International codes and standards: challenges and priorities for financial stability.

Abstract

The smooth functioning of the increasingly interdependent world economy requires the adoption and observance of common rules. In the light of recent economic crises, it has become clear that the effective implementation of codes and standards could contribute to strengthening financial stability at the national level, and thereby, reduce the risks of spillover. To effectively implement standards, a strategy has been defined within the international community and tasks shared out: the International Monetary Fund (IMF) and the World Bank conduct assessments of their member states’ observance of the main international standards. Numerous hurdles nevertheless remain to be cleared in order to increase the contribution made by codes and standards to prevent financial crises. Emerging economies’ ownership of codes and standards must be strengthened, which requires these countries to be more closely involved in the definition of standards, and also a more gradual approach in implementing standards to take account of diverse levels of development. The importance given to the assessment of the implementation of codes and standards is a noteworthy step forward in IMF surveillance. It requires increased co-ordination among international financial institutions (IFIs), other standard setting bodies such as the Basel Committee, the OECD and the FATF, and the countries themselves. In addition, countries to be assessed should be more carefully selected, clear priorities should be set in the areas covered by standards and countries should be provided with greater incentives to publish external assessment results. Lastly, the private sector in developed countries could further encourage the implementation of standards by factoring them more fully into its investment strategies, or by supplementing official initiatives in respect of the assessment of observance.