January 8, 2010
Joint Forum Release of Review of the Differentiated Nature and Scope of Financial Regulation
The Joint Forum today released its report, Review of the Differentiated Nature and Scope of Financial Regulation – Key Issues and Recommendations.
“This paper takes a focused look at certain regulatory gaps that became apparent during the crisis,” Comptroller John C Dugan, and retiring Chair of the Joint Forum said. “There are some key recommendations in this report that, once implemented, will reduce those gaps and strengthen regulation of the financial system. Consistency in regulation and similar supervision for similar activities are key principles for effective oversight of systemic risks. This report sets the stage for additional important work that will lead to greater convergence of the supervision of financial activities and firms.”
The report’s recommendations address five key areas: differences in regulation across the banking, insurance and securities sectors; supervision and regulation of financial groups; hedge funds; credit default swaps and financial guaranty insurance; and minimum underwriting standards for residential mortgages.
“The recommendations on mortgage underwriting practices address an important area that has received surprisingly little attention, given that such practices sparked the global financial crisis,” Mr. Dugan said. “These recommendations are focused on minimum underwriting standards, consistently implemented by all types of mortgage providers – whether or not currently regulated – while also acknowledging that each country’s mortgage market is unique. In recognition of national differences and to promote transparency, the recommendations propose review and disclosure of mortgage underwriting practices for each country, a practice that currently does not exist on a global basis.”
This report was requested by the G20 through the Financial Stability Board. It analyzes key issues arising from the differentiated nature of financial regulation in the international banking, securities, and insurance sectors. It also addresses gaps arising from the scope of regulation as it relates to different financial activities, with a particular focus on certain unregulated or lightly regulated entities or activities. The objectives of the review were to identify potential areas where systemic risks may not be fully captured in the current regulatory framework and to make recommendations on needed improvements to strengthen regulation of the financial system.
The Joint Forum was established in 1996 under the aegis of the Basel Committee on Banking Supervision, IOSCO, and the IAIS to deal with issues common to the banking, securities, and insurance sectors, including the supervision of financial conglomerates. Comptroller of the Currency John C. Dugan served as Chairman from September 2007 to December 2009.