MUMBAI, March 31 Hedge funds and large,
financial institutions must be more closely regulated to
better assess financial system risk, a G20 working group on
regulation recommended in a report released on Tuesday.
Credit rating agencies should also be subject to
supervision, and compensation schemes needed to be considered
when assessing a financial firm's risk-taking and
risk-management, the final report of the G20 Working Group on
Enhancing Strong Regulation and Strengthening Transparency
Among 25 recommendations to be presented to G20 leaders on
Thursday, the report called for greater cooperation between
regulators, at both national and international levels, to
assess and limit systemic risk.
"The first line of defence in preventing instability in the
financial system is sound regulation and recent events have
clearly demonstrated that regulatory failures in some
jurisdictions have fuelled the current crisis," it said.
Political leaders and finance ministers from the G20
industrialised and emerging economies will hold a one-day
summit in London on Thursday to discuss how to respond to the
crisis that has driven much of the global economy into
The report recommended capital reserves be built up by
banks in good times to withstand large shocks, and that G20
nations support the adoption of Basel II rules for capital
"The regulatory framework needs strengthening, and it is
essential to get micro-prudential regulation right in order to
promote financial institutions that are sound and manage risks
appropriately," the report said.
> For a factbox on the recommendations, see [ID:nBOM166910]
> For other G20 stories, please see [ID:LA715782]
(Reporting by V. Ramakrishnan and Saikat Chatterjee; Editing
by John Mair)