Increasing supervisory effectiveness is a key pillar of the FSB policy framework for reducing the moral hazard of systemically important financial institutions (SIFIs).
The peer review found that national authorities have taken significant steps to enhance supervisory effectiveness within their institutional frameworks. Authorities are using a broader and more sophisticated range of supervisory tools, which in turn contributes to a more forward-looking supervisory approach capturing both current and emerging risks. The scope of supervision has also been expanded to incorporate macroprudential and resolvability considerations. These changes are underpinned by enhanced dialogue between supervisors and the board and senior management of SIBs, both in terms of level of seniority and frequency. Corporate governance and the development of recovery and resolution plans are common areas of focus across many jurisdictions.
These findings are also reflected in the feedback from 13 G-SIBs that were surveyed as part of the peer review. The G-SIBs noted an increase in supervisory intensity, in particular on capital and liquidity, and many highlighted an increase in the number and depth of supervisory reviews and data requests. Supervisory actions in response to findings were also noted as having strengthened. At the same time, G-SIBs would welcome more open and constructive challenge from supervisors as part of the supervisory dialogue.
More work, however, is needed to further improve and assess supervisory effectiveness. In particular, a key finding from the review is the importance of strengthening cross-border supervisory cooperation and building the mutual trust that is needed – in good times, but even more so in difficult times. Effectiveness could also be strengthened by establishing and implementing clear and transparent supervisory strategies and priorities. Communication with firms on these priorities, as well as on the outcomes from supervisory activities, including data requests, needs to be strengthened. One of the outstanding challenges to further progress supervisory effectiveness is the need for authorities to effectively manage the volume of regulatory and supervisory changes, including by having sufficient budgetary resources and building and maintaining a skilled, capable, and experienced workforce.
Drawing from the findings of the review, the report sets out several recommendations targeting areas where more work is needed. It recommends that supervisory authorities:
Clearly define their supervisory strategy and priorities, establish a formal process for evaluating supervisory effectiveness against the stated strategy and priorities, and make further progress in attracting and retaining skilled supervisory resources.
Further strengthen their engagement with banks, particularly at the board level and with senior management, with the objective of informing supervisory risk assessments through enhanced understanding of G-SIBs’ business models.
Press banks to improve their information technology and management information systems to provide robust and timely information on the institutions’ risk on an enterprise-wide basis.
Continue to ensure that data requests are effectively targeted and evaluated for purpose and intent, including via coordination between home and host authorities.
The report also includes recommendations addressed to the standard-setting bodies (SSBs). In particular, the BCBS should assist supervisors in establishing effective supervisory strategies and risk appetite frameworks; the FSB will work with the SSBs to explore ways to promote the objective of achieving rigorous co-ordinated assessments of risks facing G-SIFIs through supervisory colleges; and the FSB and BCBS will cooperate to develop ways to foster greater cross-border supervisory cooperation and coordination.
© Financial Stability Board
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