By Toby McIntosh
The Financial Stability Board, a small organization with significant influence on the world’s financial sector, has moved to be more open in recent years, but is still too secret according to critical observers.
The FSB scored “2” on a transparency scale of 4 used by one nongovernmental organization. “It is one of the least accountable and transparent international institutions,” wrote Jesse Griffith, the director of Eurodad.
A creation of the G-20, the FSB’s mandate is “to formulate and oversee the implementation of regulatory, supervisory and other financial sector policies.” The Switzerland-based body with a small staff works largely through multilateral committees to draft non-binding but very influential policies for financial regulation.
These deliberations are closed, but the FSB made a big advance in 2012 when it began to invite the public to review many of its draft proposals and to publish the comments.
But much about how the FSB operates remains closely held, beginning with some of the basics. Information about the 24-person staff in Switzerland isn’t posted. There is no system for requesting information. There are no minutes for most of its committees.
The FSB was created in response to the 2007–9 international financial crisis, mandated by the Group of Twenty (G20) in 2009, as a stronger and larger successor to the Financial Stability Forum (FSF). The FSB is a forum for policy discussions among national authorities responsible for financial stability. (See related FreedomInfo.org report on transparency at the G20.)
Major roles in the FSB are played by central bankers and international financial institutions from the major economic powers play the major roles. Former U.S. Treasury Secretary Timothy Geithner called it a new “fourth pillar” of the global economic governance architecture —alongside the International Monetary Fund, the World Bank and the World Trade Organization.
Although the FSB does not directly dictate national polices, the peer pressure influence of its conclusions on national laws is significant.
One academic calls it a “power-masking system” in which national authorities set “soft law” policies that would not be created by other global institutions or at a national level. “The result is a separation between political power and accountability,” concluded University of Pennsylvania law professor Larry Cata Backer in an article.
Not everyone is as impressed. Eric Helleiner of the University of Waterloo, has called the FSB “a remarkably toothless organization with no ability to compel its members to abide by its decisions.”
Research about the inner workings of the five-year-old FSB is limited and those who have sought to examine it have found the task difficult. Compared with other financial rulemaking institutions, it operates without much scrutiny from nongovernmental organizations, although it is closely followed by those in the financial sector.
Research Basics Missing
Although some basic information about the FSB is available on its website (www.financialstabilityboard.org), there are significant gaps.
The website includes a page with the names of its members — 24 countries (the G20 countries, plus the major financial centers of Hong Kong, the Netherlands, Singapore, Spain and Switzerland), plus six international financial institutions and six international standard-setting bodies, such as the International Association of Insurance Supervisors. Because multiple officials from some countries are members, the annual plenary session has about 70 attendees. The FSB is chaired by Mark Carney, Governor of the Bank of England.
Much of the work is conducted by a 41-person Steering Committee, which meets about four times a year. There are smaller “standing committees” on four topics: assessment of vulnerabilities, standards implementation, supervisory and regulatory cooperation, and budget and resources.
In addition, six “regional consultative groups” were created in 2010 in response to concerns that the FSB membership was too narrow, gather the perspectives from government officials from 65 countries that are not members of the FSB. The groups meet twice a year. Because of their purely advisory role, one FSB NGO observer calls them the “unused cogs of the FSB.”
The names of the members of the steering committee and the regional groups (RCGs) are available.
From there, information becomes harder to locate or is unavailable.
The website contains no information about the staff at the FSB Secretariat, located in Basel, Switzerland, and hosted by the Bank for International Settlements. Even the names of Secretary General Svein Andresen and Deputy to the Secretary General Rupert Thorne, are hard to find.
“Given the small size of the Secretariat, there is no organisation chart,” an FSB official said.
Working Groups Have Low Profile
Nearly invisible on the site are the various ad hoc working groups that are key to FSB’s process.
The names of the members of one such working group, on OTC Derivatives, were found by FreedomInfo.org at the bottom of a 2012 letter discovered during a Google search. It is possible to find working group memberships within other documents on a topic. Working groups may include outside members.
Commenting on the lack of information about those involved, one researcher said, “It’s important to understand who has a voice.”
In response to a question by FreedomInfo.org, however, an FSB official provided a current list. He explained:
The FSB’s ad hoc working groups are most often set up as time-limited groups to undertake particular projects on behalf of the FSB, its Steering Committee or Standing Committees. As the working groups are mostly temporary and the list is continually changing we do not publish a list. For your information, the following provides a list of the some of the main working groups currently active within the FSB:
- Aggregation Feasibility Study Group (looking at models for aggregating trade repository data)
- Analytical Group on Vulnerabilities
- Compensation Monitoring Contact Group
- Data Gaps Implementation Working Group
- Expert Group (working on the FSB Cooperation and Information Exchange Initiative)
- Implementation Monitoring Network
- Official Sector Steering Group (coordinating work relating to interest-rate benchmark reforms)
- Over-The-Counter Derivatives Working Group
- Peer Review Team on Reducing Reliance on Credit Rating Agency ratings
- Peer Review Team for the country review of Germany
- Peer Review Team for the country review of Indonesia
- Resolution Steering Group
- Supervisory Intensity and Effectiveness Group
- Task Force on Shadow Banking
‘Workstreams’ Also Involved
The FSB process also revolves around “workstreams.”
These get referenced in FSB documents.
For example, in a report on the FSB’s work on “shadow” banking:
“The third workstream (WS3) was set up by the FSB to examine the extent to which non-bank financial entities other than MMFs involved in shadow banking pose risks to the system and to develop policy recommendations as necessary.”
The FSB official told Freedominfo.org:
There is no definition of “workstreams”. The FSB organises work in a flexible manner to respond to the needs of each individual task. Where the term “workstream” is used, it may refer to a working group or to some other way in which work may be organised (e.g. consultative groups, projects conducted within the Secretariat, or projects conducted jointly with other international bodies).
A small but growing library of outside commentary confirms that the working groups play an important role in the FSB’s operations.
The political nature of the body and the importance of the committees is discussed in an article by Stavros Gadinis, Assistant Professor of Law, University of California, Berkeley Law School. Another descriptive report has been written by Shawn Donnelly, anAssistant Professor of European Economic Governance at the University of Twente, who observed, “The FSB’s real ability to make a substantial change to global regulation is through its technical committees.”
Minutes Limited
The FSB releases short summaries of its annual plenary meetings, such as this three-page one about the most recent meeting, held Nov. 8, 2013, in Moscow.
It wasn’t until May 22, 2012, that the FSB, for the first time, publicly announced an upcoming plenary session. Observers heard about it through a “press alert” about the Hong Kong Plenary Meeting on May 30, 2012.
No minutes are issued about the meetings of the Steering Committee or the four standing committees.
“Greater transparency could also be achieved by the release of more documents being discussed in these meetings and other FSB groups,” wrote Eric Helleiner, of the University of Waterloo.
Information about the activities of the regional groups is similarly limited.
Short press releases summarize the topics discussed at the RCG meetings, such as this five-paragraph release about a Dec. 2, 2013, Americas meeting in Brazil. It does not indicate which countries attended.
There is no unified FSB schedule of upcoming meetings, although they are sometimes noted in announcements.
For example, two days of planned meetings in October in New York with “bankers and national banking associations” are cited in this July 23, 2013, notice. The group was working on “a common data template for a global systemically important banks to address key information gaps and to provide the authorities with a strong framework for globally potential systemic risks.”
No System for Making Requests
There is no formal way to request access FSB documents.
Nor is there a FSB policy establishing a presumption of disclosure.
The FSB official wrote simply, “All publicly available documents are posted on the FSB website.”
The FSB website includes a “publications” section where “progress reports,” consultation announcements and other items are posted. There were nine postings in November.
Among the postings are progress reports that include color-coded ratings on the status of FSB initiatives in various areas, as seen in a September report: “Progress in implementing the G20 Recommendations on Financial Regulatory Reform.”
“These traffic lights are a daring initiative by the FSB, because historically international organisations have been reluctant to produce stark indicators on such complex issues…,” according to a commentary by University of New South Wales professor George Gilligan.
“The FSB actively promotes transparency regarding its member jurisdictions’ status of compliance with international financial regulatory standards, as part of the FSB Framework for Strengthening Adherence to International Standards (http://www.financialstabilityboard.org/publications/r_100109a.pdf) in order to lead the wider international community by example,” the FSB official told FreeedomInfo.org.
He added, “This has resulted in a much greater amount of publicly available information on member jurisdictions’ IMF/World Bank Financial System Stability Assessments and Detailed Assessment Reports on the observance of standards and codes, as shown in this page: http://www.financialstabilityboard.org/leading_by_example/participation.htm.
Consultations Held
Beginning in 2011, the FSB began to more frequently seek public comment on pending policies and publishing the comments received.
For example, at the November plenary meeting, the members reviewed guidance drawn up to assist supervisors in their assessment of financial institutions’ risk culture.
The proposals were released on Nov. 19, according to a press release. “The FSB invites comments on the draft guidance by 31 January 2014. Responses should be sent to fsb@bis.org. Responses will be published on the FSB’s website unless respondents expressly request otherwise.”
The FSB’s predecessor, the Financial Stability Forum (FSF), created in 1999, held public consultations, too. The first was by the FSF Working Group on Deposit Insurance in 2001.
“The frequency of public consultations has increased since 2011 and the process for conducting them has become more uniform,” the FSB official told Freedominfo.org. He described “the typical process”:
a) The FSB publishes an invitation to provide written comments and/or a dedicated press release inviting written comments on the draft policy document.
b) The invitation specifies the consultation period, which should, other than in exceptional circumstances, be no less than 30 days and states that responses received will be published on the FSB website unless requested otherwise by the respondents.
c) The responses received are published on the FSB’s website typically within 15 calendar days from the close of the consultation period.
The FSB may also convene roundtables, hearings and other events to gather input from various stakeholders.
The official also drew attention to public consultations conducted by FSB members themselves, rather than by the FSB itself. “These could be conducted either by international standard-setters as they develop policies at the request of the FSB or by national authorities as they develop the national rules to implement policies agreed within the FSB,” he commented.
The FSB has not kept a comprehensive list of all the public consultations conducted since the inception of the FSF. Information on the most recent consultations can be found at http://www.financialstabilityboard.org/list/fsb_publications/tid_175/index.htm, and the responses are posted at http://www.financialstabilityboard.org/list/fsb_publications/tid_180/index.htm.
Public comments in another context are not always published.
The FSB official wrote:
The FSB regularly invites public feedback as input to its thematic peer reviews of implementation and effectiveness across the FSB membership of international financial standards developed by stand-setting bodies and policies agreed within the FSB in a particular area important for global financial stability, announced through a press release at the time that the peer review is launched. However, the essence of peer reviews is that these are reviews of the actions of FSB members by their “peers”, i.e. other FSB members – the public feedback therefore does not amount to a public consultation and the feedback received is not published.
Evolution of FSB Policy
Transparency at the FSB has evolved in recent years.
This came about in part because of an FSB-requested evaluation by a “high level group of experts.”
The experts’ 2011 report had strong advice on transparency, not all which was followed.
The relevant section said:
Transparency
Transparency is needed to provide interested members of the public with information about an organization’s activities and decisions. In line with current academic and policy evidence, the High-Level Panel underscores the fact that transparent organizations are often deemed to be more legitimate and likely to be more effective.
Recommendation 11.
The FSB should develop a disclosure policy in consultation with its stakeholders. Specifically, it should:
• Set a limited embargo policy for the disclosure of its internal documents;
• Adopt the principle of presumption of disclosure for all its documents, with the exception of those containing market-sensitive information;
• Disclose the composition and terms of reference of committees and working groups;
• Designate a single point of contact to address enquiries from the public and civil society.
FSB Charter Amended
In response, the G20 approved a revised charter for the FSB in June 19, 2012, at the Los Cabos, Mexico, Summit. Following the recommendations of the FSB, the new charter is called for consultations and more transparency, but not everything the experts had suggested.
Notably lacking was the proposed idea of a presumption of disclosure and a system for making requests.
The relevant portion states:
Article 3. Consultation
(1) In the development of the FSB’s medium- and long-term strategic plans, principles, standards and guidance, the FSB should consult widely amongst its Members and with other stakeholders including private sector and non-member authorities. This process shall include engaging with the FSB Regional Consultative Groups and include an outreach to countries not included in the Regional Consultative Groups.
(2) The FSB should have a structured process for public consultation on policy proposals.
Article 4. Accountability and transparency
The FSB will discharge its accountability, beyond its members, through publication of reports and, in particular, through periodical reporting of progress in its work to the Finance Ministers and Central Bank Governors of the Group of Twenty, and to Heads of State and Governments of the Group of Twenty.
FSB Assessed Poorly By NGO
New Rules, a Washington-based NGO, commented by issuing New Rules Annotated FSB Charter.
New Rules runs FSBwatch, a website to monitor the FSB. “Despite the importance of this recently-established organization, there is extremely limited knowledge as to how the FSB operates and is governed,” the website says.
In October, a New Rules report summarized FSB transparency issues, stating, “The FSB scored 2 out of four on “transparency” and 8 out of 16 on four “governance” factors” for a 50 percent overall mark.
After noting some areas of improvement, including the release of draft materials, the report said:
The FSB could do more, however, to improve the institution’s transparency and accountability to the general public. The FSB still does not release much information to the general public about its meetings, including those of its Plenary and the RCGs. An important initiative would be to make public all meeting schedules, agendas, attendees, and minutes of meetings of the Plenary and RCGs. Greater transparency could also be achieved by the release of more documents being discussed in these meetings and other FSB groups. The FSB Secretariat’s communication with the general public could also be improved, including through the listing of more staff contact information on its website.
Greater transparency to the general public may help to reduce the risk of the “capture” of international financial standard setting processes by private sector actors. There has been much speculation in the media and among scholars about how this kind of capture may have contributed to lax regulation at the national and international level during the years leading up to the 2007-08 crisis. The importance of minimizing the risk of private capture has only been heightened by the post-crisis emphasis on “macroprudential” regulation that requires financial authorities to take a strong stand in counteracting market trends, such as cyclical booms or growing concentration and risk-taking within the financial system. Transparency can also help to reduce the risk of capture by encouraging greater public engagement in the FSB’s activities in ways that offset the potential influence of private sector groups (which often have greater access to the policymakers).
The New Rules report also summarizes factors that “seemed to confirm the privileged access of private sector groups.” It praises the moves toward consultation, but urges more, stating: “A further step would be to allow civil society organizations to be invited to specific sessions of the Plenary (as is true for private sector representatives) and the RCGs, as well as to provide input into the FSB’s various working groups, task forces, and committees.”
FSB Budget Information
The operations of the FSB Secretariat are primarily funded by the Bank for International Settlements, and the operational expenses are therefore subsumed within the overall operating expenses of the BIS. See page 157 of the 2012/13 BIS Annual Report for further details http://www.bis.org/publ/arpdf/ar2013e7.pdf#page=44
As of end-March 2013 the total operating operational expenses of the BIS (an organization of 576 employees plus 57 Secretariat members of the FSB and other international associations) totaled SDR 256.3 million (about $323 million).
Filed under: IFTI Watch