G20's FSB targets insurers, domestic banks

Tue Jan 10, 2012 1:57pm EST

* Tougher regime for insurers, domestic banks ready end 2012

* FSB to examine role of auditors at financial firms

* FSB sets up derivatives group to help meet G20 deadline

* FSB may not replace Hildebrand who stepped down Monday

By Katie Reid and Huw Jones

BASEL, Switzerland/LONDON, Jan 10 (Reuters) - Global regulators said on Tuesday they would complete work on a tougher supervisory framework for big insurers and systemically important domestic banks by the end of the year.

The Financial Stability Board (FSB) also said its work on rules for the "shadow banking" sector, such as private equity groups, hedge funds and money market funds, continued with further review in March.

FSB Chairman Mark Carney said it would be surprising if there would be a single approach across the shadow banking system.

"The insurance discussion is much more mature than the shadow banks discussion," Carney told a news conference.

Insurers argue strongly they were not a cause of the financial crisis and should not be saddled with capital surcharges like the biggest cross-border lenders will be.

Carney said there are no plans for now to publish the names of insurers that will undergo more intense supervision.

The FSB is the regulatory task force of the world's group of top 20 economies (G20) and is charged with implementing pledges to reform banks and markets after the financial crisis.

It has already completed work on new capital and liquidity rules from 2013 for banks, known as Basel III.

Capital surcharges for the world's biggest banks were also approved last November and the board is now turning its attention to extending a tougher supervisory framework to all systemically important financial institutions, such as insurers, clearing houses and large domestic-focused banks.

The exact mechanics and degree of national discretion over global rules for the domestic banks was still being discussed and was "moving forward quite smartly", Carney added.

The FSB said it would deliver concrete proposals in April for a global "legal entity identifier" aimed at making it easier to spot who is behind each market transaction.

NEW RULES

The board also said for the first time it was looking at how audits of banks and other financial firms could provide early warnings of problems to supervisors "and to encourage work to improve the intensity and effectiveness of regulation of external audits".

The Big Four auditors -- KPMG, Deloitte, PwC and Ernst & Young -- have been criticised by policymakers for failing to highlight problems at banks in the run up to the crisis.

The G20 has pledged to introduce tough new rules to inject transparency and better supervise the $700 trillion derivatives market by the end of this year.

Progress in the United States and European Union is slow in parts, casting doubt on the G20 deadline, and the FSB on Tuesday set up a coordination group to keep the reforms on track.

"An initial focus of the group will be on establishing adequate safeguards for a global framework for central counterparties so that, by June 2012, authorities can make informed decisions on the appropriate form of central counterparties to meet their commitment that all over-the-counter derivatives be centrally cleared by end-2012," the FSB said.

Carney, who is also governor of the Bank of Canada, took up the reins at the FSB last November, replacing Mario Draghi who left to become European Central Bank president.

Philipp Hildebrand stepped down as vice-chairman of the FSB on Monday after he resigned as chairman of the Swiss National Bank over a currency trade by his wife.

Carney said the "consequence is that it does not follow there is a replacement" to Hildebrand at the FSB.

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