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Analysis

G20 Finance Conclusions
on Standards and Codes, 1999-2009

Drawn from G20 finance communiqués
Anton Malkin, G20 Research Group, August 2009

Summary of Conclusions on Standards and Codes in G20 Finance Communiqués

Notes: *emergency meetings

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Definition

This issue area includes all conclusions by the G20 finance ministers and central bank governors referring to the proliferation and adherence to standards and codes. It includes best-practice standards of macroeconomic management and legal codes that govern different financial sectors. Transparency, macroeconomic policy, corporate governance data dissemination, financial sector reform – where they promote cohesion across the national financial sectors and laws governing financial markets – are all included. Also included are banking regulations, as governed by the Basel Committee on Banking Supervision, and the global governance of securities and financial markets, as defined by the International Organization of Securities Organizations (IOSCO). This issue area does not include surveillance by the International Monetary Fund, crisis prevention or exchange rate policies.

Criteria

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Conclusions on Standards and Codes in G20 Communiqués

Berlin, Germany, December 15-16, 1999
Overview

They welcomed the important work that has been done by the Bretton Woods institutions and other bodies toward the establishment of international codes and standards in key areas, including transparency, data dissemination, and financial sector policy. They agreed that the more widespread implementation of such codes and standards would contribute to more prosperous domestic economies and a more stable international financial system. To demonstrate leadership in this area, Ministers and Governors agreed to undertake the completion of Reports on Observance of Standards and Codes ("Transparency Reports") and Financial Sector Assessments, within the context of continuing efforts by the IMF and World Bank to improve these mechanisms. This commitment will help mobilize support for measures to strengthen domestic capacity, policies and institutions.

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Montreal, Canada, October 25, 2000
Communiqué

As G20 Finance Ministers and Central Bank Governors, we are committed to working together to promote policies that successfully meet this challenge. In particular, we agree to:

2. Implement the emerging international consensus on policies to reduce countries’ vulnerability to financial crises, including through appropriate exchange rate arrangements, prudent liability management, private sector involvement in crisis prevention and resolution, and adoption of codes and standards in key areas including transparency, data dissemination, market integrity, and financial sector policy. A summary of our conclusions in these areas can be found in the Annex to this statement.

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Montreal, Canada, October 25, 2000
Annex: Reducing Vulnerability to Financial Crises

At our meeting today, we considered ways to reduce the frequency and severity of financial crises, such as those which in recent years have taken their toll on growth and social conditions in many emerging markets and had significant repercussions for the global economy. We agreed that countries can substantially reduce their vulnerability to crises through sound policies in key areas, including through appropriate exchange rate arrangements, prudent liability management, the development and implementation of international standards and codes, and appropriate involvement of the private sector.

2. Prudent Liability Management

We agreed that a comprehensive strategy to reduce vulnerability to financial crises requires attention to liability management including effective management of public-sector liabilities, appropriate consideration of the external financial situation of the private sector, and effective and transparent financial sector regulation and supervision.

In particular, we agreed that effective management of public sector liabilities requires finding an appropriate balance between minimizing financing costs and increasing liquidity risk. Care must be taken to avoid excessive reliance on short-term debt, currency mismatch or the "bunching" of external debt payments. Prudent public sector liability management is also assisted by the development of an efficient and liquid market for long-term domestic currency-denominated government securities.
Prudent liability management is also essential for the private sector, in particular for banks and other financial institutions. Appropriate standards of financial sector regulation and supervision, disclosure, accounting and auditing should be in place to facilitate the monitoring of the external activities of the financial sector. The overall external position of the private sector requires appropriate consideration, subject to the constraints associated with the availability of data.

4. International Standards and Codes

Finally, we considered the role that weaknesses in financial sector regulation and supervision, in corporate governance, in the disclosure of economic and financial data, and in the transparency of macroeconomic policies have played in contributing to recent financial crises. We agreed on the importance of international codes and standards to address these weaknesses, endorsed the Financial Stability Forum’s recommendations, and encouraged continued work on incentives to foster implementation. The G20, as part of its mandate to promote co-operation to achieve stable and sustainable world economic growth, should play an important leadership role in supporting the continuing implementation of international standards and codes in a manner and at a pace that reflects each country’s unique development and reform priorities, and institutional characteristics. Consistent with this objective, we agreed that:

1. Governments should be encouraged to publicly articulate their commitment to adopt key standards and, as appropriate, announce action plans for their implementation. They should also be encouraged to participate in external IMF-led assessment programs, and in the interim conduct on-going self-assessments of progress in observance of standards. In both
cases, they should consider ways of disclosing information on progress in implementing standards, to enable more appropriate risk assessments.

2. The official sector should also continue its dialogue with market participants as a way of obtaining their perspective on priorities for countries and the international community in this area, on market incentives for implementation, and on ways of improving the transparency and accessibility of information released.

3. IMF surveillance should be the principal mechanism for monitoring countries’ progress in implementing standards and codes, working closely with other international institutions, such as the World Bank, as well as standard-setting bodies and international groups such as the Financial Stability Forum.

4. Governments and the international community should work to ensure that the human and financial resources required for implementation and for assessments of implementation are available to assist countries achieve compliance with international standards and codes.

We reaffirmed our commitment, made at the inaugural meeting of G20 Ministers and Governors in Berlin in December 1999, to undertake the completion of Reports on Observance of Standards and Codes (ROSCs; formerly "Transparency Reports") and Financial Sector Assessment Programs (FSAPs), within the context of continuing efforts by the IMF and World Bank to improve these mechanisms. In this respect, we are encouraged that FSAPs or ROSCs, or both, have been completed or are underway in a growing number of G20 countries, in particular Argentina, Australia, Canada, France, India, Korea, Russia, South Africa, Turkey, and the U.K., and look forward to the continued publication of ROSCs on the IMF web site.

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Ottawa, Canada, November 16-17, 2001
Communiqué

The reduction of capital flows to emerging markets underscores the need for sound policies to provide and to maintain a positive investment environment in member countries. We remain committed to this endeavour. Adopting the best practices embodied in international standards and codes also will help support strong, stable growth and reduce the risk of future financial crises. A majority of G20 members have already participated, on a voluntary basis, in assessments under one or both of the IMF/World Bank-led Financial Sector Assessment Program (FSAP) and Reports on Observances with Standards and Codes (ROSCs) consistent with our undertaking at our inaugural meeting in Berlin in December 1999. We will continue to promote adoption of international standards and codes for transparency, macroeconomic policy, sound financial sector regulation and corporate governance in consultation as appropriate with relevant international bodies and with the private sector, and thereby strengthen the integrity of the international financial system. We will continue our work on appropriate exchange rate regimes, prudent liability management, and orderly liberalization of the capital account. These efforts reduce susceptibility to financial crises.

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Ottawa, Canada, November 16-17, 2001
G20 Action Plan on Terrorist Financing

Implementation of International Standards

• We will work co-operatively and in collaboration with the International Monetary Fund (IMF) and World Bank, FATF, FSF, Basle Committee of Banking Supervisors (BCBS), and other relevant international bodies to promote the adoption, implementation, and assessment of international standards to combat the abuses of the financial system, including in respect of terrorist financing, financial regulation, and money laundering. We welcome FATF’s offer to work collaboratively with us in implementing eight special recommendations on terrorist financing.

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Delhi, India, November 23, 2002
Communiqué

Combating the Financing of Terrorism, and other Abuses of the Financial System

4. We believe that effective and accountable International Financial Institutions (IFIs) and worldwide surveillance are essential for a healthy global financial system. Sustainable exchange rate regimes, prudent asset-liability management, and implementation of agreed standards and codes are important components of an effective strategy for crisis prevention. We agreed on the need for sound national financial systems, effective supervision, and corporate governance in line with global best practice. We also agreed that capital account liberalisation should proceed in an appropriately sequenced manner.

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Morelia, Mexico, October 26-27, 2003
Communiqué

We reaffirm our mandate to review and promote crisis prevention and resolution measures. We encourage the IMF to continue to enhance its capacity to identify vulnerabilities, such as currency and other balance sheet mismatches, and provide advice to member countries on policy reforms. We welcome the increasingly widespread use of collective action clauses (CACs), and we support their inclusion in future sovereign bonds issued under foreign jurisdiction. We also encourage the adoption of the best practices embodied in key international standards and codes, which will help support strong, stable growth and reduce the risk of future financial crises. With a view to promote the development of a workable code of conduct, we encourage an inclusive group of issuers and market participants to engage in further discussions, with G20 members participating on a voluntary basis. We ask G20 Deputies to review the progress made by the issuers and market participants at the next G20 Deputies meeting in March. We discussed the future of the CCL and the role that precautionary facilities or arrangements, conditioned on sound economic policies, could have in crisis prevention. We urged the IMF to continue its work on these issues.

5. Based on an exchange of experience over the past two years, we emphasised that strong domestic financial sectors are essential in supporting economic growth and reducing external vulnerabilities. We agreed that high priority should be given to establishing stable and efficient institutions. Progress in institution building is also important for a well-sequenced liberalisation of the capital account. Emphasis must be given to implementing the relevant internationally recognised standards and codes. We highlighted the crucial role of financial sector supervision, which should pay due regard to efficiency, operational independence and accountability of the agencies involved. We welcomed the efforts of the World Bank to develop principles and guidelines for effective insolvency and creditor rights systems and we commend efforts to develop a unified international standard in this area, in collaboration with UNCITRAL, that takes into account different legal traditions. We identified stable and efficient payment systems as pivotal for the financial infrastructure and emphasised the role of central banks as a supplier and overseer of payment services. We welcomed the efforts of the IMF, the World Bank and others in promoting institution-building and the development of local capacity and agreed on the importance of closely coordinating such activities.

We, the Finance Ministers and Central Bank Governors of the G20, have a common goal of promoting employment, welfare and development in our countries. We are convinced that strong and sustained economic growth is necessary both at national and global level to achieve this end. We have therefore discussed the requirements for long-lasting growth on the basis of our own experience and believe that domestic policy needs to address three tasks: establishing and maintaining monetary and financial stability; enhancing domestic and international competition; and empowering people to participate. Transparency and accountability within an internationally agreed framework of codes and standards remain key to ensuring sustained economic growth and stability at the global level. We agreed on the following key elements that will guide our domestic economic policies in the future. In implementing these elements, microeconomic aspects must be given due consideration. As these principles are interlinked, they must be implemented consistently, with due regard to possible trade-offs and complementarities, because many single elements have the potential of blocking the positive effects of others. While appropriate and credible policies are the basis for economic growth, they need to be backed by high-quality institutions, including ethical standards in corporate governance. Policymakers should build institutions in parallel with engaging in reforms and also ensure that institutions stay consistent with the requirements of a changing environment. However, given the diversity of institutional settings and the success of different economic strategies among G20 countries, there is no single template for strong long-term growth. Policies need to be shaped to the special circumstances in individual countries. Efforts along these lines will unfold their full potential in a favourable international environment, in particular in the context of a robust and effective international financial and trade architecture which supports countries in the adoption of these principles.

Monetary and financial stability

The domestic financial sector must be able to withstand economic shocks without giving rise to systemic problems which impair the allocation of savings to investment opportunities and the processing of payments in the economy. Excessive borrowing in foreign currencies for domestic activities has been identified as a major cause of international financial crises. Currency mismatches could be diminished by strengthening domestic banking systems and capital markets. Strong domestic financial sectors can reduce the need for foreign currency borrowing and become an alternative channel of external funding by attracting foreign investors into domestic currency instruments. High priority must be given to implementing the relevant internationally recognised standards and codes.

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Berlin, Germany, November 20-21, 2004
Communiqué

5. Based on an exchange of experience over the past two years, we emphasised that strong domestic financial sectors are essential in supporting economic growth and reducing external vulnerabilities. We agreed that high priority should be given to establishing stable and efficient institutions. Progress in institution building is also important for a well-sequenced liberalisation of the capital account. Emphasis must be given to implementing the relevant internationally recognised standards and codes. We highlighted the crucial role of financial sector supervision, which should pay due regard to efficiency, operational independence and accountability of the agencies involved. We welcomed the efforts of the World Bank to develop principles and guidelines for effective insol-vency and creditor rights systems and we commend efforts to develop a unified international standard in this area, in collaboration with UNCITRAL, that takes into account different legal tradi-tions. We identified stable and efficient payment systems as pivotal for the financial infrastructure and emphasised the role of central banks as a supplier and overseer of payment services. We wel-comed the efforts of the IMF, the World Bank and others in promoting institution-building and the development of local capacity and agreed on the importance of closely coordinating such activities.

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Berlin, Germany, November 20-21, 2004
G20 Accord for Sustained Growth

Stability, Competition and Empowerment: Mobilising Economic Forces for Satisfactory Long-Term Growth

We, the Finance Ministers and Central Bank Governors of the G20, have a common goal of promoting employment, welfare and development in our countries. We are convinced that strong and sustained economic growth is necessary both at national and global level to achieve this end. We have therefore discussed the requirements for long-lasting growth on the basis of our own experience and believe that domestic policy needs to address three tasks: establishing and maintaining monetary and financial stability; enhancing domestic and international competition; and empowering people to participate. Transparency and accountability within an internationally agreed framework of codes and standards remain key to ensuring sustained economic growth and stability at the global level. We agreed on the following key elements that will guide our domestic economic policies in the future. In implementing these elements, microeconomic aspects must be given due consideration. As these principles are interlinked, they must be implemented consistently, with due regard to possible trade-offs and complementarities, because many single elements have the potential of blocking the positive effects of others. While appropriate and credible policies are the basis for economic growth, they need to be backed by high-quality institutions, including ethical standards in corporate governance. Policymakers should build institutions in parallel with engaging in reforms and also ensure that institutions stay consistent with the requirements of a changing environment. However, given the diversity of institutional settings and the success of different economic strategies among G20 countries, there is no single template for strong long-term growth. Policies need to be shaped to the special circumstances in individual countries. Efforts along these lines will unfold their full potential in a favourable international environment, in particular in the context of a robust and effective international financial and trade architecture which supports countries in the adoption of these principles.

The domestic financial sector must be able to withstand economic shocks without giving rise to systemic problems which impair the allocation of savings to investment opportunities and the processing of payments in the economy. Excessive borrowing in foreign currencies for domestic activities has been identified as a major cause of international financial crises. Currency mismatches could be diminished by strengthening domestic banking systems and capital markets. Strong domestic financial sectors can reduce the need for foreign currency borrowing and become an alternative channel of external funding by attracting foreign investors into domestic currency instruments. High priority must be given to implementing the relevant internationally recognised standards and codes.

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Melbourne, Australia, November 18-19, 2006
Communiqué

Other business

Further to our 2004 commitment to achieving high standards of transparency and exchange of information for tax purposes, we welcome the release of the Global Forum on Taxation 2006 assessment which shows that progress has been made in the implementation of those standards. Further progress is needed and we encourage continuing implementation efforts and call on those countries and territories that have not yet implemented high standards of transparency and exchange of information to do so.

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Sao Paulo, Brazil, November 8-9, 2008
Communiqué

6. We agreed that all countries must address the risks associated with excessive leverage and improve their regulatory and supervisory regimes in order to deliver improved risk assessment and management by financial institutions, to enhance transparency and accountability in financial markets, as well as to strengthen international cooperation to identify and respond preemptively to national and international systemic risks.

Furthermore, we recognized the need to improve the supervision and governance of financial institutions, at both national and international levels. In this regard, we should consider ways of enhancing the identification of systemically important institutions and ensure proper oversight of these institutions, including credit rating agencies. We should ensure that all sectors of the financial industry, as appropriate, are regulated or subjected to oversight. We agreed that it is important to address the issue of pro-cyclicality in financial market regulations and supervisory systems. We also agreed that financial institutions should have common accounting standards and clear internal incentives to promote stability and that action needs to be taken, through voluntary effort or regulatory action, to avoid compensation schemes which reward excessive short-term returns or risk taking. Regulators and supervisors should enhance their vigilance and cooperation with respect to cross-border flows.

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Horsham, United Kingdom, March 14, 2009
Communiqué

7. We have also agreed to: regulatory oversight, including registration, of all Credit Rating Agencies whose ratings are used for regulatory purposes, and compliance with the International Organisation of Securities Commissions (IOSCO) code; full transparency of exposures to offbalance sheet vehicles; the need for improvements in accounting standards, including for provisioning and valuation uncertainty; greater standardisation and resilience of credit derivatives markets; the FSF’s sound practice principles for compensation; and the relevant international bodies identify non-cooperative jurisdictions and to develop a tool box of effective countermeasures.

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