The global regulatory outlook for financial services

In recent months, international financial services standard setters have published their work programmes and priorities for the near future. These point to common areas of focus that include sustainable finance, financial and operational resilience, digitalisation and cryptoassets, and increased scrutiny of non-banks such as asset managers.

In this article we summarise the revised priorities of the Financial Stability Board (FSB), the International Organization of Securities Commissions (IOSCO), the International Association of Insurance Supervisors (IAIS) and the Basel Committee for Banking Supervision (BCBS). 

Notably some of these plans were set before recent, high-profile bank failures, and therefore are likely to require some repositioning as a result. The FSB for example has stated it will need to consider how best to prioritise its work and respond.

In March, the FSB published its 2023 work programme, setting out its updated approach to financial stability policy. In addition to updating on its regular monitoring and reporting, the programme describes:

1. Initiatives in priority areas: These include a focus on supporting global cooperation on financial stability, enhancing cross-border payments, harnessing the benefits of digital innovation while containing its risks, and addressing financial risks from climate change. In addition, the FSB is continuing its significant focus on the non-bank sector, in particular on the role of open-ended funds, money market funds, margin and collateral, leverage, and the resilience of markets.
2. Continuation of work in other areas: Policy work will also continue in broader areas such as on cyber and operational resilience, the completion of resolution reforms (including a focus on the non-bank sector and CCPs), and evaluating the effectiveness and effects of the G20 financial reforms.

The FSB has outlined a busy publication schedule for 2023. Particularly noteworthy publications include recommendations on cryptoassets and stablecoins (July), an update on the review of recommendations for open-ended funds (July), and a report on the implications of non-bank leverage (September).

In April, IOSCO published its work programme for 2023-2024. It describes work already underway or work that will be started between March 2023 to March 2024. The programme is organised around the following five key themes:

1. Strengthening Financial Resilience: IOSCO has identified private finance as a new priority given the "unprecedented growth" with certain types of private funds. Significant work continues on open-ended funds, money market funds, and margin (this focus is aligned with the FSB's — see above).
2. Supporting Market Effectiveness: Planned work will cover the impact of market outages, post-trade risk reduction services, reviewing alternatives to USD LIBOR, risks posed by market structure changes, and the implementation of IOSCO's principles regarding commodity markets derivatives.
3. Protecting Investors: Key priorities include following-up on IOSCO's stocktake of regulatory approaches to retail conduct, and further examining the role of index providers given the significant increase in the use of indices by asset managers.
4. Addressing new risks in sustainability and fintech: IOSCO's broad agenda will review the ISSB standards, consider assurance standards for sustainability information, initiate work on compliance and voluntary carbon markets, consider the role of transition plans, and progress work on cryptoasset markets and activities.
5. Promoting Regulatory Cooperation and Effectiveness: IOSCO will continue work to promote and facilitate regulatory cooperation among securities regulators.

In January 2023, IAIS released its 2023-2024 Roadmap. This comes at a critical juncture for the IAIS's programme, following the withdrawal by the FSB in December 2022 of the annual designation of globally systemically important insurers (G-SIIs) in favour of the "Holistic Framework" for the assessment and mitigation of systemic risk.

The highlight of the IAIS workplan is consultation in mid-2023 on the Insurance Capital Standard (ICS) as a prescribed capital requirement (PCR) for international insurers. The IAIS will also start assessing whether the Aggregation Method provides comparable outcomes to the ICS. The decision on this will determine the palatability of the ICS for the US — without whom the ICS would not be as 'international' as it could be.

On the macroprudential supervision front, the IAIS is looking at the impact of inflation and interest rate increases, as well as structural shifts in the life insurance sector — including the involvement of private equity, increased cross-border reinsurance and a move toward more complex, illiquid investments. Finally, the IAIS is planning to publish a report on the role of supervisors in addressing natural catastrophe (“Nat Cat”) and disaster protection gaps, including the role of public-private partnerships. This may echo a report issued by the ECB and EIOPA in April calling for enhanced solutions across private insurance, risk transfer mechanisms, national-level and EU-wide schemes.

The Basel Committee on Banking Supervision (BCBS) published its rolling two-year work programme and strategic priorities for 2023/24 in December 2022. The key themes of the workplan are:

1. Emerging risks and horizon scanning: Against a backdrop of economic uncertainty the BCBS will continue to proactively identify and analyse risks and vulnerabilities to the banking system. This is likely to include a horizon scanning exercise focused on the supervisory implications of inflation-related risks, emerging market economies and cross-border booking models. The robustness and suitability of banks' credit risk models will also be under scrutiny.
2. Digitalisation of finance: Within the next two years, the BCBS will issue an analytical report on the supervisory implications of the digitalisation of finance. It will also carry out a deep dive on the implications of Banking as a Service and continue to monitor bank-related developments in crypto asset markets, including the implementation of its prudential treatment of cryptoasset exposures.
3. Climate-related financial risks: The BCBS's work on climate-related financial risks takes place under the three pillars of regulation, supervision and disclosure. The Committee will continue to assess the materiality of gaps in the existing Basel framework and whether further regulatory measures are needed to address climate-related risk. It will monitor implementation of its Principles for the effective management and supervision of climate-related financial risk and consider complementary work relating to bank transition plans and climate scenario analysis. It will also develop a set of bank-specific Pillar 3 disclosure requirements to complement the work of the International Sustainability Standards Board.
4. Monitoring and review of existing standards and guidance: The BCBS will undertake targeted initiatives, including: updates to the Core principles for effective banking supervision, the development of additional guidance on banks' interconnections with non-bank financial intermediation, updates to supervisory principles on outsourcing and reliance on third or fourth party service providers, and reviewing the shock scenarios in the standard for interest rate risk in the banking book.
5. Implementation and evaluation: Focus on the full, timely and consistent implementation of the final Basel 3 reforms.

The priorities of these organisations are likely to impact on the work of national regulators from a policy and supervisory perspective and are therefore important to understand the direction of travel.

To read more on the recently revised areas of focus for individual and regional European regulators, see our recent summaries of the European Supervisory Authorities' strategies and workplans, the FCA's business plan, and the PRA's priorities. Our regulatory Barometer also identifies cross-sector areas of regulatory pressure.