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By M. Isi Eromosele
The Global Financial System needs a major restructuring in
order to avoid a repeat of the ongoing global financial crisis in the future.
Major changes will need to be implemented in regulations, structure
and processes and more importantly, in the culture of those leading both large
financial institutions and the supervisory agencies.
There also needs to be agreement on the establishment of much
greater consistency and systematic cooperation between countries and the
framework of internationally agreed-to high standards that a global financial
system requires.
Areas of Reform To Global Finance
Establishing a more robust and inherently efficient global
financial system will require more frequent and widespread collaboration among national,
regional and international financial supervisory agencies and their constituent
bodies in order to accelerate decision-making.
Some areas, however, can be particularly highlighted:
- Agreeing
upon rules and mechanisms for the new macro-prudential approach to supervision of the global
finance sector
- Expansion
of the number of supervisory colleges for cross-border financial
institutions and the frequency of meetings, both at the European Union and
global levels
- Enhancing
the process for management of crises at cross-border financial
institutions or for systemic problems
- Agreement
on new rules regarding capital adequacy, liquidity management and counter-cyclical
capital buffers and upon improved regulatory oversight of hedge funds/private
equity, credit rating agencies and compensation policies
- Enhancement of collaboration among national supervisory agencies and their staff assigned to increasingly powerful international finance bodies
Better application of technology can play a role both in
supporting the new macro-prudential approach through advanced data-sharing
networks and in enhancing collaboration through improved voice and
videoconferencing.
Macro-Prudential Approach To Global Financial Reform
Technology has a key role in supporting required changes to
global finance systems. The macro-prudential approach is largely a new
departure. The IMF has had a Financial Sector Assessment Program (FSAP) for some time but it has
had little impact on improving global finance functions.
To be successful, the implementation of an effective macro-prudential
approach will require a huge amount of up-to-date, real-time data from multiple
sources. This data will need to be analyzed for indicators of threats to the
system and shared in a digestible form with senior international policymakers.
In order to further strengthen the Global Financial System,
an Early Warning System needs to be implemented. To be optimally effective,
this early warning system will rely on obtaining up-to-date information in real
time.
Two global finance organizations, the International Monetary
Fund (IMF) and the Financial Stability Board (FSB) would need to work closely
in establishing and implementing this early warning system.
The collection of data from G20 supervisory authorities would
seem simple. But it will require a sort of modern, secure network technology
linking supervisory authorities rather than traditional report-sharing
processes.
New technologies are emerging to allow this to become a
reality. These include Trust Clouds, a development of cloud computing that
provides trusted, Internet-based computing services accessible across agencies
and jurisdictions to authenticated users.
Enhancing Collaboration Among Global Finance Agencies
The present approach to international cooperation among
regulatory and supervisory authorities is unfit for addressing today’s global finance
challenges. It usually consists of a series of formal meetings at various
levels to prepare final recommendations to be endorsed by policymakers.
Committee meetings are preceded by working groups that are
informed by groups of experts. The pace of progress is defined largely by the
speed with which the formal meetings can take place. The process is wholesomely
cumbersome and highly inefficient.
There is no true collaboration, where the parties get
together quickly when needed for two main reasons: an essential lack of
understanding among national and international supervisory authorities and the lack of technology to enable
face-to-face meetings without travel.
The two are linked: few, formally set-up meetings reinforce
historical misunderstandings; frequent, informal face-to-face meetings breed
trust. This is as true for the domestic supervisor wanting to control its
representatives in international bodies as it is for the national supervisors themselves.
Indeed, until now, the representatives of member states were
only loosely coupled to their home agencies and the two or three statutory meetings
per year attended by the heads of the home agencies were deemed sufficient to allow
control.
As the international financial bodies are strengthened
through the implementation of new supervisory paradigms, member states will
need to search for mechanisms to increase their influence on the decision-shaping
process.
A range of technologies is being used by international
companies to enhance collaboration. These extend from closed social networks
and discussion forums to voice, video and data-sharing technologies.
One particular new technology developed to address the
challenge of enhancing collaboration is Telepresence, a high-definition-video, sensitive-audio
system that matches the experience of physical, face-to-face meetings.
There is a range of configurations that meet the needs of
small to very large groups across multiple locations. While it is possible to
envision virtual meetings of whole boards, as is already being practiced in the
private sector, the more likely early use is as a substitute for many of the smaller
committee and working group meetings of senior officials of global finance supervisory
agencies.
Benefits Of Global Financial Agencies Collaboration
If the major G20 supervisory authorities and key
international bodies such as the FSB/BIS, the IMF, the ECB and the EU
Commission all had access to interlinked telepresence systems, the whole
process for agreeing and implementing the reforms to global financial regulation
could be accelerated and made more effective.
The practical problem of arranging dates for meetings where
almost all participants have to travel long distances is real and with the extended
membership of the FSB, will only become more severe.
There will undoubtedly remain a continuing minor role for
physical, face-to-face meetings and the socializing associated with them. However,
as pressures on senior officials mount, the need for an alternative way of
meeting to enhance and maintain interagency relationships will grow.
Deployment of Telepresence and other collaborative
technologies, however, will require a sea change in the approach of
international supervisory agencies toward the use of technology. Rather than
being seen as a necessary cost to be minimized, technology needs to be viewed
as an enabler for greater supervisory effectiveness.
The global financial system and the whole world will reap
the benefits of the new order.
M. Isi Eromosele is
the President | Chief Executive Officer | Executive Creative Director of Oseme
Group - Oseme Creative | Oseme Consulting | Oseme Finance
Copyright Control ©
2012 Oseme Group
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