Meeting of the Financial Stability Board in Tokyo (2)

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Hi. How is everybody? I’m still tangled up with my exam.

Yet I’m posting the second part of the FSB meeting, as a follow-up post. As I already mentioned in the previous post, ‘Meeting of the Financial Stability Board (FSB) in Tokyo’ was held on 10th and 11th of October. The Vice-Chairman of FSC, Choo Kyung-ho, attended this meeting as a representative. If you missed the first part of the meeting, you can read it from this link; https://financialservicescommission.wordpress.com/2012/10/23/meeting-of-the-financial-stability-board-in-tokyo-1/

In this post, I would like to tell you the other agendas having talked at the meeting; Over-the-counter (OTC) Derivatives Reforms, Disclosure and Accounting, LIBOR and other financial benchmarks, and Legal Entity Identifier (LEI). Let us closely look at the details of each agenda.

OTC (Over-the-counter) Derivatives Reforms

The FSB meeting sought ways to implement the G20 commitments to OTC derivatives reforms. Members were encouraged not to impede further progress towards the G20 commitments, letting enough room for market infrastructure to work out properly. Following the progress made earlier this year in putting in place the FSB’s four safeguards for global central clearing, the FSB Chair will report to the November meeting of G20 Finance Ministers and Governors on the decisions made by member jurisdictions on their national approaches to central clearing.

However, there were concerns raised by the members, the unresolved issues in the cross-border application of regulation. When an extent of application varies in each country, the validity of regulation will be in question. Keeping this in mind, members came to a conclusion that each country implements a related legislation and regulation within domestic system until the end of 2012. By doing so, members would address the problems of inconsistencies and narrow down the gaps in each country’s national framework.

Disclosure and Accounting

The FSB welcomed the update on the EDTF (Enhanced Disclosure Task Force)’s work to develop recommendations for risk disclosures by banks. These recommendations are developed for investors to understand information more easily. The final report of recommendations will be uploaded soon within several weeks.

Also, the meeting discussed the progress of unifying the accounting standards of the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB). Despite the recognized process made by the IASB and FASB, it was noted that a standard for impairment of loans is not in a converging process. An improved standard based on expected losses was urged by the FSB.

LIBOR and other financial benchmarks

Regarding the setting of LIBOR and other financial benchmarks, the FSB reviewed several reports provided by the British Financial Services Authority (FSA), the International Organization of Securities Commissions (IOSCO), the European Commission (EC) and the Bank for International Settlements (BIS).

After the review, the FSB member came to an end that they should share information and knowledge so as to adopt good examples of standardization and principles. Furthermore, the members were ensured that there is a potential in the public sector to set up a guideline for such reviews and hence establish financial principles applying to a benchmark-setting in general.

LEI (Legal Entity Identifier)

The progress in implementing the global Legal Entity Identifier (LEI) was positively reviewed by the FSB. Briefly explaining, LEI is a kind of serial number identifying financial transactions done by each corporation. A draft Charter for the LEI Regulatory Oversight Committee (ROC) was reviewed and supported by FSB. Members agreed that the establishment of the ROC as a global supervisory organization would be a key step to launching the global LEI system by March next year. The FSB keeps mapping out specific plans to establish a global LEI foundation which will manage the Central Operating Unit. For this ends, FSB is actively cooperating with preparatory groups in private sector.

I know that lots of agendas are covered in this single post. If you are confused or lost by any of these agendas, please leave your comment. The last part of the FSB meeting will come up shortly, so please stay tuned to our blog!

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