Convergence in Financial Professions and Industries, Final Report to G-20 Deputies, September. Raustiala, K. (2002) The Architecture of International Cooperation: Transgovernmental Networks and the Future of International Law, Virginia Journal of International Law, Vol. 43. Rieffel, L. (2008) The IMF and the World Bank: Its Time to Separate the Conjoined Twins, Brookings Global Economy and Development, Working Paper 24, September. Schinasi, G. (2011) Financial-Stability Challenges in European Emerging-Market Countries, World Bank Policy Research Working Paper, No. 5773, August. Washington, DC: World Bank.
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Schinasi, G., and Truman, E.M. (2010) Reform of the Global Financial Architecture, Working Paper No. 10-14, September. Washington, DC: Peterson Institute for International Economics Slaughter A.M. (2004) A new world order. Princeton: Princeton University Press. Taylor, M. and Arner, D.W. (2009) The global financial crisis and the Financial Stability Board. Hardening the soft law of international financial regulation, University of South Wales Law Journal, 32:2. Tower, I. (2011) The Quality of Regulation and Supervision, in: Liedtke P., Monkiewicz J. (eds) The Future of Insurance Regulation and Supervision. A Global Perspective. Basingstoke: Palgrave Macmillan. Truman, E.M. (2011) G-20 Reforms of the International Monetary System: An Evaluation, Paterson Institute for International Economics, Policy Brief, Number PB11-19, November. Available at _____ (2010) The G-20 and International Financial Institution Governance, Peterson Institute for International Economics, Working Paper series, WP-10/13, September 2010. Verdier, P.-H. (2009) Transnational Regulatory Networks and Their Limits, The Yale Journal of International Law, Vol. 34, 2009, pp. 114-172. Vron, N. (2012) Financial Reform after the Crisis: An Early Assessment, Peterson Institute for International Economics, Working Paper series, No. 12-2, January. Wall, L.D., Nieto, M.J. and Mayes, D. (2011) Creating an EU-Level Supervisor for Cross-border Banking Groups: Issues Raised by the U.S. Experience with Dual Banking, Federal Reserve Bank of Atlanta Working Paper Series, Working Paper 2011-06, March. Weber, R.H. and Arner, D.W (2007) Toward a new design for international financial regulation, University of Pennsylvania Journal of International Economic Law, 29:2, pp. 391-453. Weiss, M.A. (2011) International Monetary Fund: Background and Issues for Congress, Congressional Research Service, 19 September. Woods, N. (2011) The global architecture for effective financial regulation, Report of Workshop, Global Economic Governance Programme, Oxford University, 29-30 June 2011. _____ (2010) The G20 Leaders and Global Governance, Global Economic Governance programme, GEG Working Paper 2010/59, October. Wouters, J. and van Kerckhoven, S. (2011) The EUs Internal and External Regulatory Actions after the Outbreak of the 2008 Financial Crisis, Leuven Centre for Global Governance Studies, Working Paper No. 69, July. _____ (2011) The OECD and the G20: An Ever Closer Relationship?, Leuven Centre for Global Governance Studies, Working Paper, No. 71, July. Wouters, J., Sterkx, G.T. and Corthaud, T. (2010) The International Financial Crisis, Global Financial Governance and the European Union, Leuven Centre for Global Governance Studies, Working Paper No. 52, September. Xafa, M. (2010) Role of the IMF in the Global Financial Crisis, Cato Journal, 30:3, Fall (2010) pp. 475-504. Available at Zaring, D. (2010) International Institutional Performance in Crisis, Chicago Journal of International Law, 10:2, Winter 2010, pp. 475-504. _____ (1998) International Law by Other Means: The Twilight Existence of International Financial Regulatory Organisations, Texas International Law Journal, 33:2.
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List of acronyms
List of acronyms
ACP AMICE APRA ASEAN AU BCBS BIS CBRSP CEA CGFS CNSF CPSS EBA ECB ECRDC EFF EIOPA ERDFS EU EUI FATF FCL FIDES FMRD FSA FSAP FSB FSI FSF GATT
Autorit de contrle prudentiel (France) Association of Mutual Insurers and Insurance Cooperatives Australian Prudential Regulation Authority Association of South-East Asian Nations African Union Basel Committee on Banking Supervision Bank for International Settlements Committee on Banking Regulation and Supervisory Practices Comit Europen des Assurances Committee on the Global Financial System Comisin Nacional de Seguros y Finanzas, Mexico Committee on Payment and Settlement Systems European Banking Authority European Central Bank EU-China Regulatory Dialogue and Cooperation Extended Fund Facility European Insurance and Occupational Pensions Authority EU-Russia Dialogue on Financial Services European Union EU-India Dialogue on Financial Services Regulation Financial Action Task Force on Money Laundering and Terrorism Financing Flexible Credit Line Federacin Interamericana de Empresas de Seguros EU-US Financial Markets Regulatory Dialogue Financial Services Agency (Japan) Financial Sector Assessment Program Financial Stability Board Financial Stability Institute Financial Stability Forum General Agreement on Tariffs and Trade
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G-SIFI HLMFI IAA IAIG IAIS IASB ICP IFRS IIF IMF IMFC IOPS IOSCO IFSB JF MMoU NAIC NEPAD OECD OEEC OTC PCL ROSC RRD SBA SDR SFM SIFI WB WFII WTO
Global Systemically Important Financial Institutions EU-Japan High Level Meeting on Financial Issues International Actuarial Association Internationally Active Insurance Group International Association of Insurance Supervisors International Accounting Standards Board Insurance Core Principle International Financial Reporting Standards Institute of International Finance International Monetary Fund International Monetary and Financial Committee International Organisation of Pension Supervisors International Organization of Securities Commissions Islamic Financial Services Board Joint Forum Multilateral Memorandum of Understanding (IAIS) National Association of Insurance Commissioners New Partnership for Africas Development Organisation for Economic Co-operation and Development Organization for European Economic Cooperation Over-the-Counter Precautionary Credit Line Report on the Observance of Standards and Codes EU-Japan Regulatory Reform Dialogue Stand-By Arrangement Special Drawing Rights Single Financial Market Systemically Important Financial Institution World Bank World Federation of Insurance Intermediaries World Trade Organization
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Publications of The Geneva Association

For a complete list of our publications and how to get them, consult our website at www.genevaassociation.org
The Future of Insurance Regulation and Supervision

Edited by Patrick M. Liedtke and Jan Monkiewicz, published by Palgrave Macmillan, 2011 The recent financial crisis has provoked a broad spectrum of regulatory observations and possible responses. Although historically wide-ranging reshaping has been a common phenomenon following the severe failure of an existing financial infrastructure, there is an important difference this timethe global reach of todays markets and enterprises. Moreover, never before following a banking crisis have so many reforms not only affected the banking sector but also other parts of the financial services sector, such as insurance, the social systems and, of course, our real economy. The experts who have contributed to this book take a thorough look at the fundamentals of future insurance regulation and supervision, analyse problematic aspects and discuss the global perspectives for the insurance industry. The book contains 24 chapters, written by international experts, ranging from regulatory bodies (including NAIC and the FSA), to insurance companies and associations of insurers (including Swiss Re, The Geneva Association and ABIR) to high-level academic centres (including St Johns University and London School of Economics).
The recent financial crisis has provoked a broad spectrum of regulatory observations and possible responses. Currently most of these proposals have been quick solutions to politically pressing questions and often only address parts of regulatory systems, but not the whole. At times, the result has been more confusion than clarity. Although historically wide-ranging reshaping has been a common phenomenon after the severe failure of an existing financial infrastructure, there is an important difference this time the global reach of todays markets and enterprises. Moreover, never before have so many reforms following a banking crisis not only affected the banking sector but also other parts of the financial services sector, such as insurance, the social systems and, of course, our real economy. Written by leading academics, researchers and insurance industry experts, this book offers a diversified perspective on how the regulatory and supervisory framework for the insurance sector will develop over the coming years. It is supported by The Geneva Association, the world-leading think tank of the private insurance industry. Patrick M. Liedtke is Secretary General and Managing Director at The Geneva Association, Switzerland. He is Editor-in-Chief of The Geneva Papers on Risk and Insurance - Issues and Practice, and Editor of the Insurance and Finance newsletter. Jan Monkiewicz is Professor in Financial Management at Warsaw University of Technology, Poland. He is also on the editorial board of Wiadomosci Ubezpieczeniowe (Insurance Digest) and Editor of the PROGRES newsletter of The Geneva Association.
ISBN 978-0-230-29269-7
THE FUTURE OF INSURANCE REGULATION AND SUPERVISION Edited by PATRICK M. LIEDTKE and JAN MONKIEWICZ
INSURANCE REGULATION SUPERVISION

A Global Perspective
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The book is structured in seven parts: 1. The Global Framework: This first section looks at insurance activity as a regulatory object, the economic rationale for insurance regulation, the global financial architecture and the insurance sector, and insurance and financial stability. 2. The Supervisory Dimension: In this section, one can read about the quality of regulation and supervision; solvency as a focal point of prudential regulation; and the architecture of insurance supervision before and after the financial crisis. 3. The Market Dimension: This part investigates the role of market discipline in the insurance industry, how to address the emergence of adverse network dynamics in insurance group supervision, the trend of tighter regulation in credit default swaps, and the current state and future challenges in the regulation of global reinsurance markets. 4. Stakeholder Protection: Topics presented in this section are: challenges and approaches in consumer protection in the insurance industry; insurance guarantee funds in relation to solvency regulation; government intervention in insurance; the cross-border aspects and policy implications in insurance companies systemicness. 5. The Developed Markets Perspective: This part looked at regulatory developments and challenges in the U.S., the European Union and Japan. 6. The Emerging Markets Perspective: This section focuses on regulatory frameworks, developments and challenges in China, in Latin America and in Russia. 7. International Issues: This part looks at the international context in regulation, focusing on mutual recognition, equivalence and international standards, the regulatory future of international insurance centres and international trade agreements and their impact on regulation and supervision in insurance.
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Other publications of The Geneva Association
Special Report
The Essential Role of Insurance Services for Trade Growth and DevelopmentA Primer from The Geneva Associations Programme on Regulation and Supervision (PROGRES), The Geneva Association, December 2011 This document considers the essential role of insurance services in trade growth and development around the world and the main factors that influence it. In the context of the role and function of insurance in the economy and the principles and restrictions that underlie the regulation of insurance, it examines the implications of the World Trade Organization (WTO) and the Doha Development Agenda Round of trade negotiations and the work of the United Nations Commission on Trade and Development (UNCTAD) as they relate to insurance. Written by Julian Arkell, Special Advisor to The Geneva Association on Global Services and Trade and Investment issues, it is intended as a reference document and primer on these issues that affect the globalisation of the insurance industry.
The Essential Role of Insurance Services for Trade Growth and Development
A Primer from The Geneva Associations Programme on Regulation and Supervision (PROGRES)
Dec
em
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Special Reports on Financial Stability

Surrenders in the Life Insurance Industry and their Impact on Liquidity, July 2012 Insurance and Resolution in Light of the Systemic Risk Debate, February 2012 Considerations for Identifying Systemically Important Financial Institutions in InsuranceA contribution to the FSB and IAISs discussions, The Geneva Association, April 2011. Systemic Risk in InsuranceAn analysis of insurance and financial stability, The Geneva Association, Geneva, March 2010. Key Financial Stability Issues in InsuranceAn account of The Geneva Associations ongoing dialogue on systemic risk with regulators and policy-makers, The Geneva Association, Geneva, July 2010.
The Geneva ReportsRisk and Insurance Research

No. 6: Addressing the Challenge of Global AgeingFunding Issues and Insurance Solutions, edited by Patrick M. Liedtke and Kai-Uwe Schanz, June 2012 No. 5: Extreme events and insurance: 2011 annus horribilis, edited by Christophe Courbage and Walter R. Stahel, March 2012 No. 4: September 11Ten Years On; Lasting impact on the world of risk and insurance, edited by Patrick M. Liedtke and Kai-Uwe Schanz, September 2011. No. 3: Anatomy of the credit crisisAn insurance reader from The Geneva Association, edited by Patrick M. Liedtke, January 2010. No. 2: The insurance industry and climate changeContribution to the global debate, by The Geneva Association, July 2009. No.1: Regulation and intervention in the insurance industryfundamental issues, by E. Baltensperger, P. Buomberger, A.A. Iuppa, B. Keller and A. Wicki, February 2008.
Newsletters (also available as e-newsletters)

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PROGRES Newsletter means to contribute to the exchange of information on studies and initiatives aimed at better understanding the challenges arising in the fields of insurance regulation, supervision as well as other legal aspects. Risk Management NewsletterIn 1975, The Geneva Association made the first survey of risk management practices within the European manufacturing industry. Since then, risk management
has been one of the main lines of its research programme. The newsletter, which has been published since June 1984, summarises The Geneva Association initiatives in the field: it is open to contributions from any institution or company wishing to exchange information.
Insurance Economics Newsletter This newsletter for risk and insurance economists which was first published in November 1974 as an Information Bulletin of the European Group of Risk and Insurance Economists (EGRIE) serves as an information and liaison bulletin to promote contacts between economists at universities and in insurance and financial services companies with an interest in risk and insurance economics. Four Pillars Newsletter The newsletter of the Research Programme on Social Security, Insurance, Savings and Employment was initiated in 1985, and provides information on research and publications in this area. It also covers themes linked to the life insurance sector. Health and Ageing Newsletter Linked to the research programme on health issues and productive ageing, this newsletter seeks to bring together facts and figures linked to issues in health, and to try to find solutions for the future financing of health and the role that insurance solutions can play in them. It has been published since March 2000. World Fire Statistics Bulletin Published annually, this bulletin presents statistics on national fire costs from over 20 leading countries in an effort to persuade governments to adopt strategies aimed at reducing the cost of fire. It has been published since March 1984.
Journals
(published by Palgrave Macmillan for The Geneva Association) The Geneva Papers on Risk and InsuranceIssues and Practice
The Geneva Risk and Insurance Review
This prestigious peer-reviewed journal, published quarterly, leads its field, publishing papers which both improve the scientific knowledge of the insurance industry and stimulate constructive dialogue between the industry and its economic and social partners. This peer-reviewed international journal is published in annual volumes of two issues. Its purpose is to support and encourage research in the economics of risk, uncertainty, insurance and related institutions by providing a forum for the scholarly exchange of findings and opinions.
Working Papers Etudes et Dossiers

These working documents present intermediary or final results of conference proceedings, special reports and research done by The Geneva Association and its partners. Among the last issues: 39th Seminar of the European Group of Risk and Insurance Economists, No. 392, November 2012 2nd Annual China Liability Regimes Conference, No. 391, August 2012 28th PROGRES International Seminar, No. 390, May 2012 10th ART of CROs, No. 389, May 2012 14th Meeting of ACCE & 6th Meeting of Chief Investment Officers, No. 388, April 2012 12th CEO Insurance Summit in Asia, No. 387, April 2012 2nd Climate Change Summit for Asias Insurance Industry, No. 386, March 2012 7th Chief Risk Officer Assembly, The Path to Future Growth, No. 385, March 2012 8th Insurance and Finance Seminar of The Geneva Association & Presentations on The Geneva Associations Financial Stability in Insurance Initiative, No. 384, February 2012 8th International Liability Regimes Conference of The Geneva Association, Economic Loss A Breeding Ground for Liablity Risks, No. 383, January 2012 8th Geneva Association Health and Ageing ConferenceInsurance and Dementia, No. 382, November 2011 3rd Climate Risk and Insurance (CR+I) Seminar, No. 381, November 2011 38th Seminar of the European Group of Risk and Insurance Economists, No. 380, October 2011 M.O.R.E. 25 Seminar, No. 379, September 2011
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16th International Conference on Space Activities DevelopmentRisk Management & Insurance Aspects, No. 378, September 2011 13th Meeting of ACCE & 7.5th International Liability Regimes Conference, No. 377, August 2011 9th ART OF CROS, No. 376, August 2011 27th PROGRES International Seminar, No. 375, July 2011 11th CEO Insurance Summit in Asia, No. 374, July 2011 14th Joint Seminar of the European Association of Law and Economics and The Geneva Association Law and Economics of Natural Hazards Management in a Changing Climate, No. 373, June 2011 1st Climate Change Summit for Asias Insurance Industry, No. 372, May 2011 7th Insurance and Finance Seminar of The Geneva Association and Presentations on The Geneva Associations Financial Stability in Insurance Initiative, No. 371, April 2011 6th Chief Risk Officer Assembly, A vision for risk management in the new normal, No. 370, March 2011 World Risk and Insurance Economics Congress, No. 369, March 2011 7th Geneva Association Health & Ageing Conference, U.S. and French Long-Term Care Insurance Markets Development, No. 368, January 2011 7th International Liability Regimes Conference of The Geneva Association and 12th Meeting on The Geneva Associations Amsterdam Circle of Chief Economists, No. 367, January 2011
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www.genevaassociation.org
The aim of this report is to map out and review the changes that are taking place or are likely to take place in the global institutional framework for financial regulation and supervision and to discuss their likely consequences. It makes three main observations; Firstly, the major observation of the report is that the global institutional framework for insurance regulation will in the future remain even more dependent on network bodies rather than treaty organisations. The recent financial crisis substantially expanded the perimeter of institutional set up by upgrading the role of the G-20 in the context of the financial systems. The second major observation of the report is that insurance industry is going to remain in the shadow of the banking industry and will be faced with the problem of the recognition of its specificities. In this new paradigm, banking will receive even more attention and powers due to the expanding role of the central banks in the macroprudential supervisiona key tool to mitigate the systemic risk. The third major observation is about the growing role of the International Association of Insurance Supervisors (IAIS) in the years to come, which, in the aftermath of the financial crisis, reinforced its position as prime source of global insurance expertise and reliable partner of other relevant bodies, in particular the Financial Stability Board (FSB) and the International Monetary Fund (IMF). The Geneva AssociationInternational Association for the Study of Insurance Economics
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Geneva Association - Global Supervision 2012

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The Institutional Framework for Global Insurance Regulation and Supervision: The Changing Landscape

The Geneva Association

Patrick M. Liedtke and Jan Monkiewicz

The Geneva Association The

Promouvoir la gestion durable de la fort

References and selected bibliography 89 List of acronyms 95

PART I: Understanding financial regulation and its wider context

Private sector experts

Crisis response Regulatory initiatives Networks creation Creation of BCBS FSB

IFRS New supervisory tools

PART II Analytical appreciation of developments under way at key institutions

4. The G-20from crisis committee to global steering committee

G-5 Germany Japan France U.S. U.K.

G-7 Germany Japan France U.S. U.K. Italy Canada

G-8 Germany Japan France U.S. U.K. Italy Canada Russia

Source: Banque de France (2010), p. 125

G-20from crisis committee to global steering committee

G-20from crisis committee to global steering committee

G-20from crisis committee to global steering committee

The Financial Stability Board: a rebranded new global regulatory pillar

5. The Financial Stability Board: a rebranded new global regulatory pillar

The Financial Stability Board: a rebranded new global regulatory pillar

IFI (4) (BIS, IMF, OECD, WB)

ISSB (6) (BCBS, CPSS, CGFS, IASB, IAIS, IOSCO)

Plenary Meetings Chairperson Secretariat

Standing Committee for Vulnerabilities Assessment

Standing Committee for Standards Implementation Expert Group on Non-Cooperation

Working Group on Compensation Working Group on OTC Derivatives

Source: Jeong Y. 2010, p. 22 Source: Jeong (2010), p. 22.

The Financial Stability Board: a rebranded new global regulatory pillar

The International Monetary Fund: from monetary to financial system oversight

6. The International Monetary Fund: from monetary to financial system oversight

Source: Weiss (2011), p. 4.

The International Monetary Fund: from monetary to financial system oversight

Quota share in % 17. 69 6. 56 6. 12 4. 51 4. 51 4. 00 3. 31 2. 93 2. 67 2. 50

Voting share in % 16. 75 6. 23 5. 81 4. 29 4. 29 3. 81 3. 16 2. 80 2. 56 2. 39

Objectives and tasks

NATIONAL JURISDICTIONS Incorporation in domestic regulation and practice

STANDARD-SETTING BODIES BCBS CGFS IMF IOSCO CPSS WB IAIS IASB

Elaboration of IFSs Source: Giovanoli M. (2009)

Source: Giovanoli (2009).

The International Monetary Fund: from monetary to financial system oversight

Assessments completed 98 152 71 63 88 72 85 64 37 730

Source: Vials, Source: IMF (2009), p. 21. Brook (2009), p. 21

The Joint Foruma disappearing regulatory body?

8. The Joint Forum a disappearing regulatory body?

Chart 5: IAIS organisational structure

Source: IAIS website (as per November 2012).

Conclusions and outlook for the future

10. Conclusions and outlook for the future

Conclusions and outlook for the future

Bank for International SettlementStatutes

Annex 1. Bank for International SettlementStatutes

Annex 1. Bank for International SettlementStatutes

Annex 1. Bank for International SettlementStatutes

Annex 1. Bank for International SettlementStatutes

Annex 1. Bank for International SettlementStatutes

Internal Audit Thomas Winsnes

Financial Stability Institute (FSI)

General Counsel Diego Devos

Chairman Josef Toovsk

Deputy General Counsel William Flynn