FSB to G20: France Knocked Down a Wall

The FSB refers to insurers directly in a longer FSB progress report prepared for the G20 leaders earlier this month.

Developing recommendations for SIFIs is “very complex, as SIFIs vary in their structures and activities, and hence, in the nature and degree of the risks posed to the global financial system,” FSB officials say in their report.

The FSB will need time to learn how to extend the SIFI regulatory framework from just covering banks to covering a wider group of SIFIs, including “financial market infrastructures, insurance companies and other non-bank financial institutions that are not part of a banking group structure,” officials say.

The International Association of Insurance Supervisors (IAIS), Basel, Switzerland, will be helping the FSB assess financial institution systemic importance, “focusing on [companies'] size, interconnectedness and substitutability,” officials say.

By mid-2011, the FSB will come up with criteria for assessing problems at a troubled G-SIFI and recommendations for the types of laws that should be in place to ease the process of resolving a troubled multinational G-SIFI, officials say.

The IAIS is working on a paper on managing border-crossing insurance company crises, officials say.

In March, the IAIS released a remuneration principles draft that highlights issues “more specific to the insurance industry, such as the nature and complexity of an insurer’s risk profile and the alignment with the longer term interests of policyholders and beneficiaries,” officials report.

Regulators throughout the world are looking into repairing gaps in SIFI regulation, officials note.

In Europe, officials say, the European Commission is looking into the possibility of making sure an insurance policyholder protection program is available in all member countries, officials report.

Many countries are trying to ensure that financial regulation is as consistent as possible, officials add.

“In France, for example, the banking and insurance authorities were merged to establish the Prudential Supervisory Authority (ACP) in January 2010, notably to strengthen financial stability by creating a supervisory authority capable of monitoring risks across the financial sector and eliminating ‘blind spots’ in the monitoring,” officials say.

“Drawing on these works at the international and national level, the FSB will assess the appropriateness of the regulatory scope, and expand the regulatory perimeter to activities outside the banking sector, namely the shadow banking sector,” FSB officials say. “In particular, as regulatory requirements on the banking system tighten, the need intensifies for more systematic attention to activities in the shadow banking sector.”

FSB officials refer in the “shadow banking” section of the report to hedge funds, securitization operations and the credit rating agency system.