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Questionnaire anti money laundering measures Over the Counter

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					         Striving for never again!
International financial reforms in response
       to the global financial crisis

            STRATE conference
             21 October 2010
2008

• Lehman Brothers declared bankruptcy
• Other large US investment banks (Goldman Sachs JP Morgan)
  converted to bank holding companies:
    –   Joined Federal Reserve System
    –   Subject to regulatory oversight
    –   Access to short-term liquidity
    –   Offer deposits to retail investors
• Fannie Mae and Freddie Mac were nationalised,
• AIG was rescued
• Belgium’s Fortis was broken up and sold
• Iceland’s largest commercial bank – and then the banking
  system – collapsed
• Many countries had to provide massive support to their banks.
Current economic environment
Economic recovery continued to strengthen


The extent of economic recovery differs across regions

                                                        Estimate
                                          2008   2009               2010   2011
                                                            2009
World                                      2.8   -0.6         2.0    4.8    4.2
Developed countries                        0.2   -3.2        -0.4    2.7    2.2
 United States                             0.2   -2.6        0.2     2.6    2.3
 Euro area                                 0.5   -4.1        -2.0    1.7    1.5
Emerging and developing countries          6.0    2.5        5.6     7.1    6.4
 Sub Saharan Africa                        5.5    2.6           -    5.0    5.5
Source: IMF World Economic Outlook 2010
Current economic environment
Turmoil in sovereign debt markets in the 2nd quarter of 2010
Credit default swap spreads




 Source: Financial stability review September 2010
Current economic environment
  Volatility in financial, currency, commodity markets
  remains




 Source: IMF World Outlook 2010
Current economic environment
  Households deleverage and save more to repair balance
  sheets




          South Africa 2009: 80.2%                 South Africa 2009: 1.7%

  Sources: IMF World Outlook 2010
          SARB Quarterly Bulletin September 2010
Strengthening the international financial architecture
Driving national implementation


                                                               G20
                                   the premier forum for international economic cooperation

                                                                                         Bank for International
             Financial Stability Board           International Monetary Fund
                                                                                             Settlements
Standards- setting




                                     Committee
                        Basel                          International    International   International
                                     on Payment                                                             Financial
     bodies




                     Committee                          Association      Association     Accounting
                                         and                                                               Action Task
                     on Banking                         of Securities    of Insurance     Standards
                                     Settlement                                                               Force
                     Supervision                       Commissions       Supervisors        Board
                                      Systems


                                                National regulatory framework
                       Bank Supervision Department
                                                                                Financial Services Board
                     of the South African Reserve Bank

                       Financial Intelligence Centre                           National Credit Regulator
G20

• Premier forum for
   – Supporting international economic growth development
   – Strengthening international financial architecture
• Promotes open and constructive discussion between industrial
  and emerging-market countries on key issues related to global
  economic stability
• Membership
   • Finance ministers and central bank governors of 19 countries
     Argentina, Australia, Brazil, Canada, China, France, Germany,
     India, Indonesia, Italy, Japan, Korea, Mexico, Russia, Saudi Arabia,
     South Africa, United Kingdom, United States, and Turkey
   • European Union: council presidency and European Central Bank
   • Managing Director of the International Monetary Fund (IMF)
   • President of the World Bank
G20

• Meetings
   – Finance Ministers and Central Bank Governors, 22 to 23 October
     2010, South Korea
   – G20 Summit Meeting, 11 to 12 November 2010, South Korea
• Work is being taken forward in the following areas:
   – Framework for strong, sustainable, and balanced growth
   – Strengthen the international financial regulatory system
   – Modernise global institutions to reflect global economy
   – Reform mandate, mission and governance of the IMF and global
     development banks
   – Energy security and climate change
   – Strengthen support for the most vulnerable, which includes
     financial inclusion and micro, small, medium enterprise (MSME)
     financing
Strengthening the international financial architecture
Driving national implementation


                                                               G20
                                   the premier forum for international economic cooperation

                                                                                         Bank for International
             Financial Stability Board           International Monetary Fund
                                                                                             Settlements
Standards- setting




                                     Committee
                        Basel                          International    International   International
                                     on Payment                                                             Financial
     bodies




                     Committee                          Association      Association     Accounting
                                         and                                                               Action Task
                     on Banking                         of Securities    of Insurance     Standards
                                     Settlement                                                               Force
                     Supervision                       Commissions       Supervisors        Board
                                      Systems


                                                National regulatory framework
                       Bank Supervision Department
                                                                                Financial Services Board
                     of the South African Reserve Bank

                       Financial Intelligence Centre                           National Credit Regulator
Financial Stability Board
Functions
• Coordinate at the international level the work of national
  financial authorities and international standard setting bodies
• Develop and promote the implementation of effective
  regulatory, supervisory and other financial sector policies
Financial Stability Board
12 Key Standards for Sound Financial Systems
Area                       Standard                                              Issuing Body
                          Macroeconomic Policy and Data Transparency
Monetary and financial     Code of Good Practices on Transparency in Monetary    IMF
policy transparency        and Financial Policies
Fiscal policy transparency Code of Good Practices on Fiscal Transparency         IMF
Data dissemination          Special Data Dissemination Standard                 IMF
                            General Data Dissemination System
                              Institutional and Market Infrastructure
Insolvency                 Insolvency and Creditor Rights                        World Bank
Corporate governance       Principles of Governance                              OECD
Accounting                 International Accounting Standards                    IASB
Auditing                   International Standards on Auditing                   IFAC1
Payment and settlement  Core Principles for Systemically Important Payment      CPSS
                                Systems
                            Recommendations for Securities                      CPSS/IOSCO
                                Settlement Systems
Market integrity            The Forty Recommendations of the Financial Action   FATF
                                Task Force
                            9 Special Recommendations Against Terrorist
                                Financing
                               Financial Regulation and Supervision
Banking supervision        Core Principles for Effective Banking Supervision     BCBS
Securities regulation      Objectives and Principles of Securities Regulation    IOSCO
Insurance supervision      Insurance Core Principles                             IAIS
Financial Stability Board
Current work
• Systematically important financial institutions (SIFIs)
   – Too big to fail problems
   – Higher loss absorption capacity enabling resolution without
     taxpayer solvency support
   – Strengthen supervision process especially large, complex,
     interconnected, cross-border institutions
• Central clearing and trade reporting of over-the-counter (OTC)
  derivatives
   –   Increase standardisation
   –   Clear standardised derivatives through central counterparties
   –   Trade standardised derivatives on exchanges or trading platforms
   –   Report all OTC derivatives contracts to trade repositories
Financial Stability Board
Current work
• Credit Rating Agencies (CRAs)
   – Role is to reduce informational asymmetries between issuers and
     investors
   – Shortcomings in ratings erodes market confidence
   – Reduce cliff effects (abrupt downgrading) that amplify procyclicality
     and cause systemic disruptions
   – Reduce reliance on ratings in rules and regulations
• Peer reviews
   – FSB Framework for Strengthening Adherence to International
     Standards
   – Peer review on Mexico is complete. Next are Italy and Spain
   – Thematic reviews:
       • Compensation practices (March 2010)
       • Risk disclosure
       • Mortgage underwriting practices
Strengthening the international financial architecture
Driving national implementation


                                                               G20
                                   the premier forum for international economic cooperation

                                                                                         Bank for International
             Financial Stability Board           International Monetary Fund
                                                                                             Settlements
Standards- setting




                                     Committee
                        Basel                          International    International   International
                                     on Payment                                                             Financial
     bodies




                     Committee                          Association      Association     Accounting
                                         and                                                               Action Task
                     on Banking                         of Securities    of Insurance     Standards
                                     Settlement                                                               Force
                     Supervision                       Commissions       Supervisors        Board
                                      Systems


                                                National regulatory framework
                       Bank Supervision Department
                                                                                Financial Services Board
                     of the South African Reserve Bank

                       Financial Intelligence Centre                           National Credit Regulator
Bank for International Settlements
Basel Committee on Banking Supervision
• Forum for regular cooperation on banking supervisory matters
• Objectives
   – Enhance understanding of key supervisory issues
   – Improve the quality of banking supervision worldwide.
• Exchange information on national supervisory issues,
  approaches and techniques, with a view to common
  understanding
• Guidelines and supervisory standards
   – International standards on capital adequacy
   – Core Principles for Effective Banking Supervision
   – Concordat on cross-border banking supervision
Basel Committee on Banking Supervision
Current work
• Strengthen the resilience of the banking sector
• Raise quality, consistency and transparency of capital base
• Introduce a series of measures to build-up capital buffers in
  good times so they can be drawn down in times of stress
• Strengthen the risk coverage of the capital framework
  (complex, illiquid credit products in banks’ trading books
  without commensurate increase in capital to support the risks)
• Introduce a leverage ratio as a supplementary measure to Basel
  II
• Introduce a global liquidity standard for internationally active
  banks
Basel Committee on Banking Supervision
Current work
• Higher global minimum capital standards – January 2018




• new leverage ratio of 3% on-balance sheet positions, off-
  balance sheet items, derivatives e.g., (credit derivatives)
  January 2015.
Basel Committee on Banking Supervision
Current work
• Global minimum liquidity standards
• Short-term resilience of banks to potential liquidity disruptions
   – The Liquidity Coverage Ratio (LCR) requires banks to have
     sufficient high-quality liquid assets to withstand a stressed funding
     scenario that is specified by supervisors
   – January 2015
• Longer-term structural liquidity mismatches.
   – Net Stable Funding Ratio (NSFR)
   – Covers the entire balance sheet and provides incentives for banks
     to use stable sources of funding
   – January 2018
Strengthening the international financial architecture
Driving national implementation


                                                               G20
                                   the premier forum for international economic cooperation

                                                                                         Bank for International
             Financial Stability Board           International Monetary Fund
                                                                                             Settlements
Standards- setting




                                     Committee
                        Basel                          International    International   International
                                     on Payment                                                             Financial
     bodies




                     Committee                          Association      Association     Accounting
                                         and                                                               Action Task
                     on Banking                         of Securities    of Insurance     Standards
                                     Settlement                                                               Force
                     Supervision                       Commissions       Supervisors        Board
                                      Systems


                                                National regulatory framework
                       Bank Supervision Department
                                                                                Financial Services Board
                     of the South African Reserve Bank

                       Financial Intelligence Centre                           National Credit Regulator
Bank for International Settlements
Committee on Payment and Settlement Systems
• Standard stetting body for payment and securities settlement
  systems.
• Strengthen the financial market infrastructure through
  promoting sound and efficient payment and settlement
  systems.
• Forum for central banks to monitor and analyse developments
  in domestic payment, settlement and clearing systems, cross-
  border and multicurrency settlement schemes.
• Guidelines and supervisory standards
   – Core principles for systemically important payment systems
   – Recommendations for securities settlement systems (with IOSCO)
   – Recommendations for central counterparties
Committee on Payment and Settlement Systems
Current work
• Sep 2010: Strengthening repo clearing and settlement
  arrangements
• May 2010: Considerations for trade repositories in OTC
  derivatives markets
• May 2010: Guidance on the application of the 2004 CPSS-
  IOSCO Recommendations for Central Counterparties to OTC
  derivatives
Strengthening the international financial architecture
Driving national implementation


                                                               G20
                                   the premier forum for international economic cooperation

                                                                                         Bank for International
             Financial Stability Board           International Monetary Fund
                                                                                             Settlements
Standards- setting




                                     Committee
                        Basel                          International    International   International
                                     on Payment                                                             Financial
     bodies




                     Committee                          Association      Association     Accounting
                                         and                                                               Action Task
                     on Banking                         of Securities    of Insurance     Standards
                                     Settlement                                                               Force
                     Supervision                       Commissions       Supervisors        Board
                                      Systems


                                                National regulatory framework
                       Bank Supervision Department
                                                                                Financial Services Board
                     of the South African Reserve Bank

                       Financial Intelligence Centre                           National Credit Regulator
International Association of Securities Commissions

• International policy forum for securities regulators
• Standard stetting body for global securities markets
   – protect investors
   – maintain fair, efficient and transparent markets
   – address systemic risks
• Develop, implement and promoting adherence to internationally
  recognised and consistent standards of regulation, oversight
  and enforcement
• Enhance investor protection and promote investor confidence in
  the integrity of securities markets through
   – strengthened information exchange
   – cooperation in enforcement against misconduct
   – supervision of markets and market intermediaries
• Guidelines and supervisory standards
   – Objectives and Principles of Securities Regulation
International Association of Securities Commissions
Current work
• OTC derivatives regulation
   – Task Force on OTC Derivatives Regulation
   – coordinate securities and futures regulators’ efforts
   – develop supervisory and oversight structures for OTC markets
• With CPSS
   – Central Counterparties and Trade Repositories in the OTC
     Derivatives Market
   – Standards for Payment, Clearing and Settlement Systems
Strengthening the international financial architecture
Driving national implementation


                                                               G20
                                   the premier forum for international economic cooperation

                                                                                         Bank for International
             Financial Stability Board           International Monetary Fund
                                                                                             Settlements
Standards- setting




                                     Committee
                        Basel                          International    International   International
                                     on Payment                                                             Financial
     bodies




                     Committee                          Association      Association     Accounting
                                         and                                                               Action Task
                     on Banking                         of Securities    of Insurance     Standards
                                     Settlement                                                               Force
                     Supervision                       Commissions       Supervisors        Board
                                      Systems


                                                National regulatory framework
                       Bank Supervision Department
                                                                                Financial Services Board
                     of the South African Reserve Bank

                       Financial Intelligence Centre                           National Credit Regulator
International Association of Insurance Supervisors

• Association of insurance supervisors and represents insurance
  regulators and supervisors of 190
• Objectives:
   – Cooperate to contribute to improved supervision of the insurance
     industry to maintain efficient, fair, safe and stable insurance
     markets for the benefit and protection of policyholders
   – Promote the development of well-regulated insurance markets
   – Contribute to global financial stability
• Guidelines and supervisory standards
   – Insurance Core Principles and Methodology
   – A New Framework for Insurance Supervision: towards a common
     structure and common standards for the assessment of insurer
     solvency (Solvency II)
   – Guidance paper on the role and responsibilities of a group-wide
     supervisor
Strengthening the international financial architecture
Driving national implementation


                                                               G20
                                   the premier forum for international economic cooperation

                                                                                         Bank for International
             Financial Stability Board           International Monetary Fund
                                                                                             Settlements
Standards- setting




                                     Committee
                        Basel                          International    International   International
                                     on Payment                                                             Financial
     bodies




                     Committee                          Association      Association     Accounting
                                         and                                                               Action Task
                     on Banking                         of Securities    of Insurance     Standards
                                     Settlement                                                               Force
                     Supervision                       Commissions       Supervisors        Board
                                      Systems


                                                National regulatory framework
                       Bank Supervision Department
                                                                                Financial Services Board
                     of the South African Reserve Bank

                       Financial Intelligence Centre                           National Credit Regulator
National regulatory framework

• United States
   – Dodd-Frank Wall Street Reform and Consumer Protection Act
      • increases consumer and investor protection
      • provides a framework and set of rules to wind down large failing
        financial firms
      • enhances federal understanding of insurance issues
      • regulates the over-the-counter (OTC) derivatives markets including
        requiring most OTC derivatives to trade on established platforms such
        as exchanges
      • strengthens corporate governance
      • improves the regulatory framework for financial firms
      • Volcker rule: limits the ability of certain banks to engage in proprietary
        trading or to invest in hedge and private equity funds to 3% of the
        bank’s tier 1 capital
National regulatory framework

• United States
   – aspects of the Dodd-Frank Act that are unlikely to become part of
     the international financial regulatory framework
       • generally prohibits U.S. banking firms (and the U.S. operations of
         foreign banking firms) from engaging in proprietary trading and from
         investing in or sponsoring private hedge and private equity funds
       • prohibits U.S. depository institutions from entering into certain types of
         derivatives transactions
   – The long term effects uncertain
       • reduced risk-taking by U.S. banks
       • banks may take on even riskier activities to replace lost profits
   – The Volcker rule is more aggressive than Basel III additional capital
     and liquidity requirements for trading market risk
       • Failure to ensure an internationally-acceptable solution will result in
         regulatory arbitrage between countries
       • U.S. banks at a competitive disadvantage compared to foreign banks
National regulatory framework

• South Africa
   – Amendments to the Security Services Act, including proposals to
     shift derivatives onto a central counterparty
   – Draft Credit Rating Agencies Bill
   – Banks Act to be aligned to Basel III
2010 and beyond

• Financial sector regulation:
   – Ensure that the reckless behaviour and irresponsible practices that
     caused the crisis do not happen again
   – Should have the right purposes – not excessive, arbitrary or
     punitive
       • ensure transparency in the marketplace
       • help link risk, performance and reward
       • encourage a culture of prudent behaviour focussed on the long term
• Reaction of markets and institutions?
   – Reduced more circumspect risk taking
   – Take on even riskier activities to replace lost profits


“A global – though uneven – shift towards more government
   intrusion into finance after the meltdown of 2008”
                                                               The Economist
         Striving for never again!
International financial reforms in response
       to the global financial crisis

             STATE conference
             21 October 2010

				
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Description: Questionnaire anti money laundering measures Over the Counter