Financial Stability Board: Study On The Potential Unintended Consequences Of Regulatory Reforms On Emerging Market And Developing Economies

The Financial Stability Board (FSB), in collaboration with the International Monetary Fund and the World Bank, published today a study identifying potential unintended consequences of regulatory reforms on emerging market and developing economies (EMDEs).

The study, which was prepared in response to a February 2012 request by G20 Finance Ministers and Central Bank Governors, focuses primarily on internationally agreed regulatory reforms whose implementation may affect EMDEs. The intent of the study is not to re-open those reforms but to better understand their possible effects on EMDEs in the context of broader post-crisis developments and to facilitate their timely, full and consistent implementation.

Input for this study was received from national authorities in 35 EMDEs that are members of the FSB or an FSB Regional Consultative Group, as well as from the private sector. There is widespread support among surveyed EMDEs for the objectives of the agreed reforms. At the same time, there is a range of views about the extent to which these reforms are having, or expected to have, an impact on their financial systems. This heterogeneity in perspectives reflects the early stage of  implementation of  these reforms and the diversity of  EMDE financial systems, which give rise to different considerations and concerns. Most of the responses reflect expectations regarding potential future effects, rather than observed impacts.

While many EMDEs do not expect significant adverse effects from the implementation of the reforms,  those  that  did  identify  potential  unintended  consequences  focused  on  certain aspects of the Basel III capital and liquidity frameworks, policy measures for global systemically important financial institutions, and over-the-counter derivatives market reforms. Some EMDEs also identified specific regional or national regulatory reforms as giving rise to spillovers and/or having extraterritorial effects that may lead to unintended consequences.

The study notes that many of the identified concerns are being addressed by relevant international bodies during policy development and implementation. Some of the concerns stem from the way that reforms are implemented in other jurisdictions rather than from the design of the reform itself. The long phase-in periods, the ongoing implementation monitoring and, in certain cases, the flexibility to adjust rules during the calibration process are intended to address these concerns.