Lesetja Kganyago named to steer reform of global finance

The financial sector reforms committee will oversee rules to safeguard world from banking crises

Reserve Bank governor Lesetja Kganyago is to chair a global committee overseeing the implementation of financial sector reforms that leading economies have agreed on to prevent a repeat of the global financial crisis.

The committee will also identify what more needs to be done and how the new rules need to be tweaked.

Kganyago’s appointment as chairman of the Financial Stability Board’s (FSB’s) Standing Committee on Standards Implementation was announced as the FSB concluded a two-day plenary meeting in Cape Town on Tuesday. He will serve a two-year term beginning on April 1.

The Basel-based FSB, which was formed in 2008 in the wake of the London summit of the Group of 20, has 24 members, including SA, which account for more than 90% of the world’s financial assets, and through its regional consultative groups reaches about 90 countries.

Bank of England governor Mark Carney, who chairs the FSB, said the reforms were by and large being implemented, with a tenfold increase in the capital for the largest banks and a series of measures put in place for institutions that are “too big to fail”. The $700-trillion global derivatives market, which was largely unregulated before the crisis, has been restructured and the risks associated with “shadow banking”, which takes place outside the financial system, are being dealt with.

There had been improvement since the crisis, Carney said, and where there had been shocks to the system in the last few years they had been “dampened rather than amplified by the financial system”.

The challenges facing emerging market and developing economies were the focus of a special forum in Cape Town to discuss the effects of the global reforms in these markets.

A concern that the FSB has flagged has been the decline in correspondent banking relationships, which Carney said had affected developing markets, including in Southeast Asia and the Middle East.

Correspondent banking relationships between banks in different countries are crucial to ensure companies can trade and individuals can remit money.

But with regulators clamping down on financial institutions that do not have adequate “know your customer” systems in place to prevent money laundering and terror financing, banks have become more reluctant to transact with counterparts in countries that do not have adequate compliance rules, or which themselves do not comply. “The challenge is it has become quite widespread and whole geographic areas are seeing the withdrawal of correspondent banking,” Carney said.

The FSB has agreed on a series of measures to deal with this, including building local “know your customer” capacity and making regulatory expectations clearer.

Source: Business live

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