OECD Archives - The Industry Spread

Philip R Lane: Welcome address – “Challenges in the digital age”

July 16, 2019 by Reg Hub Leave a Comment Filed Under: Central Bank Annoucements, Central Bank News Tagged: crypto assets, digital sector, ECB, ICT, monetary policy, OECD

It is a pleasure to welcome all of you to the ECB for this conference.¹ As a central bank, understanding the myriad implications of digitalisation for the economy is a high priority: the presentations at this conference will provide us with the latest thinking and new insights, helping us in our economic assessments. Of course, digitalisation is also reshaping financial systems and payment systems, while at the same time stimulating intense interest in concepts such as crypto-assets and central bank digital currencies. However, the focus of this event is on the real economy, so I will not dwell on these other topics today.

Let me mention just a few economic implications of digitalisation that require careful assessment by central banks. First, substantial investment is required to reap the benefits of digitalisation. A distinctive feature of digital technologies is their reliance on intangible capital. For instance, according to national accounts data, the share of investment devoted to intellectual property has almost doubled over the past two decades. This measure, however, is bound to underestimate the actual importance of intangible capital, since many of its components are not included in the national accounts.² There is some evidence that the weakness of physical capital investment over the past few years, if not longer, can to a large extent be explained by intangibles.³ At the same time, the difficulty of measuring investment in intangibles points to a more general challenge in quantifying digitalisation and its implications. Furthermore, the global mobility of intangible assets means that it is also difficult to attribute the production and use of such assets to particular jurisdictions.⁴

philip-r-lane

The balance of evidence suggests that Europe is somewhat lagging behind its counterparts in the development of the digital sector. For example, according to OECD estimates, the share of the information and communications technology (ICT) sector in value added is less than 5% for most euro area countries, which compares with around 7% for the United States and 8% for Japan.⁵ Similarly, when it comes to research and development (R&D) spending, the EU is now trailing both China and the United States, especially in the business sector.

Financing is one factor that may hold back R&D in the European digital sector. For instance, intangible investment is difficult to collateralise and therefore harder to finance in a conventional bank-centred financial system like the one prevailing in continental Europe. A deeper venture capital market (together with progress in developing a single pan-European market for digital products) could support the development of the tech ecosystem in the euro area, underlining the importance of capital markets union and the Single Market for goods and services.

In relation to labour market dynamics, the structural changes associated with digitalisation imply the contraction, or elimination, of some occupations but also the emergence of new types of jobs. Since the first industrial revolution, technology has always created more jobs than it has destroyed. Similarly, most advanced economies are currently enjoying the highest employment rates of the past three decades.⁶ In addition, digital automation can spur productivity, as I will discuss shortly, and itself tends to create new employment opportunities.

Furthermore, digitalisation offers the possibility of reducing search costs in the labour market and making the search and matching process more efficient. Indeed, in tracking labour market conditions, central banks can also benefit from the high-frequency data generated by online job searches⁷.

Above all, the ongoing digital transformation holds the promise of large productivity gains. For instance, a recent ECB survey of large euro area companies highlighted that firms see the potential for digital technologies to increase productivity growth, in particular by promoting knowledge sharing and enabling more efficient production processes.⁸

Productivity growth plays an important role in the conduct of monetary policy. In principle, higher productivity growth spurs investment, and expectations of higher future income encourage consumers to spend more today. Moreover, higher productivity growth increases the equilibrium real rate of interest, which is a central factor in calibrating monetary policy.

In practice, however, despite the promise of increased efficiencies thanks to digital technologies, the productivity growth that we have seen in Europe, and indeed most advanced economies, has been lacklustre for more than two decades. This weakness of productivity growth despite the substantial digital innovations remains a puzzle. How this puzzle will be resolved remains to be seen. What appears fairly clear, however, is that in the light of the overall disappointing productivity growth we have seen in recent years, the contribution that digitalisation is making to productivity appears, for the time being, relatively limited.

There may also be interactions between technology and trade. Digital technologies, together with trade liberalisation, have facilitated the growth of global value chains. This has been associated with both an increased synchronicity of global inflation⁹ and a dampening effect on domestic inflation. That said, results for the euro area are less conclusive.¹⁰

In addition, digitalisation may affect price-setting behaviour through a variety of mechanisms. Digital pricing algorithms may also alter the nature of price-setting, at least in some sectors of the economy. For instance, by taking into account shifts in demand and supply more readily, such algorithms may accelerate the responsiveness of prices to shocks.¹¹

The expansion in online sales also facilitates price comparisons and alters market structures. Of course, the impact is much broader than just actual online sales, since online prices also affect brick-and-mortar prices.¹² At the same, digitalisation may foster the rise of “superstar” firms that acquire a dominant market position on the back of the constellation of high fixed costs and low variable costs associated with many digital ventures. The market power of such firms may have long-term implications for price dynamics.

Current estimates point, however, to the rise of e-commerce having relatively modest effects on inflation. A recent ECB study found that e-commerce has reduced non-energy industrial goods inflation by 0.1 percentage points annually since 2003. Studies by other central banks have found similarly small effects.¹³ This does not preclude the possibility that we will see larger effects in the future, as online commerce grows further in size and scope.

I am sure that these topics will feature in your discussions over the next two days: I look forward to learning from your contributions.

Safer banks and strengthened bank accountability

June 25, 2019 by Reg Hub Leave a Comment Filed Under: Central Bank Annoucements, Central Bank News Tagged: IMF, OECD, RBNZ, Reserve Bank Of New Zealand

News release issued by the Minister of Finance

The Coalition Government today announced moves to make New Zealand’s banking system safer for customers through a new deposit protection regime, and work to strengthen accountability for banks’ actions.

The in-principle decisions are part of Phase 2 of the Review of the Reserve Bank Act, which is making sure the 30-year old laws regulating our banking system are up to scratch.

“Now is the right time to check we have the tools to make sure banks meet their obligations to New Zealanders, and the powers to enforce them,” Grant Robertson says.

Grant robertson

“The Government is also making sure New Zealand follows international best practice for promoting public confidence in our banking system, including on the issue of depositor protection.”

The Review of the Reserve Bank Act was agreed in the Coalition Agreement between Labour and New Zealand First. The Coalition Government has already delivered on Phase 1 of the review, by updating New Zealand’s monetary policy settings to require the Reserve Bank to focus on employment outcomes as well as price stability.

Cabinet today signed off an in-principle decision to introduce a deposit protection regime in New Zealand as a result of work under Phase 2 of the review.

“New Zealand has been an outlier for many years in that we don’t have a formal deposit protection regime to support Kiwis if a bank were to fall over,” Finance Minister Grant Robertson says.

“Our banks are safe and sound. However, the OECD and IMF have said that our banking system might be more vulnerable in a crisis because we don’t have a deposit protection regime. A deposit protection regime will increase public confidence in the banks.”

The Government is proposing a limit between $30,000 and $50,000 for the deposit protection regime. This would cover 90% of individual bank deposits in New Zealand, which is similar to international schemes. It follows consultation with the sector.

“Overseas experience shows that bank failures can be the result of a few bad decisions that normal bank customers had no influence over and no idea about. A deposit protection scheme will help protect customers like a young couple saving a deposit for a house, people saving for their retirement, or the small business operator who keeps money aside for a rainy day.”

The Government is also making sure bank regulators in New Zealand have the right tools to hold the banks and their executives to account.

Cabinet has decided that the next consultation in Phase 2 of the RBNZ review will look at whether the Reserve Bank’s supervisory regime is sufficiently strong. It will also review the enforcement tools the Reserve Bank has, including whether penalties are tough enough to discourage certain behaviour.

The Government is considering adopting elements of overseas frameworks, which would increase the responsibilities and accountabilities of senior executives for the actions of New Zealand’s banks and licensed deposit-takers.

Australia’s Bank Executive Accountability Regime and the UK’s Senior Managers Regime are two examples of frameworks that assign duties to individual decision-makers at banks, so that if things go wrong the individuals directly responsible can be identified and held to account.

“These regimes go a step further than New Zealand’s current Director Attestation Regime for banks, by also holding senior managers to account for the prudent management of their bank within their area of responsibility,” Grant Robertson says.

Final decisions on the full details of a deposit protection regime and strengthened accountability standards will be announced in early 2020.

More information:

Reviewing Reserve Bank Act

Shaktikanta Das: Evolving role of central banks

June 20, 2019 by Reg Hub Leave a Comment Filed Under: Central Bank Annoucements, Central Bank News Tagged: Basel III, BCBS, CCCB, EME, Financial Crisis, IMF, LCR, NSFR, OECD, Shaktikanta Das, World Bank

It gives me great pleasure to be here at the LBSNAA for the inauguration of this Phase V mid-career programme for IAS officers. I have many pleasant memories of this premier training institution where I had come after joining the IAS in the year 1980. I am thankful to Shri Sanjeev Chopra, Director of the Academy and members of the Faculty for having invited me to address such an august gathering.

2. I am sure each one of you has worked hard and achieved many milestones over the path of your long careers. Where you stand today is perhaps the most important juncture in your career as you prepare for even higher roles and responsibilities in the Indian administrative structure. I understand that most of you would have spent around 28 to 31 years in the service. From now on you would be occupying top positions in central and state governments. At these levels, you would be responsible for policy making as well as guiding implementation of major programmes and schemes. You have to carefully weigh and assess the suitability of various policy options and advise the government on the way forward. While discharging your role at such high positions, it is very important to remember two quotes from the father of the nation, Mahatma Gandhiji: (i) “Be the Change that you wish to see in the World”; and (ii) “Recall the face of the poorest and the most helpless man whom you may have seen and ask yourself, if the step you contemplate is going to be of any use to him”.

3. In senior leadership positions, you will have the power to make a difference in the lives of the people of this nation. Equally, you would have the power to make a difference in the lives of individuals whom you lead. Be sure to be their mentor, guide and inspire your team to dedicate themselves to the service of the nation. My advice to you would be to work towards introducing systematic changes in the functioning of our bureaucracy at various levels to further improve the delivery of public schemes and policies. More importantly, adhering to transparency and elimination of corruption should also be your top priorities.

4. As policy formulation of any kind is a learning process, policy makers are often guided by past experiences. Therefore, today I have chosen to speak on the topic of “Evolving Role of Central Banks”.

Evolution of Central Banks

5. Since the beginning of central banking, which goes back at least to the 17th century with the establishment of the Swedish Riksbank in 1668, the role and functions of monetary authorities have undergone several changes. Some of the oldest central banks were set up with the primary objective of providing war time finance to governments and managing their debts. Since then, their role has evolved over time in line with the changes in economic systems. They have now transitioned into modern day central banks which function with the objective of supporting sustainable economic growth through the pursuit of price and financial stability.

6. In the case of India, the Hilton Young Commission (1926) recommended setting up of the Reserve Bank of India which was to be entrusted with pure central banking functions. There is, however, a long history, which can be traced back to 1773, of the efforts to set up in India a banking institution, with some elements of a central bank. Consequently, the Reserve Bank was set up, and it commenced operations from April 1, 1935 with the Reserve Bank of India Act, 1934 providing the statutory basis for its functioning. It was originally set up as a shareholder’s bank, which was nationalised later in 1949. Since then, its role has evolved over time from supporting the planned development of the economy to a full service central bank.

Shaktikanta Das

Role of Central Banks during Global Financial Crisis

7. Let me now elaborate on the role of central banks during crisis period. While it is true that crises lead to reforms, experience shows that other extraneous and complex factors can lead to future financial crises. For instance, despite learning lessons on inadequacies of regulation and supervision in many emerging economies during the East-Asian crisis of 1997, the occurrence of global financial crisis of 2008 originating from advanced countries could not be avoided. While macroeconomic vulnerabilities derived from large current account deficits, fiscal imbalances, excessive leverage and inadequate regulation and supervision of financial institutions were some of the most common features of this crisis, it was of truly global nature with much more intensity and depth.

8. Given the speed of transmission of the impact of global financial crisis across countries, central banks were once again at the forefront of policy response. This time, however, typical monetary policy responses of central banks were not enough to curb the turmoil in financial markets. In the summer of 2007, major central banks began with traditional monetary policy tools and reduced the interest rates. The economic situation, however, deteriorated precipitously and central banks were not left with much headroom in their traditional policy tool kit to preserve domestic financial stability. Thus, central banks – particularly in advanced economies – took recourse to quantitative easing through unconventional policy measures to contain systemic risks, shore up confidence in the banking system and arrest economic slowdown. These policy measures were unconventional in terms of instruments and operational targets.¹ Undoubtedly, the quantitative easing adopted by central banks was one of the boldest policy experiments in the modern history of central banking. Another unconventional measure was the use of negative policy interest rates, though for achieving different objectives. The impact of these unconventional monetary policies is well known by now as large amount of liquidity created in the international financial system was channelled to EMEs in search of yield, creating boom and bust cycles in those economies.

Regulatory Response to the Crisis

9. From a supervisory and regulatory perspective, the crisis revealed some significant fragilities in the system. Basel Committee on Banking Supervision (BCBS) succinctly summarised these weaknesses: an excessive build-up of on and off-balance sheet leverage, accompanied by a gradual erosion in the level and quality of the capital base; insufficient liquidity buffers; a pro-cyclical deleveraging process; and the interconnectedness of systemic institutions through an array of complex transactions². The global regulatory response which took shape in the form of the Basel III framework focussed on increasing the level and quality of capital, constraining bank leverage, improving bank liquidity and limiting pro-cyclicality, along with adding macro-prudential elements to regulations.

10. Keeping up with the traditionally prudent approach, India’s implementation process for Basel III reforms has been somewhat more stringent in terms of schedule as well requirements. Domestic factors and policy priorities continue to guide the Indian approach to financial sector regulation. Thus, the Reserve Bank has put in place the frameworks of capital requirements, countercyclical capital buffer (CCCB), leverage ratio, Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR)³. More recently guidelines on large exposures were issued which became effective from April 1, 2019.

11. Another episode of stress witnessed across EMEs including India was during the taper talk period of mid-2013. The Indian economy was vulnerable due to the then prevailing high inflation of around 10 per cent and large current account deficit at 4.7 per cent of GDP. The Reserve Bank resorted to a host of policy measures including monetary tightening, restriction on gold import, special dollar swap window for public sector oil companies, special concessional swap window for banks for attracting Foreign Currency Non-Resident (Bank) deposits, increase in overseas borrowing limit of banks, and raising FII investment limit in government debt.

What do we Learn?

12. Though there is no unique solution to these policy issues confronting the global economy, we could clearly draw three broad inferences:

First, as we have discussed earlier, central banks’ role is important, both during normal as well as crisis times. While mandates for central banks broadly remain the same during both normal and stress periods, the weightage attached to competing objectives and the choice of policy instruments become crucial in the crisis periods.
Second, communication by central banks is very important which may be different in crisis times than in normal times. Not only it helps convey decisions in a more transparent way, it also signals the present and future policy stance of central banks. In fact, unconventional monetary policy measures undertaken by central banks during the crisis period worked mainly through the confidence and signaling channels. The US Federal Reserve’s statement on December 16, 2008 provided a clear forward guidance for the markets. On the other hand, only a mere hint of monetary policy normalisation by the US Fed (popularly known as taper tantrum) in May 2013 triggered portfolio outflows from some emerging market economies (EMEs)⁴. This led to high volatility in equity, debt and currency markets. In fact, such market volatilities in EMEs could have been avoided through clear advance communication on calibrated withdrawal of monetary policy accommodation.In the Indian context, the Reserve Bank communicates its monetary policy decisions in terms of changes in the ‘Policy Repo Rate’ and ‘Stance’ based on an assessment of the current and evolving macroeconomic situation. The stance of the monetary policy is communicated as neutral, accommodative or calibrated tightening in consonance with the mandate of achieving the medium-term inflation target of 4 per cent ± 2 per cent, while keeping in mind the objective of growth. The Reserve Bank’s approach to communicate the policy stance is to explain it with rationale, information and analysis to enable market participants and stakeholders to have better clarity about the Reserve Bank’s assessment of the evolving situation.
Third, the global financial crisis was also a testimony to the fact that coordination of policies both at the global and domestic level is important for macro-financial stability. It is only through better coordination between central banks and between monetary and fiscal authorities in the domestic sphere that adverse consequences of spillovers and spillbacks could be contained. The fact remains that as most policy makers (monetary and fiscal) have domestic mandates, international cooperation may be hard to engender if international outcomes militate against domestic policy preferences. Therefore, success of coordination will depend on deft calibration of policies by major stakeholders.

Issues in the Current Context

13. Even after more than a decade of global financial crisis and six years after taper-tantrum, the global economy is still not on a stable growth path. Following an upward swing in 2017, there has been growing evidence that global growth and trade is weakening. Unsettled trade tensions and developments around Brexit are imparting further downside risks to the outlook. While signs of weakening world industrial production and trade volume were discernible in early 2019, other business confidence indicators have also dampened in many OECD countries. Taking cognisance of these factors, projections of world growth for 2019 have been revised down by the IMF, World Bank and the OECD in their latest assessments. Likewise, global trade is projected to expand at a moderate pace in next two years in line with the subdued investment outlook for many major economies.

14. While the global economy is still to recover to the pre-crisis growth path, India has continued to exhibit robust growth driven by consumption and investment demand in the last three years. However, in more recent period, we have seen a loss of speed in the second half of 2018-19 as some drivers of growth, notably investment and exports, slowed down. On the supply side, activity in agriculture and manufacturing moderated sharply. It is expected that the end of political uncertainty associated with an election season and continuation of economic reforms would lead to a reversal of the current weaknesses in some of the indicators in our economy.

15. To reinvigorate growth by improving investment climate, a healthy financial sector, inter alia, plays an important role. In this context, the Reserve Bank has accorded high policy attention to reform both banking and non-banking sectors. We have been taking several steps to strengthen the regulatory and supervisory frameworks in order to increase the resilience of the banking system. New guidelines have been issued for resolution of stressed assets, which will sustain the improvements in credit culture.

16. In the non-banking sector, the Reserve Bank has recently come out with draft guidelines for a robust liquidity framework for the NBFCs. We are also giving a fresh look at their regulatory and supervisory framework. It is our endeavour to have an optimal level of regulation and supervision so that the NBFC sector is financially resilient and robust. The Reserve Bank will continue to monitor the activity and performance of this sector with a focus on major entities and their inter-linkages with other sectors. The Reserve Bank will not hesitate to take any required steps to maintain financial stability.

17. We are also taking a number of steps to improve commercial viability of Urban Co-operative Banks (UCBs). These steps include proposed establishment of an Umbrella Organisation and a Centralised Fraud Registry for UCBs and governance reforms at the board level. We are also encouraging voluntary merger and consolidation in the sector to help reduce operating costs, diversify risks and economise on capital.

Interplay between Inflation and Growth Objectives

18. At the end, let me highlight the role of the Reserve Bank in the context of the mandate under the Reserve Bank of India Act, 1934: “to regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage”. This mandate has been interpreted over time as to maintain price stability, financial stability and economic growth with the relative emphasis between these objectives governed by the prevailing macroeconomic conditions. This role of the Reserve Bank has been restated as per the amendment in the RBI Act in May 2016 according to which “the primary objective of the monetary policy is to maintain price stability while keeping in mind the objective of growth”. Therefore it has been our endeavour in the Reserve Bank to ensure price stability under the flexible inflation targeting regime and simultaneously focus on growth when inflation is under control.

19. In a flexible inflation targeting framework, a delicate balance needs to be maintained between Inflation and growth objectives. The relative emphasis on inflation and growth depends on prevailing macroeconomic scenario, inflation and growth outlook and signals emerging from incoming data. Post global financial crisis, it has been recognised that price stability may not be sufficient for financial stability and therefore financial stability has emerged as another key consideration for monetary policy, though jury is still out as to whether it should be added as an explicit objective of monetary policy. The fact remains that though the focus of monetary policy is mainly on inflation and growth, the underlying theme has always been financial stability.

Concluding Observations

20. While India emerged relatively unscathed from the global financial crisis, there should be no room for complacency. As a member of the several multilateral institutions, India actively participated in post crisis reforms of the international regulatory and supervisory framework under the aegis of the G20 and the Basel Committee. India remains committed to adoption of international standards and best practices in a phased manner, calibrated to our domestic conditions, wherever necessary.

21. From the perspective of the Reserve Bank, we will continue to focus on effective communication and coordination with all stakeholders to achieve broader macroeconomic objectives of price stability, growth and financial stability.

Claudia Buch: Evidence-based policy – potentials, infrastructures and the role of international organizations

May 28, 2019 by Reg Hub Leave a Comment Filed Under: Central Bank Annoucements, Central Bank News Tagged: Deutsche Bank, Deutsche Bundesbank, evidence, FSB, G20, OECD

The paper has been prepared for the symposium on the occasion of the 20th anniversary of the studies of international relations at the University of Dresden. It has benefited greatly from comments and inputs by Edgar Vogel and Regina Riphahn. All errors and inconsistencies are my own.

1 The Role of Evidence-Based Policy

Policy decisions in today’s world have to be taken in a dichotomous state between good evidence and public distrust in expert opinion.

On the one hand, the conditions for evidence-based policy have seen excellent progress. Availability of and access to high-quality data have improved, academic research provides a range of methodologies to conduct causal impact assessments, academic curricula incorporate these methods, and administrations are staffed with highly qualified personnel. Overall, trust in scientists appears to be strong. Surveys for the US show that trust in scientists has been at a fairly high and stable level since the 1970s¹. Surveys for the US and the UK reveal areas where the public trusts scientific experts more than the government². Most importantly, trust is not only inspired by the perceived quality of policy outcomes: rather, citizens want a transparent and objective decision-making process.³

On the other hand, trust in governments and political institutions in particular seems to have eroded since the Global Financial Crisis. Many public policy debates are characterized by skepticism via-a-vis experts and expert knowledge.⁴ Populism is on the rise in many countries. 83% of the respondents to a Eurobarometer poll see “fake news” and online disinformation as a threat to democracy.⁵

Against this background, evidence-based policy is an undogmatic concept. Rather than taking a normative approach to policy, it adopts a positive perspective: Defining policy objectives remains within the realm of the democratic policy process. But, given the policy objectives, better evidence can contribute to selecting the right policy instruments, assessing the impact of these instruments, and potentially, revising them.

The potential benefits of applying good analysis to problems facing today’s societies are in fact large. Historically, the interaction between scientific knowledge, policy-making, and entrepreneurial activity catalysed by the Enlightenment has brought significant improvements in human well-being.⁶ Notwithstanding the huge challenges facing us globally in terms of inequalities, environmental risks, climate change, and global tensions, societal conditions have improved across many dimensions. Improving information on which to base policy decisions thus promises large potential gains.

However, putting evidence-based policy into practice is a challenging task and requires efforts and contributions from several stakeholders. The remainder of this text presents examples of evidence-based policy, discusses the role of international institutions in facilitating evidence-based policy, and presents thoughts on how setting up the right infrastructures can reduce the costs of evaluations and improve their quality.

2 Evidence-based policy can “work”

One way to promote an evidence-based agenda is to show that evidence-based policy in fact works and that its challenges are common to many fields. Here are three examples from financial regulation and supervision.

a) Evaluation of financial sector reforms

The global financial crisis has exposed the fault lines in the regulatory system for financial markets. In 2011, G20 members thus agreed on reforms addressing the “systemic and moral hazard risks associated with systemically important financial institutions”.⁷ Policies have been implemented in order to improve loss absorbency and resilience, recovery and resolution, and supervision. These reforms target more narrowly defined objectives – by focusing on the responses of individual banks – and more broadly defined objectives in terms of aggregate outcomes such as the functioning of financial markets.

Many of these reforms have been implemented to date, and a first evaluation of their effects becomes feasible. Such evaluations have to take a structured approach in order to balance an assessment of costs and benefits, and to take a societal rather than private perspective. What appears to be a cost of financial regulation to individual market participants may well be of benefit to society overall by making the system more efficient and resilient.

As an instrument to operationalize such complex evaluation projects, the G20 leaders endorsed a framework for the post-implementation evaluation of G20 financial regulatory reforms in 2017.⁸ The framework provides an umbrella for the Financial Stability Board’s (FSB) policy evaluation projects and serves as an orientation for the practical conduct of post-implementation evaluations. It rests on two pillars. First, the framework contains provisions regarding the decision-making process and the interaction of relevant stakeholders such as regulators or market participants. This is an important element of transparency and accountability of the FSB. Second, the framework provides guidance on analytical aspects of evaluations and engenders a common understanding of what constitutes “good” evaluations and robust evidence.

Regarding analytical guidance, the framework stipulates that each FSB evaluation should answer three key questions. First, did the reforms “cause” an outcome (“Attribution”)? Second, did the reform have similar effects across markets, states of the world, or jurisdictions and regions (“Heterogeneity”)? Did the reform achieve its overall objective (“General equilibrium”)? In the spirit of the undogmatic concept outlined above, the answers to these questions should provide detailed information to policymakers on the impact of their policies on observed economic outcomes. They should enable informed policy discussions without pre-empting decisions regarding adjustments of policies.

The first two evaluations under the framework were delivered to the G20-Summit in November 2018. The first project investigated to what extent post-crisis reforms incentivized central clearing of OTC-derivatives. The second project evaluated the effect of reforms on the financing of infrastructure.⁹ More projects are underway. An evaluation of reform effects on SME financing will be delivered to the G20-Summit this year with a consultation report published soon – open to comments from all stakeholders. Another project considering the FSB’s reform agenda on ending Too-Big-To-Fail (TBTF) has just started. This evaluation project will assess whether reforms are effective in reducing the systemic and moral hazard risks associated with systemically important banks. It will also examine the broader effects of the TBTF-reforms on the overall functioning of the financial system. The final report is scheduled for the G20-Presidency in 2020.¹⁰

b) Macroprudential policy

Macroprudential policy¹¹ is a relatively new policy field. Its goal is to preserve financial stability and to prevent the build-up of systemic risk that may have adverse effects for the functioning of the financial system and for the real economy. New institutions have been tasked with the implementation of macroprudential policies, and new policy instruments have been introduced. Nonetheless, uncertainty about the state of the financial system and the effects and effectiveness of these policy instruments is high. This uncertainty entails two risks: the risk of acting too late (inaction bias) and the risk of choosing an inappropriate instrument or inadequate calibration.

Both risks can be mitigated if macroprudential policy is embedded in a structured policy process. Such a policy process involves four steps. In a first step, the policy objective(s) of macroprudential policy need to be specified. Macroprudential authorities use different definitions of the policy objective, but all aim at reducing systemic risk arising from externalities for the functioning of the financial system. In a second step, intermediate objectives need to be specified, and appropriate indicators need to be chosen. Intermediate objectives are linked to the drivers of systemic risk such as leverage, risk-taking incentives, connectedness, or exposure to common shocks. In a third step, the activation or recalibration of policy instruments that address systemic risk externalities needs to be considered. The decision on whether and how to activate policy measures should be based on a structured process of ex-ante policy evaluation. Such an ex-ante evaluation provides information about the relative performance of different instruments in contributing to reducing systemic risk. In a fourth step, and once sufficient time has elapsed, the effects of the instruments need to be assessed in an ex-post evaluation. This step provides information about the effectiveness of the measure(s) taken, about intended or unintended side effects, and it also serves as an input into a possible recalibration of the policy instruments. In a nutshell, this is what the FSB evaluations mentioned above is about.

The macroprudential regulation of residential real estate markets in Germany is a good example for how the macroprudential policy cycle can be put into practice.¹² Currently, macroprudential instruments for the real estate market in Germany are not activated. Before activation of an instrument, authorities are required to perform an in-depth ex-ante evaluation. The analysis should quantify the expected impact, for instance on the resilience of the financial system or on credit markets. The output of such an analysis should inform the calibration process and provide an assessment of the expected costs and benefits. After activation of the instrument, a compulsory ex-post evaluation should provide not only information on the instrument’s effectiveness but also on potential unintended consequences. The results from this step can then feed into a potential re-calibration of the instrument.

c) Learning from other policy areas

With initiatives such as the one by the FSB, evidence-based policy has become part of the policy process in the area of international financial regulation. There are other policy areas and international initiatives which can inform this process – with regard to potential avenues to success and pitfalls to be avoid. In order to promote learning from other policy areas and to facilitate a structured dialogue between policymakers and academia, the German National Academy of Science Leopoldina, in cooperation with the Deutsche Bundesbank, organized a workshop in 2018.¹³ Here are examples of issues that were addressed in this workshop.

In Germany, the Federal Ministry of Finance has been conducting so-called “spending reviews” since 2018; analysing revenues and spending decisions and scrutinizing their effectiveness and efficiency.¹⁴ The German National Regulatory Control Council has developed a concept for structuring ex-post impact assessments applying to all funds spend by the federal government and, more recently, argued in the favor introducing quality standards for such evaluations.¹⁵

An area in which policy evaluation in Germany has advanced most are labor market reforms. In the early 2000s, the German government embarked on comprehensive labor market reforms aimed at reducing unemployment, improving access to work, making new job relationships more sustainable, and enhancing the efficiency of the employment agencies. Public interest in a deeper investigation of the effects of these reforms was sparked by persistently high unemployment rates and the perceived ineffectiveness of policy. There were a number of critical factors that affected evaluations of these policies. First, the evaluation was designed with a view to providing a systematic and broad overview. Second, academic research had a range of appropriate tools available, making it possible to provide robust results within a reasonably short time-span. Third, a mandatory reform evaluation was enshrined in law. Finally, a common concept developed by participating research institutions provided guidance on practical and analytical aspects of the evaluation.

Another example of evidence-based policy is the “What Works” Network, an initiative launched by the British government in 2013.¹⁶ The network consists of independent What Works Centres and affiliate members. The What Works Centre for local economic growth, for instance, analyses which policies are most effective in supporting local economic growth. In practical terms, it reviews and summarizes existing evidence in meta studies, builds databases on relevant work or provides guidance to practitioners on how to meaningfully approach evaluations, for example by providing technical training, supporting piloting and testing local economic schemes or developing case studies which portray particularly useful evaluation techniques.

3 The role of international organizations

Evidence-based policy promises huge gains – better policies at potentially lower costs. But evidenced-based policy is not a holy grail. It does not overturn the political dynamics that shape policy discussions. However, it does promise a better, more structured, and more informed policy debate.

At the national level, electoral cycles have a tendency to work against a structured evaluation of policies. Good institutional design at the national level can thus serve to sustain policies and to ensure bi-partisan support to evaluations. The advantage of entrusting independent institutions with evaluations is that they can operate outside the perimeter of day-to-day pressure from political debates. At the same time, the further away responsibility for policy evaluation is placed from the political discourse, the more political accountability becomes an issue. One mechanism that can be used to overcome this concern is enhanced transparency: public consultations, transparency with regard to evaluation methods, replicability of studies, and clear responsibilities are mechanisms to ensure transparency and thus credibility.

International organizations have an important role to play as well. They can enhance transparency about evaluations and institutional designs. Rather than getting involved in detailed discussions about national policy design – where national constituencies may question their democratic legitimacy – international organizations can help setting up evaluation frameworks and policy structures. This can be part of their surveillance work. For instance, the European Commission’s “Better Regulation Guidelines”¹⁷ provide guidelines on how the impact of EU-regulations should be evaluated. The OECD has published a framework for regulatory policy evaluation.¹⁸

Obviously, objective cross-country evaluations are challenging, if not infeasible. Can we compare the effects of policies that have been implemented with very different objectives and under very different institutional settings? Despite these hurdles, benchmarking and improving information on evaluations is a low-hanging fruit. International organizations provide a range of indicators. However, information on the share of the underlying policy programs that are subject to evaluation is not easily available. A survey run by the OECD shows that members have progressed in making regulatory policy more fact-based. Ex-post evaluation has, however, not always become second nature to institutions involved in the design of regulatory policies.¹⁹

An additional important task for international organizations can be the establishment and maintenance of repositories of evaluation studies. Repositories provide a compact overview of relevant evaluation work in a certain field. Tailored keywords and meta-information allow narrowing down the set of studies to be considered. In this way, repositories provide relevant information for academics, policymakers, the public, journalists, and industry. This facilitates more efficient evaluation work in the official sector (including international organizations), for academic researchers, and the industry.

Repositories are well-established in some fields such as medicine, where the Cochrane Library or the McMaster Health Forum²⁰ provide structured evidence on medical research, also by compiling meta-studies. Similarly, in the field of development economics, the International Initiative for Impact Evaluation (3ie) collects information on the effects of policies and programs in development economics. The J-PAL initiative does the same in the case of poverty-reduction projects. The OECD’s International Network on Financial Education (INFE)²¹ is a platform that facilitates the exchange of experiences on policies promoting financial education. It does so by collecting data and developing comparative reports. Finally, the Bank for International Settlements (BIS) recently launched a “Financial Regulation Assessment: Meta Exercise (FRAME)”, which enhances the transparency of existing studies and improves efficiency in terms of collecting relevant information.²²

4 Infrastructures supporting good evaluations

Many projects and initiatives show that policymaking can benefit from sound evaluations and from making the best use of available knowledge. Evidence-based policy can help improve and continue successful policies, while finding negative or unintended consequences can point to areas for improvement. But evidence-based policy comes at a price. Rigorous evaluations take time, and they require input of human resources and data. Not least, evaluations require good communication on how to interpret findings and how to put them into perspective.

These costs of evaluations can be reduced by setting up the right infrastructures:

Legal mandates and administrative procedures: There will be a natural tendency of policy evaluations to be in a time and resource conflict with other administrative tasks. Moreover, unless clear procedures for evaluations have been established, political considerations may dominate the administrative agenda. Against this background, establishing and strengthening legal mandates for mandatory evaluations can overcome political biases and the tendency toward inaction. Clear legal mandates can help to identify and agree on policy objectives, indicators, and benchmarks upfront. And they help to embed procedures for policy evaluations into mandates and day-to-day work of administrations, thus helping to avoid conflicts with other tasks.

Repositories and information platforms: Generating, using, and adapting evaluation projects will happen more easily if relevant information is readily available. One way to facilitate the flow and exchange of information are repositories of evaluation studies. In addition, an important prerequisite for improving the dialogue between researchers and policymakers is that each side should learn to “speak the language” of the other side, at least to some extent. This requires clear communication of research results and methods, and the translation of high-level policy objectives into measurable indicators.

Data infrastructures: Evaluations require good data, but data infrastructures can be costly. The costs of acquiring data can be minimized if data are collected early on and, ideally, if data needs are considered when drafting new legislation. Notwithstanding the key importance of ensuring strict data confidentiality, broad use of the available data will help to improve the quality of evaluations.

Managing incentives: Ultimately, policy evaluations will be used routinely only if the right incentives for conducting them are in place. Administrations can be incentivized to conduct evaluations through institutional structures which are conducive to evaluations and legal mandates to evaluate policies. The incentives of researchers will depend, ultimately, on the research community’s criteria for assessing the quality of academic work. Giving researchers access to data can be an incentive to cooperate. But the academic community can do more: rewarding replication studies can provide additional incentives to cooperate.

Bringing more and better evidence into political decisions is beneficial to society. To make progress, we need commitment from and an open and continuous dialogue with all stakeholders. The more we can build on available infrastructures, the lower the costs of evaluations will be, and the better we can learn from past experience. Good policy design and good institutions may, ultimately, increase transparency and accountability, thus countering skepticism about “expert” projects.

John C Williams: When the facts change…

May 16, 2019 by Reg Hub Leave a Comment Filed Under: Central Bank Annoucements, Central Bank News Tagged: Federal Reserve Bank, Federal Reserve System, FOMC, OECD

Accompanying Figures of the speech.

Introduction

John Maynard Keynes is credited with saying, “When the facts change, I change my mind. What do you do, sir?” Over the past decade, policymakers across the globe have been focused on getting their economies and financial systems back in order. But at the same time, a sea change in supply-side realities has taken place. These changes have redefined what is achievable, and challenged conventional wisdom on monetary policy.

Shifting demographic trends and a slowdown in productivity are driving slower trend growth and historically low levels of real interest rates across the globe. This new set of facts requires us to rethink what we once knew, reassess how to best foster strong and stable economies, and ready ourselves for the future.

With that start, it’s time I remind everyone that the views I express today are mine alone and do not necessarily reflect those of the Federal Open Market Committee or others in the Federal Reserve System.

john c williams

The Road to Recovery

Following the global financial crisis, central banks took bold and decisive actions to right their economies and bring them back to health. Short-term interest rates were brought to near zero-in some cases below zero-and held there for many years (Figure 1). The combination of low short-term rates and asset purchase programs has driven yields on long-term sovereign debt to historically low levels (Figure 2). In large parts of Europe and Japan, short- and long-term yields remain near zero, a full decade after the onset of the financial crisis.

Economic developments since this unprecedented monetary stimulus provide valuable insights into the efficacy and limitations of monetary policy. On the positive side of the ledger, advanced economies have seen steady growth and significant declines in unemployment, with rates today near, or in many cases well below, those seen before the crisis (Figure 3). Bold monetary policy actions surely played an important role in averting far greater catastrophes and aided economic recovery.

However, this success was achieved only after a disappointingly slow recovery and many years of economic hardship. And, despite the improvement in the real side of economies, inflation rates have persistently been below central banks’ goals (Figure 4). The fact that inflation has been running below target in most advanced countries-the United Kingdom being the most prominent outlier-suggests that this challenge is not due to factors specific to a single country. Instead, there are more systemic factors at play.

Investors view these low inflation readings not as an aberration, but rather a new normal. This is evidenced by a broad-based decline in market-based measures of longer-run inflation expectations since the mid-2000s, with the UK again providing the exception (Figure 5).

This experience of slow recovery and persistently low inflation is a symptom of a deeper problem afflicting advanced economies-the root cause of which is a combination of low neutral interest rates and the lower bound on interest rates, a topic to which I now turn.

What’s Past Is Prologue

Underlying these events has been a sea change in the supply side of economies, owing to fundamental shifts in demographics and productivity growth.

Two demographic trends are evident: People are generally living longer and population growth is slowing. Overall life expectancy in member countries of the Organisation for Economic Co-operation and Development (OECD) has increased from about 65 years in the 1950s to nearly 80 years today, and is projected to exceed 90 years by the end of this century (Figure 6).¹ Despite this increase in longevity, dwindling birth rates are bringing population growth to a standstill. In OECD countries, population growth averaged over 1 percent back in the 1950s and 1960s, but is now running at half a percent per year, and is expected to gradually fall before dipping into negative figures by 2070 (Figure 6).²

When it comes to productivity, the changes are no less dramatic. In OECD economies, growth in labor productivity-the amount produced per worker hour-has averaged a little over 1 percent per year since 1995, about half the pace seen over the prior decade (Figure 7). A major factor driving the slowdown is a dramatic decline in the growth rate of “total factor productivity,” or TFP, a measure of innovation and technological change.³

As Bob Gordon has taught us, U.S. productivity growth tends to cycle between periods of high growth in decades following fundamental breakthroughs in science and technology, and relatively fallow periods of steady, incremental improvements. All the evidence indicates that we are in one of the latter periods of “normal” productivity growth of 1 – 1.5 percent per year, and that things will likely stay that way until the next scientific or technological revolution.⁴

R-star Descends

These global shifts in demographics and productivity have two important implications for the future of our economies and for monetary policy. First, slower population and productivity growth translate directly into slower trend economic growth. Second, these trends have contributed to dramatic declines in the longer-term normal or “neutral” real rate of interest, or r-star.

Slower trend growth reduces the demand for investment, while longer life expectancy tends to increase household saving.⁵ This combination of lower demand for and higher supply of savings, along with other factors, has pushed down r-star. With open capital markets, these global changes in supply and demand affect r-star globally.

The evidence of a sizable decline in r-star across economies is compelling. The weighted average of estimates for five major economic areas-Canada, the euro area, Japan, the United Kingdom, and the United States-has declined to half a percent (Figure 8).⁶ That’s 2 percentage points below the average natural rate that prevailed in the two decades before the financial crisis. A striking aspect of these estimates is that they show no signs of moving back to previously normal levels, even though economies have recovered from the crisis. Given the demographic waves and sustained productivity growth slowdown around the world, I see no reason to expect r-star to revert to higher levels in the foreseeable future.

The global decline in r-star will continue to pose significant challenges for monetary policy. Given the limited policy space for interest rate cuts in future downturns, recoveries will be slow and inflation below target. The limitation in the ability of central banks to offset downturns results in an adverse feedback loop, whereby expectations of low future inflation drag down current inflation and further reduce available policy space.⁷

New Facts, New Approaches

Policymakers around the globe need to prepare for the challenges of navigating the new realities of slow global growth and low r-star. This necessitates new thinking and approaches to monetary, fiscal, and other economic policies.

Starting with monetary policy, central banks should revisit and reassess their policy frameworks, strategies, and toolkits, to maximize efficacy in a low r-star world. The Bank of Canada already regularly does this, and the Federal Reserve is currently undergoing a review of its framework and strategy.⁸ Absent such changes, central banks will be severely challenged to achieve stable economies and well-anchored inflation expectations.

Outside of monetary policy, there are a number of avenues by which fiscal authorities can enhance the resilience of economies to negative shocks. One is to strengthen the “automatic stabilizers” that provide a boost to the economy during a downturn. A second is to align debt management decisions more with monetary policy. For example, during a downturn, the fiscal authority could choose to shorten the duration of debt issuance to reinforce the effects of central bank quantitative easing. Third, regulatory and supervisory policies that support the resilience of the financial system can limit the economic effects of negative shocks.

Finally, fiscal and other economic policies can attack directly the sources of slow growth and low r-star. This includes raising public and private investment in human and physical capital, infrastructure, science and technology, and policies aimed at removing barriers to participation in the labor force and the economy more broadly.

Conclusion

The facts have changed, and so it is time our change our minds also. It is often said that change is hard. But, experience teaches us that it is better to prepare for the future than wait too long. Ultimately, failure to prepare often means preparation for failure.

How Diversity and Inclusion can contribute to successful decision making in the Funds Industry

May 15, 2019 by Reg Hub Leave a Comment Filed Under: Central Bank Annoucements, Central Bank News Tagged: Brexit, Central Bank of Ireland, CP86, European Union, IFDA, Ireland, michael hodson, OECD, UCITS

Good afternoon ladies and gentlemen. I am very pleased to join you today and I would like to thank the Irish Fund Directors Association (‘IFDA’) for this opportunity to speak with you. Today’s event is an important one in the evolution of both the Association and the funds industry, and I am delighted to have the opportunity to say a few words to set a context for your discussions on the important topic of Diversity & Inclusion.

The Central Bank has supported the IFDA since its establishment in late 2015. As the representative body for independent directors within the Irish funds industry, the IFDA is an association of great potential, representing as it does the independent director community and with an the objective of advocating industry best practice in corporate governance and board oversight. Part of the IFDA’s role is to represent the interests of its members to other key stakeholders in the industry. In that regard, the IFDA provides a unique focal point for the Central Bank to engage with directors in the funds industry as a specific collective group. This allows us to gain an insight into the challenges faced and the issues affecting fund directors in the performance of their roles. It also allows us the opportunity to work more closely together for the advancement of good corporate governance in funds.

That the IFDA has chosen to champion Diversity & Inclusion in the funds industry is to its huge credit. Late last year we had the pleasure at the Central Bank of hosting a very useful and informative session on Diversity & Inclusion with the IFDA’s newly established Diversity and Culture Committee. At the session we discussed the important role of diversity on fund boards to foster sound decision-making, the Central Bank’s internal and external facing work on the topic, as well as our regulatory perspective on Diversity & Inclusion. We also discussed the objectives and planned work of the IFDA’s Diversity and Culture Committee and we explored opportunities for future collaboration and engagement, today’s event being one such opportunity.

Since then the IFDA has introduced its own Diversity Policy. The policy has, amongst other things, an objective to maintain a minimum of 30% women on the IFDA Board and to collaborate on sustainable initiatives to support improved gender balance in IFDA’s membership. In doing so, it is setting an example in its own organisation and behaviours that I hope to see borne out across the funds industry as a whole. We have also sought to set an example in this regard ourselves at the Central Bank, to which I will speak later in my remarks.

The Supervisory Context

First, however, I would like to position the discussion of Diversity & Inclusion in the context of the Central Bank’s supervisory priorities and the evolution of the funds industry more generally.

The Central Bank’s securities and markets supervisory mandate has been growing for some years now, both in terms of the rulebook and the nature, scale and complexity of what we have to supervise. We are seeing a similar level of growth in the funds industry in Ireland. This is reflected in the 1,117 new fund authorisations we granted in 2018, which amounts to more authorisations than in any previous year, and we continue to see this pipeline grow. While this increase in applications for authorisation of funds is not solely related to Brexit, it stands to reason that, as the UK leaves the EU and firms move asset management services to Ireland, those firms will also look to establish funds in Ireland where previously they might have established that fund in the UK. So, given our position as a significant funds jurisdiction it is incumbent on us to continue to ensure that we are effective supervisors of our funds industry. This in turn feeds into the delivery of the Central Bank’s mission of safeguarding financial stability and working to ensure that the financial system operates in the best interests of consumers and the wider economy.

That is why one of our strategic priorities over the next three years is to build an ever more assertive risk-based approach to conduct supervision of funds. Since the start of 2018, our conduct supervision of funds has overseen almost €5.2 million being refunded by Irish funds to investors and we have imposed 18 formal risk mitigation programmes. We are also in the process of closing out our follow up engagement on the thematic review of UCITS performance fees and we continue to engage with funds on areas of concern arising in our review of closet indexing.

We are also scoping a review of how firms have implemented the measures introduced under the CP86 Fund Management Companies Guidance. This work will aim to identify standards of industry compliance in order to inform our supervisory approach and ensure that the required systems of governance are in place to protect investors’ best interests. As well as our normal thematic tools such as questionnaires, desk-based reviews and on-site inspections, our CP86 review will be informed by the knowledge we have gained through our engagement at a European level, our experience in assessing applications for authorisation received due to Brexit and our ongoing supervisory experiences with the funds that we regulate.

Through this work, and our supervision of securities markets generally, we want to see securities markets (including funds) that:

Provide a high level of protection for investors and market participants.
Are transparent as to the features of products and their market price.
Are well governed (and comprise firms that are well governed).
Are trusted, by both those using the market to raise funds and those seeking to invest.
Are resilient enough to continue to operate their core functions in stressed conditions and to innovate appropriately as market evolve.

Indeed, if one is looking for a context within which to discuss diversity and inclusion in funds, one need look no further than the principles of CP86 itself. As you will know, CP86 was driven by concerns to ensure that our framework for protecting investors remained fit for purpose, particularly as the funds industry grows in nature, scale and complexity. CP86 makes clear that running a fund management company requires that adequate resources are dedicated and organised to ensure that investors’ best interests are protected by good governance and sound decision-making.

Diversity within management bodies has an important role to play in ensuring such good governance and sound decision-making. I have remarked on a previous occasion¹ that if we are to ensure the lessons of the crisis are learned in a way that endures, compliance efforts must be underpinned by an equally systematic approach to ensuring that a culture prevails within firms that supports the objectives financial services regulations seek to achieve. Amongst other things, this involves taking a careful look at how decisions affecting users of financial services are actually made within firms and who is making them, and that should include considering the boards and other decision-making forums are sufficiently diverse and inclusive to protect investors’ best interests.
Diversity & Inclusion’s contribution to good governance

The OECD summed the point up admirably when it said:

“Diversity of thought, experience, knowledge, understanding, perspective and age means that a board is more capable of seeing and understanding risks and coming up with robust solutions to address them. It is about the fundamental principles of good governance.”²

Moreover, the evidence indicates that diversity and inclusion are also good for the bottom line (which itself serves investors of course in the form of the return on their investment). To quote an example from a speech by my colleague Michael Hodson³, IMF research⁴ shows that adding one more female to a firm’s senior management or board of directors, while keeping the size of the board unchanged, is associated with an 8-13 basis point higher return on assets.

Of course gender is only one of many dimensions of diversity. In its broadest sense diversity can be defined as “any attribute which may lead people to the perception that [a] person is different from me”⁵. Diversity has also been described as the “art of thinking independently together”⁶. To put it yet another way: “Thought diversity allows for differing perspectives on ideas and unique insights into problems. It creates opportunities for innovation, entrepreneurship, and partnerships in unexpected places. It allows you to take a ‘reality check’ before plunging into new activities. Most important, it helps you avoid groupthink.”⁷

In a financial services context, group think (the lack of challenge and independent thought) reduces the capacity of a firm to identify and anticipate negative outcomes for the firm and its customers or investors. Indeed it was Andrew Haldane, as Chief Economist at the Bank of England, who said it was a lack of intellectual diversity at the helm of financial institutions that both sowed the seeds for the 2008 financial crisis and contributed to its depth and severity.⁸

What can Funds do?

Organisations therefore have to recognise that embracing Diversity & Inclusion is key to having an effectively functioning Board that will challenge itself appropriately when required to. Boards should also consider issues that may have been overlooked previously and debate alternative solutions. This can include adapting hiring criteria and widening candidate search criteria to include non-traditional professional experience.

In a funds context, the role and importance of independence of thought and challenge is especially pertinent when you consider the scale of outsourcing by funds and their reliance on service providers. We have recently reiterated our expectations in this regard – in her remarks to the Central Bank’s recent Outsourcing Conference⁹, Derville Rowland, Director General, Financial Conduct referenced the unsatisfactory level of board awareness of outsourcing risk as one of the particularly disappointing conclusions of the Central Bank’s review of outsourcing activity, and noted that ultimate accountability for compliance remains with regulated firms, particularly the boards of those firms.

The challenge for a given board lies of course in getting the mix and balance of diversity correct and appropriate for the nature, scale and complexity of the organisation in question. By definition, one size does not fit all when it comes to Diversity & Inclusion. Nevertheless, the Central Bank will look with increasing scrutiny to see that boards are challenging themselves to ensure the level of Diversity & Inclusion necessary for sound decision making to protect investors’ best interests.

Diversity & Inclusion in the Central Bank

I mentioned the commendable manner in which the IFDA is leading by example through its work on Diversity & Inclusion.

At the Central Bank of Ireland, we are also seeking to practice what we preach. We see Diversity & Inclusion as vital to ensuring we have the right mix of people to deliver our complex and diverse mandate and that all our people have the chance to reach their potential.¹⁰ The importance that the Central Bank places on the topic is reflected in the work we have undertaken over recent years to create a diverse and inclusive environment within our own organisation and we are strongly committed to continuing our work in this area. In our Central Bank Strategic Plan 2019 – 2021¹¹ we call out Diversity & Inclusion as an essential part of what makes our workplace effective and fulfilling for our people and what will drive further improvements in the governance and risk management of regulated firms.

We recently published our 2019 Gender Pay Gap Report¹², an initiative that is part of our commitment to both transparency and to becoming a more diverse and inclusive workplace. The report found that the gender pay profile at the Central Bank as at 1 January 2019 is 2.4% in favour of male employees, the gender pay gap has reduced by 0.3% since 1 January 2018 and gender distribution between male and female employees has moved from 50%:50% in 2018 to 49% female: 51% male in 2019. This report sits alongside a range of other initiatives the Central Bank has undertaken that are focused on creating a more diverse and inclusive workplace, including the establishment of a clear vision for Diversity & Inclusion, creation of employee-led networks, enhancement of flexible working practices including home working, membership of the 30% Club and becoming a signatory of the Diversity Charter Ireland. In all of these measures, we are acutely sensitive to the need for diversity of thought and perspectives at the Central Bank in order to avoid groupthink, better represent the wide values of the society we serve and enhance our performance.

Diversity and Inclusion in the context of the evolution of the Funds industry

So, turning to trends in the funds industry, are there reasons to be especially focused on Diversity & Inclusion in the funds industry at this particular point in time? I believe there are.

Notwithstanding the growth in the funds industry to which I referred earlier, the funds industry here and across the globe is facing powerful headwinds: rapidly evolving technology, increasing regulatory obligations and demands for higher returns at lower cost are all putting pressure on traditional business models. All of these factors mean the sector, perhaps now more than ever, needs to be in a position to attract, retain and harness the talent and contributions from the broadest possible range of staff to innovate and compete.

Bringing together individuals with a wide variety of life experience and perspectives naturally helps organisations to overcome the negative consequences of groupthink and unconscious bias. At a fundamental level, this is helpful for exercises such as risk assessments, scenario analysis, spotting and understanding emerging trends, and both averting and managing crisis.

In 2017, the Central Bank published its data on the gender profile of senior roles being put through the Bank’s Fitness and Probity regime and March 2019 marked the third publication of such a report¹³. From a low base, in 2018 there was an increase in applications for female appointments across all sectors (from 22% to 24%), with the securities and markets sector showing an increase of 6%, which was encouraging to see.

However the Central Bank’s Fitness and Probity data showed that female applicants still account for only 25% of the total Individual Questionnaire applications submitted. Even looking at this one aspect of Diversity & Inclusion, gender, it illustrates the significant gap that must be bridged to address the lack of diversity at the highest level of management in the firms we regulate.

Concluding remarks

So, to conclude, why do we at the Central Bank see Diversity & Inclusion as being so important to the achievement of our mission in supervising funds? Well, let’s look at the evidence as I have just outlined it:

The scale and complexity of the funds industry and its regulation is growing.
The responsibilities of fund boards and the complexity of their work is therefore also growing.
The quality of funds’ decision-making apparatus has to improve to meet this challenge.
The evidence is there that Diversity & Inclusion is important to ensuring good decision making and risk management.
The evidence is also there that the membership of the boards and senior executives of our regulated entities, including funds, is not as diverse as it should be.

Taking these points together, they present the classic components of the sort of industry-wide risk that would concern a regulator, and should also concern an industry.

This is why we are placing such an emphasis on this topic. It is also why we are so welcoming of initiatives such as those of the Irish Fund Directors Association to promote Diversity & Inclusion.

I hope these remarks have been helpful and I trust you will have a stimulating discussion of how greater diversity and a more inclusive culture can contribute to better governance and decision-making in the funds sector at this critical point in its evolution.

I would like to thank Antoinette McDermott and Stephanie Kearns for their assistance with these remarks.

Cross-border regulation in relation to digital assets

April 2, 2019 by Reg Hub Leave a Comment Filed Under: Central Bank Annoucements, Central Bank News Tagged: BIS, Cryptocurrencies, digital asset, FATF, Fintech, FSB, IMF, OECD

1. Introductory Remarks

It is a great pleasure for me to be in the midst of such an august gathering today.

First of all, I would like to thank Honourable Steven Marshall MP, Premier of South Australia for the invitation to attend this Summit 2019 and share my thoughts, as a central bank governor and regulator of the banking sector in Mauritius, on cross-border regulation of Digital Assets.

I would also like to thank Loretta Joseph, Fintech Adviser to the OECD, for having facilitated my participation to this Summit.

2. Fintech and Digital assets and central bank digital currencies

Fintech and digital assets are areas that the Bank of Mauritius has been following closely.

The international community has also shown keen interest in this sector.

The Financial Stability Board (FSB), Financial Action Task Force (FATF), International Monetary Fund (IMF), Bank for International Settlement (BIS) and fellow foreign international standard setters and regulators have shared their thought, concerns and recommendations regarding fintech and digital assets.

We must obviously distinguish between digital assets and central bank digital currency. While the latter are usually created and issued by central bank and is legal tender, digital assets, on the other hand, are not “legal tender, and are not backed by any government or public authority” as the Basel Committee on Banking Supervision clearly puts it.

The FATF recommends countries to consider virtual assets as “property,” “proceeds,” “funds”, “funds or other assets,” or other “corresponding value”.”

3. The need to regulate Digital Assets

History has shown that regulatory gaps or vacuum have contributed to perpetuate fraud, led to financial crisis and undermined confidence in the financial services sector, amongst others.

The BIS, in its September 2018 Quarterly Review, reported that news pointing to the establishment of legal frameworks tailored to cryptocurrencies and initial coin offerings coincide with strong market gains.

There is need, therefore, for Digital Assets to be regulated. Indeed, regulation brings legal certainty, legitimacy, trust and confidence in markets and will undeniably act as a catalyst in promoting acceptance of digital assets.

These regulations should, nonetheless, not be too intrusive, but rather, it must be optimal and enabling so as to promote innovation in this technology-driven sector.

4. International Standards and recommendation regarding Digital Assets

Prudential Norms

The Basel Committee on Banking Supervision has, on 13 March 2019, issued a Statement on Crypto-Assets wherein the Basel Committee opines that “the continued growth of crypto-assets trading platforms and new financial products related to crypto-assets has the potential to raise financial stability concerns and increase risks faced by banks.”

The Basel Committee has accordingly set out its prudential expectations related to banks’ exposures to crypto-assets and related services. The Basel Committee views that on account of their high degree of volatility, crypto-assets present a number of risks for banks, including liquidity risk; credit risk; market risk; operational risk (including fraud and cyber risks); money laundering and terrorist financing risk; and legal and reputation risks.

The Committee therefore expects that if a bank is authorised and decides to acquire crypto-asset exposures or provide related services, it should at a minimum:

Firstly, perform due diligence prior to acquiring exposures to crypto-assets or providing related services,

Secondly, have a clear and robust risk management framework that is appropriate for the risks of its crypto-asset exposures and related services;

Thirdly, publicly disclose any material crypto-asset exposures or related services as part of its regular financial disclosures and specify the accounting treatment for such exposures;

Fourthly, inform its supervisory authority of actual and planned crypto-asset exposure or activity in a timely manner and provide assurance that it has fully assessed the permissibility of the activity and the risks associated with the intended exposures and services, and how it has mitigated these risks.

As regulators, it is our responsibility to ensure that supervised institutions are operated safely and soundly and comply with applicable laws.

Within that framework, however, we also have a strong interest in permitting beneficial innovations to flourish, while ensuring that the risks are appropriately managed.

It is, therefore, of paramount importance to ensure that regulatory and supervisory structures are constantly adapted to changing technologies and business models for them to remain effective.

At the level of the Bank of Mauritius, our approach has been characterized by open minds and open door policy. We welcome change in banks so long as they are able to demonstrate that the risks are being appropriately and adequately managed.

Moreover, as all prudent central banks, the Bank of Mauritius will also pay special attention to the recommendations of the Basel Committee and require banks operating in Mauritius to ensure strict compliance thereto.

FATF

Addressing the concerns regarding Money Laundering and Terrorist Financing risks

Concerns have been expressed to the effect that digital assets offer some form of anonymity to its holders if not properly regulated and controlled and may be subject to heightened money laundering and terrorism financing (ML/TF) risks.

In an era where ML/TF risks are assuming increasing significance and may even result in international sanctions and loss of correspondent banking facilities, regulators need to be extremely vigilant.

International Standard Setting Bodies have also identified the potential ML/TF risks that could rise from digital assets and they have been prompt in providing necessary guidance. As far back as 2015, the FATF identified certain key risks associated with Crypto Assets, including ML/TF, cross border nature of operating systems and non-face to face client relationships which facilitates anonymity.

In October 2018, the FATF, recognising the need to adequately mitigate the money laundering and terrorism financing (ML/TF) risks associated with virtual asset activities, adopted, changes to the FATF Recommendations to clarify how the Recommendations apply in the case of financial activities involving virtual assets.

The FATF recommended countries to ensure that virtual asset service providers are regulated for AML/CFT purposes, and licensed or registered and subject to effective systems for monitoring and ensuring compliance with the relevant measures called for in the FATF Recommendations.

More recently, in February 2019, the FATF announced that it is setting out more detailed implementation requirements for effective regulation and supervision/monitoring of virtual asset services providers which are expected to be adopted at the June 2019 Plenary of the FATF.

As the FATF Recommendations are globally accepted standards, it is very likely that, when establishing the regulatory framework for digital assets, countries will adhere to these standards.

5. The experience of Mauritius in regulating Digital Assets – Development of regulatory frameworks in line with international standards

Allow me to share the experience of Mauritius in regulating Digital Assets.

Last year, the Government of Mauritius took the initiative of setting up a Regulatory Committee on FinTech and Innovation-Driven Financial Services chaired by Lord Desai and comprising amongst others Loretta Joseph, Rajesh Ramloll S.C., Deputy Solicitor General at the Attorney General’s Office, Mauritius, the Chief Executive of the Financial Services Commission, other eminent experts from in fintech regulation, blockchain as well as artificial intelligence industry and myself. The Regulatory Committee was tasked to advise on the development of a regulatory framework for fintech in Mauritius.

The Regulatory Committee identified priority areas in the fintech space to be considered for regulation in Mauritius and recommended the approach to be adopted in regulating this emerging sector of activities.

Further to the report of the Regulatory Committee, the Financial Services Commission, Mauritius, which is the integrated regulator for the non-bank financial services sector and global business in Mauritius, was identified as the most appropriate authority in Mauritius to promote the regulatory framework for digital assets in Mauritius.

In September 2018, the Financial Services Commission issued Guidance Note on the recognition of digital assets as an asset-class for investment by sophisticated and expert investors.

Subsequently, on 05 November 2018, the Financial Services Commission issued a Consultation Paper seeking feedback from stakeholders and the public on the proposed regulatory framework for the Custodian Services (Digital Asset) Licence, which allows its holder to provide custody services for Digital Assets.

The Consultation Paper has now been translated in a set of Rules which became effective as from 01 March 2019, thereby positioning the Mauritius IFC as the first jurisdiction globally to offer a regulated landscape for the custody of Digital Assets.

The Financial Services Commission has ensured that the distinct regulatory frameworks are in line with international standards set by institutions like the Organisation for Economic Co-operation and Development and the FATF.

Mauritius has participated fully in discussions at the level of the OECD on the governance and regulation of Digital Financial Assets and the regulatory framework for this activity segment has been developed in reference to these international consultations and the FATF Recommendations have been fully considered in the regulatory approach taken by Mauritius to regulate the custody of digital assets as a business activity.

As technology is a constantly evolving affair, we need to be at the forefront of the latest development. This requires specialized skillsets which might not be available in all regulatory bodies, thereby heightening the need for continued upskilling and capacity building.

6. Cross-border regulation

With the globalisation of financial services, collaboration has always been a requirement for financial services regulators across the globe. The need for cross border cooperation between financial services regulators is becoming even more crucial in relation to fintech.

Adherence to a common set of standards will foster standardization of the regulation across countries and facilitate cross-border regulation of digital assets.

Obviously, cross border regulation implies cooperation and collaboration between regulators.

It is common practice for financial services regulators to sign Memorandum of Understanding (MoU) with their counterparts for cooperation and exchange of information in the field of conventional financial services.

These MoU may now have to be extended to collaboration in Fintech and financial innovation.

It may be foreseen that such collaboration will improve the cross-border regulation of fintech and digital assets through:

a. Harmonised/Equivalent fintech regulatory frameworks across jurisdictions which is an effective tool against regulatory arbitrage and will enable licensed fintech business to have access to other markets;

b. Bridging the expertise gap between jurisdictions for efficient framework development; and

c. Capacity building and knowledge sharing in the field of fintech supervision for financial services regulators.

Concluding remarks

The launch, in January 2019, of the Global Financial Innovation Network¹ aims at acting as a network of regulators to promote information and knowledge sharing on emerging innovation trends as well as promoting joint policy work and regulatory trials by enhancing collaboration between regulators on key policy questions with the view to support the work of standard setting bodies, amongst others.

All of us in this room who have a keen interest in promoting financial innovation should collaborate and support this initiative in the hope that a standardized and agreed sets of principles and practices for fintech and digital assets may unfold soon for the benefit of the market participants and regulators alike.

Summits, similar to this one, acts as incubators for sharing our thoughts and vision for this innovative sector. I am confident that this Summit will foster cooperation and collaboration between regulators, investors and international organisations. I wish us all success in this area.

Luljeta Minxhozi: The importance of educating young people in Global Money Week

March 27, 2019 by Reg Hub Leave a Comment Filed Under: Central Bank Annoucements, Central Bank News Tagged: Albanian Money App, Bank of Albania, BIS, CYFI, educational portal, global money week, OECD

Dear Deputy Minister of Education, Youth and Sports,

Dear Chairman of the Albanian Association of Banks,

Dear students and teachers,

Dear old and new friends of the Bank of Albania,

On this first day of the Global Money Week, I wish you a warm welcome to the central building of the Bank of Albania and thank you for participating and engaging in our activities.

This is the 12th year the Bank of Albania engages, like many other central banks across the world, in financial education efforts for the public in general, with a particular focus on the young generation. This marks also the sixth year of Bank of Albania’s engagement as the organiser of the Money Week.

This has become an annual meeting place for all stakeholders having an interest in this beautiful and important, at the same time complicated and challenging field. Like many other central banks, the Bank of Albania has assumed a proactive role in enhancing financial literacy. This commitment is fully in line with the spirit of transparency toward the public and raising its awareness on economic and financial issues, which have an impact on the day-to-day living for each and every one of us.

Over these 12 years, with support from the Ministry of Education, Youth and Sports and the Albanian Association of Banks, numerous educational activities and projects have been designed and implemented. They have been tailored to target different age groups, and consist of a variety of activities such as training for teachers and journalists, brochures for the general public, dedicated programmes for high schools, such as the “Personal Finance in Your Hands”, the educational package for the elementary schools and the Albanian Money app.

The Museum of the Bank of Albania reflects perfectly our efforts for enhancing knowledge about money. The multifunctional Museum provides visitors with a platform that helps them to learn about the monetary history in Albania, as well as the functions and importance of the central bank, and to become more financially literate.

The Money Week is a global celebration campaign built to inspire children and young people to learn about money matters, livelihoods and entrepreneurship, hence becoming responsible and financially capable citizens in the future.

Starting today, the Money Week will be celebrated in 169 countries across the world, until 31 March 2019. This is a Child & Youth Finance International (CYFI) initiative, with the support of the Organisation for Economic Co-operation and Development (OECD), and over 53 thousand institutions and organisations and over 32 million children and young people participate in this year’s edition.

The slogan for this year is ‘Learn.Save.Earn.’ Around this slogan, partner institutions organise awareness-raising and educational activities. As active participants in the Money Week activities, we have chosen to focus on educating the young people and encouraging them not to use the outdated terms “new lek” – “old lek” in our day-to-day financial interactions.

Our slogan for this year is “Too young to speak in old lek”

This is the overarching theme for most of our contest categories. I take this opportunity to thank, on behalf of the Bank of Albania, all the participants and I exhort them to be an active part in the efforts for eliminating such outdated terminology.

The Bank of Albania, with long-standing support from the Albanian Association of Banks, and the precious support from the Ministry of Education, Sports and Youth, will organise a series of awareness-raising activities for children and young people on such topics. Thus, during the Week, a number of activities will be organised such as lectures, contests, visits to commercial banks and the Museum of the Bank of Albania, aimed at involving as many students as possible.

In all educational activities of the Bank of Albania, including these contests, we appreciate and encourage inspiration, originality and proactive thinking.

The submitted projects for all the categories, whose winners are present today, feature all these elements. I take this opportunity to personally congratulate all of them for their qualitative works presented during the submission phase. Their work and engagement are a source of constant inspiration for the Bank of Albania to introduce increasingly ambitious projects.

The projects category targeted sixth graders, the photomontage category targeted ninth graders and the videos category targeted high-school students. The participation rate was very high, with around 340 students from 40 schools.

I would like to extend my special thanks to the teachers and professors, whose commitment and passion is a key and necessary element for the realisation of these educational projects.

Lastly, I would like to thank you all for the insofar commitment, and invite all the participating institutions to continue the cooperation in the future, with a view to advancing our financial education efforts for the children and young people, contributing, in turn, to the livelihood of the society in Albania.

Thank You!

IMF Executive Board Reviews Corporate Taxation in the Global Economy

March 11, 2019 by Reg Hub Leave a Comment Filed Under: Central Bank Annoucements, Central Bank News Tagged: Base Erosion, BEPS, G20, IMF, OECD, United Nations, World Bank

On February 21, 2019, the Executive Board of the International Monetary Fund (IMF) discussed a paper setting out the current state of international corporate income tax arrangements.

The policy paper Corporate Taxation in The Global Economy, explores options that have been suggested for their future development, including several now being considered in global fora and considering the contribution of the Fund to debates and processes now underway.

The IMF is not a standard setting body in this area. Intensive discussions of possible changes to the international tax system are now underway in the Inclusive Framework on Base Erosion and Profit Shifting (BEPS)/the OECD, and the paper is intended to complement that work, reflecting the distinct contribution that the IMF’s broad membership, mandate, expertise and capacity building work position it to make.

The paper builds on an earlier IMF analysis (2014), which stressed the macro-criticality of international corporate tax arrangements, the importance of cross-country spillovers in analyzing corporate tax reform and the particular vulnerability of low income countries to profit shifting activities. The paper discussed on February 21 continues these themes. It provides an update on what has been achieved, an account of remaining challenges, and a high-level overview of key economic aspects and implications of alternative schemes, some of which are now under discussion. Finally, it stresses the importance of fully inclusive cooperation in this area and reflects on the supportive role that the Fund can play in this context.

G20 Summit

The paper notes the considerable positive developments achieved since the previous paper was discussed, including the G20/OECD BEPS project and the expansion of the OECD’s body for reaching consensus around these issues to include over 125 countries in the new Inclusive Framework. It notes too, however, that issues remain in continued opportunities for profit shifting, and that concerns regarding tax competition and, more fundamentally, the allocation of taxing rights across countries now underlie much of the discussion within the Inclusive Framework.

The paper does not endorse any specific proposals for international tax reform. It recognizes that views differ widely. Rather the paper identifies and discusses potential criteria by which alternatives might be assessed—with special attention to the circumstances of developing countries—and provides some empirical analysis to support discussions.

The paper stresses the need to maintain and build on the progress in international cooperation on tax matters that has been achieved in recent years, and in some respects now appears under stress. It considers the supportive role that the Fund can play in this context, including by drawing on its capacity building work to inform the standard setting that others lead, and stresses the importance of cooperation among the international organizations active in this area, including through the Platform for Collaboration on Tax.

Executive Board Assessment [1]

Executive Directors welcomed the opportunity to take stock of recent developments in international aspects of corporate taxation, and offered preliminary observations on alternative proposals currently being debated. They acknowledged the importance of these issues to all Fund members in their efforts to raise revenues in an efficient and equitable manner, and the potential for significant cross‑border spillovers.

Directors welcomed the significant progress made in addressing corporate tax avoidance and enhancing multilateral cooperation, notably by the G‑20/OECD project on Base Erosion and Profit Shifting, and the Inclusive Framework that has broadened the scope of cooperation to many non‑OECD countries. At the same time, they noted that there remain shortcomings in current international tax arrangements, and that many countries face pressures to introduce unilateral action. Directors agreed that much remains to be done to find sustainable global solutions, building on the progress achieved so far to ensure fairness, inclusiveness, and broad consensus, although their views differed on the extent of needed reforms and the roles of relevant bodies.

As an important element of the current debate, Directors welcomed the discussion on tax challenges associated with digitalization. They recognized that this is a difficult issue, technically and politically, and that views on whether special treatment is needed, and if so in what form, continue to differ widely. For the long term, a number of Directors considered that it would not be desirable or feasible to design ring‑fenced solutions. Directors looked forward to the final report from the OECD to the G‑20 in 2020, which could serve as a basis for a cooperative approach going forward.

Directors noted other challenges that have yet to be fully addressed. They welcomed the emphasis in the paper on profit shifting, which is a particular concern for developing countries. They also pointed to the damage from continued harmful tax competition, including the risk of a race to the bottom, while recognizing the importance of respecting national sovereignty in tax matters. Some Directors were of the view that the benefits of fair tax competition should also be acknowledged.

Directors noted that views on the relative merits of alternative reform proposals vary to a great extent. They emphasized that much depends not only on the detail of specific proposals and their implementation but also on the relative importance attached to the various assessment criteria. Noting the tentative nature of the staff assessment, Directors stressed that it should be interpreted and communicated with caution. While Directors considered it too early to endorse any of the particular alternatives, they found the discussion a useful analytical complement to existing debates. Specifically, many Directors saw the benefit of minimum taxation in dealing with harmful tax avoidance and profit shifting practices. Directors emphasized that, to better inform the ongoing debate, considerable further analysis of the reform proposals is needed with respect to legal issues, practical consequences, including distributional effects, and implications for various groups of countries with similar or unique characteristics.

Directors underscored the need for an inclusive process for discussing international taxation, especially as fundamental issues in the allocation of taxing rights come under discussion. Many Directors felt that the current governance arrangements, with the OECD as a central body and standard‑setter and supported by the Inclusive Framework, are broadly appropriate. At the same time, many Directors saw room for improvements, including to enhance the representation of developing and low‑income countries in the decision‑making process.

Directors emphasized the important role of the Fund in the area of international corporate taxation, focusing on its universal membership, macroeconomic perspective, and analytical expertise. They stressed in particular the value of Fund advice and extensive capacity building, helping member countries to implement best practices on tax policy and administration. While recognizing that the Fund is not a standard‑setting body in international taxation, they noted that the Fund is well placed to undertake economic analyses of the impact of possible changes, both within and across countries, as well as to ensure that their implications for developing countries are adequately considered. In this context, most Directors advocated a more active role for the Fund in providing analytical contribution, influencing the debate, and fostering broader cooperation. A number of Directors stressed that efforts to bridge data gaps would need to take account of confidentiality issues and limited capacity in many developing countries.

Directors underscored the importance of continued close collaboration with the OECD and other international organizations active in this area, to ensure that the Fund’s work remains complementary to, and avoids duplication of, that of others. They noted that the Platform for Collaboration on Tax provides a useful framework for bringing together the IMF, OECD, UN, and World Bank, and could continue to play an active role in supporting international tax coordination.

Federal Council Initiates Consultation on Introduction of AEOI with 18 Further States

December 13, 2018 by industryspread Leave a Comment Filed Under: Regulatory Annoucements Tagged: AEoI, aeoi network, Federal Council, financial account, OECD, parliamentary commissions, Swiss financial centre, tax transparency

Bern, 07.12.2018 – During its meeting on 7 December 2018, The Federal Council initiated the consultation on the introduction of the automatic exchange of financial account information (AEOI) with 18 further states and territories. The implementation of the AEOI is planned for 1 January 2020, and the first exchange of data should take place in 2021. The expansion of Switzerland’s AEOI network takes current international developments into account.

In June 2018, the OECD adapted the conditions used to determine whether the international standards on tax transparency are being implemented satisfactorily. One of the conditions requires that individual states and territories complement their AEOI network with all partner states that have an interest in the AEOI and meet the requirements of the OECD standard. This extended scope of application of the AEOI will create a level playing field worldwide, which will benefit the Swiss financial centre.

Against this backdrop, after consulting the relevant parliamentary commissions, the Federal Council is proposing to expand Switzerland’s AEOI network with additional states and territories. These are the 18 partner states that are still missing from the 107 states and territories that are currently committed to implementing the AEOI. By expanding its AEOI network accordingly, Switzerland is underlining that it is implementing its international obligations.

In accordance with the Federal Council’s proposal, the Swiss AEOI network is to be expanded to include the following 18 states and territories: Albania, Azerbaijan, Brunei, Dominica, Ghana, Kazakhstan, Lebanon, Macao (China), the Maldives, Nigeria, Niue, Pakistan, Peru, Samoa, Sint Maarten, Trinidad and Tobago, Turkey and Vanuatu. Before an initial exchange of data with these partner states, the Federal Council will once again review whether they meet the requirements of the AEOI standard on the basis of the federal decree of 6 December 2017. The focus will be on data security and confidentiality.

The consultation will last until 20 March 2019. The Federal Council plans to submit the dispatch on the introduction of the AEOI with these partner states to Parliament in spring 2019.

News release issued by the Minister of Finance

Evolution of Central Banks

Role of Central Banks during Global Financial Crisis

Regulatory Response to the Crisis

What do we Learn?

Issues in the Current Context

Interplay between Inflation and Growth Objectives

Concluding Observations

1 The Role of Evidence-Based Policy

2 Evidence-based policy can “work”

a) Evaluation of financial sector reforms

b) Macroprudential policy

3 The role of international organizations

4 Infrastructures supporting good evaluations

Introduction

The Road to Recovery

What’s Past Is Prologue

R-star Descends

New Facts, New Approaches

Conclusion

The Supervisory Context

What can Funds do?

Diversity & Inclusion in the Central Bank

Diversity and Inclusion in the context of the evolution of the Funds industry

Concluding remarks

1. Introductory Remarks

2. Fintech and Digital assets and central bank digital currencies

3. The need to regulate Digital Assets

4. International Standards and recommendation regarding Digital Assets

Prudential Norms

Addressing the concerns regarding Money Laundering and Terrorist Financing risks

5. The experience of Mauritius in regulating Digital Assets – Development of regulatory frameworks in line with international standards

6. Cross-border regulation

Concluding remarks

Our slogan for this year is “Too young to speak in old lek”

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