How global standards work: who writes them, who sits at the table and how they reach a market

Standards without legal force

The Basel Committee on Banking Supervision calls itself the primary global standard setter for the prudential regulation of banks. Its charter also says that it does not possess any formal supranational authority and that its decisions do not have legal force. It relies instead on the commitment of its members to implement its standards in their own jurisdictions. The Financial Stability Board's charter says the same of itself: it is not intended to create any legal rights or obligations.

A global standard therefore reaches a bank or a lender only when a national authority turns it into a law, a regulation or a supervisory rule. This is why the same standard can look different from one market to the next, in timing, in scope and in detail, and why a lender must always read the rule of the market itself.

Who writes which standards

The Financial Stability Board coordinates the policy development work of the international standard-setting bodies, according to its charter. It also designates a set of key standards for sound financial systems, which deserve priority implementation depending on country circumstances. They include:

• banking supervision: the Core Principles for Effective Banking Supervision, from the Basel Committee;
• securities: the Objectives and Principles of Securities Regulation, from the International Organization of Securities Commissions, known as IOSCO;
• insurance: the Insurance Core Principles, from the International Association of Insurance Supervisors;
• payments and market infrastructure: the Principles for Financial Market Infrastructures, from the Committee on Payments and Market Infrastructures together with IOSCO;
• anti-money laundering: the Recommendations of the Financial Action Task Force, known as FATF;
• deposit insurance, resolution of failing institutions, insolvency and creditor rights, financial reporting and auditing, and transparency of central banks and public finances, from other bodies including the World Bank and the IMF.

Lessons 2 to 5 take the Basel Committee, the Financial Stability Board, FATF and IOSCO in turn. The IMF, the World Bank and the Bank for International Settlements, which hosts several of these committees, are the subject of the course on the international financial institutions.

Who sits at the table: Southeast Asia against other regions

Membership decides who negotiates a standard, and it is uneven. The Financial Stability Board has 25 member jurisdictions, counting the European Union; two are in Southeast Asia, Indonesia and Singapore. The Basel Committee has members from 28 jurisdictions. Again, Indonesia and Singapore are the Southeast Asian members, and Malaysia is an observer. For comparison, the 28 include the European Union and eight of its member states, four jurisdictions in East Asia (China, Hong Kong SAR, Japan and Korea), one in South Asia (India), three Latin American countries (Argentina, Brazil and Mexico) and one African country, South Africa.

Anti-money laundering is organised differently. FATF's members from Southeast Asia are Indonesia, Malaysia and Singapore, but all eleven Southeast Asian countries are members of the Asia/Pacific Group on Money Laundering, one of nine regional bodies that work in the same way as FATF. Together, FATF and these nine bodies form a global network of 206 jurisdictions, each committed to the FATF Recommendations.

The Financial Stability Board also hears from non-members through regional consultative groups. The group for Asia includes Brunei, Cambodia, Indonesia, Malaysia, the Philippines, Singapore, Thailand and Viet Nam. Consultation is not membership, but it gives most of the region's authorities a structured channel to the Financial Stability Board.

From a global standard to a national rule

The path from a standard to a rule has the same steps in most fields, illustrated here by the Basel Committee and the Financial Stability Board:

• Consultation: the Basel Committee's charter says it in principle seeks input from all relevant stakeholders on policy proposals, normally with 90 calendar days for public comment.
• Adoption: the committee agrees the standard, under the oversight of its Group of Governors and Heads of Supervision.
• Implementation: each member authority writes the standard into its own laws or rules.
• Review: members agree to have their domestic rules reviewed by the committee, and members of the Financial Stability Board commit to implement international financial standards, to undergo an IMF and World Bank Financial Sector Assessment Program every five years, to disclose their degree of adherence to the standards, and to undergo periodic peer reviews.

A market that is not a member takes the last two steps on its own terms. It may adopt a standard fully, partly, later or not at all, and it may adapt a standard designed for large international banks to its own smaller institutions. The rules pages show, for each market, the rules that apply to lenders today.

How markets are assessed

Because standards have no legal force, assessments are how anyone can tell how far a market follows them. The IMF's Financial Sector Assessment Program analyses the resilience of a country's financial sector, including its supervision and regulation; in developing and emerging market countries it is carried out jointly by IMF and World Bank staff. Since a review in 2021, 47 jurisdictions with systemically important financial sectors are required to take part regularly; other countries may also take part voluntarily.

Anti-money laundering has its own system. FATF describes itself as the global standard setter for anti-money laundering and counter-terrorist financing and the arbiter of how the standards are applied: FATF and the regional bodies assess their members through mutual evaluations and follow-up, an ongoing peer review. For most of Southeast Asia, that evaluation is carried out within the Asia/Pacific Group.

A worked example, reading the facts above for one market: Cambodia is not a member of the Financial Stability Board, the Basel Committee or FATF. It is heard through the Financial Stability Board's regional group for Asia, and its anti-money laundering framework is evaluated within the Asia/Pacific Group. Its banking rules are set by its own authorities, which decide how far to follow the Basel standards. A lender looking at Cambodia therefore reads the national rules first, and the published assessments second, to see how close those rules are to the global standard.

Questions to ask about a market

• Is the market a member of the Financial Stability Board, the Basel Committee or FATF, or does it take part through a regional body or a consultative group?
• Which global standards has it taken into national law or rules, and for which kinds of institutions?
• When was it last assessed, by whom, and has it published the results?
• Where national rules differ from the global standard, which applies to the lender, and is the difference likely to close?