The stability of the global financial system is a major issue, and its ups and downs can affect the real economy and, consequently, businesses and individuals. At the heart of the post-2008 crisis surveillance architecture is a unique institution, the Financial Stability Board (FSB). Although it is less well known to the general public than the IMF or the World Bank, its role in coordinating regulations is decisive. Understanding its origins, remit and influence provides a better understanding of the dynamics shaping today's banking and financial environment. It is part of a complex set ofinternational financial institutions each working at its own level to regulate and ensure global stability.
From the financial stability forum to the csf: a response to the crisis
The creation of the Financial Stability Board is not an isolated event, but the culmination of a gradual realisation of the limits of purely national supervision. It responds to the need for a more robust coordination body in the face of increasingly interconnected and complex financial markets.
Creation of the fsf and its limits
The forerunner of the FSB, the Financial Stability Forum (FSF), was set up in 1999 by the G7. It was set up in the wake of several financial crises, notably the collapse of the US hedge fund Long-Term Capital Management (LTCM), which highlighted systemic risks. The FSF's remit was to identify vulnerabilities in the global financial system and recommend improvements. However, this first draft quickly revealed its weaknesses. On the one hand, its recommendations, although numerous, were not always followed by binding effects. Secondly, its representativeness was contested, as it excluded emerging economies that had become key players, such as China, India and Brazil.
Expanding and strengthening the csf (composition, organisation)
The global financial crisis of 2008 acted as an electroshock and a catalyst for in-depth reform. In 2009, at the London Summit, the G20 decided to replace the FSF with the Financial Stability Board (FSB). This transformation was not merely cosmetic; it was intended to correct the shortcomings of its predecessor. The FSB's membership was considerably broadened to include all the G20 members, Spain and the European Commission, ensuring greater international legitimacy. Its organisation has also been strengthened. The FSB is now structured around a Chairman, a secretariat hosted by the Bank for International Settlements (BIS), a plenary meeting, which is its decision-making body, a steering committee and several technical sub-committees. This new structure gives it a stronger mandate and greater capacity for action to promote financial stability on a global scale.
Main tasks: maintaining and strengthening global financial stability
The FSB's mandate, although informal, is broad and has several complementary strands. Its ultimate objective is to prevent financial crises by strengthening the resilience of the system and improving coordination between national authorities.
Logistical support for national supervisors (exchanges and discussions)
Taking over an essential mission from the FSF, the FSB serves as a platform for dialogue and information exchange for the financial authorities of its member countries. By regularly bringing together banking supervisors, market regulators, representatives of central banks and finance ministries, it fosters the emergence of a common supervisory culture. These exchanges enable best practices to be shared, emerging challenges to be discussed and cross-border cooperation to be enhanced, an essential element in a world where financial groups operate without regard to national borders.
Global macro-financial surveillance (vulnerability assessment, reform monitoring)
The FSB has a proactive surveillance role. Working closely with the International Monetary Fund (IMF), it is responsible for identifying vulnerabilities that could threaten the stability of the global financial system. To this end, it conducts early warning exercises (known by the acronym EWE for Early Warning Exercises) to detect low-probability but high-impact risks. The FSB also monitors the implementation of the financial reforms agreed by the G20. It assesses whether these reforms are achieving their objectives and identifies any undesirable effects that would require adjustments. This monitoring role is fundamental to ensuring that the policies adopted are effective and that the lessons of past crises are not forgotten, thus contributing to the philosophy of the European banking resolution which aims to protect stability.
Rapid adaptation to financial changes (health crisis, geopolitical shocks, double transition)
The financial environment is constantly changing, and the FSB must be extremely agile. Its work programme is constantly adapting to meet new challenges. For example, during the Covid-19 health crisis, it focused on the financial consequences of the pandemic. More recently, it has focused its efforts on managing geopolitical shocks, such as those arising from the war in Ukraine, and on the financial risks associated with the dual digital and environmental transition. This ability to adapt shows that the FSB is not a static body, but a dynamic one that seeks to anticipate future sources of instability.
Monitoring the transposition of international financial standards
One of the major innovations of the FSB compared with the FSF is its mechanism for monitoring the implementation of international standards. All member countries have undertaken to adopt the financial standards and norms promoted by the FSB and to undergo peer reviews. These reviews, conducted by country and by topic, verify that the standards have been properly transposed into national legislation. Although this process is not legally binding under public international law, it exerts significant political pressure on Member States, encouraging them to bring their regulations into line with global best practice so as not to be singled out as risky jurisdictions.
The role of standard-setting and coordination
The FSB is not a legislator in the traditional sense. Its normative power is indirect but powerful. It acts like an orchestra conductor, ensuring that the various standards bodies work together and that their standards are consistent and widely adopted.
Choosing and promoting common financial standards
The FSB does not itself draft new technical standards from scratch. Rather, its function is to select from among existing standards developed by technical bodies such as the Basel Committee on Banking Supervision (BCBS), the International Organisation of Securities Commissions (IOSCO) or the International Association of Insurance Supervisors (IAIS), those that are most relevant to financial stability. These standards, once "labelled" by the FSB, are then promoted at G20 level for worldwide adoption. To be promoted, a standard must be deemed relevant, applicable, issued by an internationally recognised body and widely applicable in different jurisdictions.
Synergies with the 'g's (g7/g20) and the joint forum
The FSB has a symbiotic relationship with the G20. It is the G20 that gives it its mandate and broad political guidelines, and it is the FSB that the G20 asks to translate these guidelines into a technical work programme and to oversee its implementation. This synergy lends strong political legitimacy to the work of the FSB. The FSB also coordinates the work of various bodies, including the Joint Forum, a working group that brings together the Basel, IOSCO and IAIS committees to deal with cross-cutting issues relating to financial conglomerates. This coordination is essential to avoid duplication and regulatory inconsistencies between the different financial sectors, and is linked to regional frameworks such as the single resolution mechanism (SRM) in Europe.
Solent avocats: your partner for csf requirements and global regulation
For a company or a financial player, the decisions taken by the FSB and the G20 may seem remote. Yet they have very real repercussions. The international standards they promote are transposed into European law, for example via the Capital Requirements Directive (CRD) and the associated regulations (CRR), and then into national law. These regulations shape the conditions of access to credit, transparency obligations, governance rules and risk management requirements for banks and other financial institutions. Navigating this dense and constantly changing regulatory ecosystem requires specialist expertise. Legal support helps you to anticipate changes, ensure that operations are compliant and secure contractual relations in an environment where standards are becoming increasingly complex.
Global financial regulation, orchestrated by bodies such as the Financial Stability Board, has a direct impact on the operations of all economic players. If you are faced with the complexity of these regulations, or if you want to secure your activities in this demanding environment, don't hesitate to contact our firm to benefit from the expertise of a specialist in the field. banking and finance lawyer.
Sources
- Financial Stability Board Charter
- Declarations of the G20 summits (notably London 2009 and Pittsburgh 2009)
- Reports and publications of the Financial Stability Board (FSB)
- Reports and publications of the Bank for International Settlements (BIS)
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