COVID-19 Crisis: Perspectives from Standard Setters
Thursday, Jul 09, 2020

COVID-19 Crisis: Perspectives from Standard Setters

Part 3 of the New Normal series. This conversation offers insights on how central bankers, health experts, and financial sector supervisors are dealing with the new normal.

Featuring: 

Carolyn Rogers - Secretary General, Basel Committee for Banking Supervision 

Paul Andrews - Secretary General, IOSCO 

Read the full transcript

July 8, 2020

Babak Abbaszadeh:

Hello, thanks for joining us for our 14th webinar on the pandemic series, which we now call Supervising
the New Normal. I'm Babak Abbaszadeh, CEO of Toronto Center, and I'm very excited for the
conversation today with Carolyn Rogers and Paul Andrews, which I will introduce in a moment. Since
March 11, when the WHO declared COVID-19 a pandemic in response to the public health and economic
crisis, most governments responded with lockdowns, extraordinary monetary and fiscal rescue
measures, and unprecedented flexibility in supervision to help the financial system absorb the shock,
remain sound and keep providing crucial support to the real economy. We're now witnessing
devastation in developing countries which do not have deep pockets. But still, some developed
jurisdictions are fighting the virus' resurgence only weeks after their economies reopened.

Babak Abbaszadeh:

So COVID-19 still rages on and it's very much a topical matter for us. The crisis will have important
implications for financial stability, financial inclusion, investor and depositor protection and the UN
Sustainable Development Goals. Toronto Centre has been providing a lot of support to supervisors and
regulators through our business continuity planning, communities of practice, and various resources
such as TC notes and webinars. If you need more information, please go to This email address is being protected from spambots. You need JavaScript enabled to view it..

Babak Abbaszadeh:

International standard setters are not immune and are carefully monitoring the situation to ensure the
global financial regulatory and supervisory community has a coordinated response. Today we sit down
with two prominent experts. As I mentioned, Carolyn Rogers is the Secretary General of the Basel
Committee on Banking Supervision. Paul Andrews is the Secretary General of the International
Organization of Securities Commissions or IOSCO. You have received their bios. At Toronto Center, we
follow their work very closely and very much appreciate their hard work. Welcome, Carolyn. Welcome,
Paul. Thank you very much for joining us today.

Babak Abbaszadeh:

The Basel Committee and IOSCO are two key standard setters. They each have challenging unique global
coordination and consensus building mandates. To the extent that we can draw a commonality, their
aim is to strengthen regulation supervision and practices of financial sector worldwide, which includes
enhancing financial stability and directly or indirectly improving market integrity, investor and depositor
protection.

Babak Abbaszadeh:

Please use the Q&A tab at the bottom of the screen to post your questions. We will try our best to
answer as many of them as possible. I also like to give a big thanks to our funders, Global Affairs Canada,
Swedish SIDA, the IMF, USAID, Jersey Overseas Aid and Comic Relief, without whom we could not fulfill
our mission. I also would like to thank my team, Demet Canaczi and Diana Bird, who worked tirelessly to
put this event together.

Babak Abbaszadeh:

So let's just go to the questions right away. Carolyn and, Paul, this is a question to both of you. So
Carolyn, I'll ask you to go first and Paul afterwards. Regulatory fragmentation has received a great deal
of attention in the past few years and the topic has once again been in the headlines out of concerns
that international authorities will adopt measures to protect their national and jurisdictional interests,
and that these measures will have a negative effect on global financial stability. Carolyn, is
fragmentation and protectionism a concern for you?

Carolyn Rogers:

Thanks, Babak. So just before I get started, thanks for the invitation. Thanks to you and Demet and Diana
for your organizing and hello to all my fellow regulators and supervisors out there. I hope you're all safe
and well. So I guess I would separate fragmentation from protectionism. And I would say I worry more
about fragmentation than I do about protectionism. I sort of think of protectionism as more of a concept
applicable to trade and treaties and not the thing, which isn't really the same as what we do in terms of
negotiating global financial standards.

Carolyn Rogers:

But I mean, I'll give you my view on fragmentation. I think that it's a term that has become pretty
common lately. And I think the banks use it a lot to lobby regulators. My view about fragmentation is it
generally arises from two things. One, I would say is a sort of reasonable legitimate thing and one not so
much. So the reasonable and legitimate thing is I think most financial or bank regulators, at least deposit
taking institution regulators, in addition to our safety and soundness and stability mandates, we usually
have a depositor protection mandate.

Carolyn Rogers:

And I know if I think back to my last job, certainly I thought of the broader stability and the broader
safety and soundness of the banking system. But I always had in the back of my mind that I was
responsible for the depositors and creditors of the banks that I regulated. And so I think that is the part
of regulators' mandates that often lead them to the things that most banks tout as fragmentation, so
pre positioning capital or liquidity resources.

Carolyn Rogers:

So that I would sort of classify as perhaps, an unfortunate outcome of regulation, but a difficult one to
avoid. And I don't think it would be difficult to call that sort of unintended or something that we need to
get rid of.

Carolyn Rogers:

The other sorts of fragmentation that I think is more problematic usually comes quite honestly from the
relentless lobbying that financial institutions do to their regulators and our governments to make the
regulations customized to their market. And so they want special things done in their market. They want
special exceptions. They want things reduced or changed or whatever in their market and then you end
up certainly with an unlevel playing field or you end up with fragmentation.

Carolyn Rogers:

And so usually when the banks talk to me about fragmentation, I tell them that they're as positioned or
better than I am to to reduce it. So will it increase in this kind of environment? I think that would be
reasonable to expect in an environment like this, particularly as we hopefully head into a recovery, I
think governments will be looking for ways to support and prop up and to even sort of accelerate their
economic recovery. And we're going to be back to that age old push and pull of does lighter regulation
mean an economic boost? So I think it is something that I worry about. But I think we have to be careful
when we think about fragmentation about what the source of it is.

Babak Abbaszadeh:

Thank you very much, Carolyn. I appreciate that answer. And over to you, Paul, is fragmentation and
protectionism a concern for you?

Paul Andrew:

Well, thanks. And let me begin very much like Carolyn, thank you, Babak and your colleagues for the
invitation. It's my maiden voyage on the Toronto Center, and it's a real pleasure to be here. So thanks
very much for the kind invite. I want to pick up on a couple of things that Carolyn said because they're
equally relevant to the way we look at it, I would say, in IOSCO, and long before I think this became sort
of the buzzword of the day, we had picked up this issue as something that we were going to focus on a
couple of years ago.

Paul Andrew:

And from our vantage point, it was really about unintended, harmful fragmentation. And that means
something I would say very different to regulators than it may to the industry. And to Carolyn's point, I
mean we do hear from the industry quite often and early on in this discussion and these debates, we
took up the issue as did the Financial Stability Board. And there were a series of roundtables and talking
to the industry. What did they mean about fragmentation? And what's the concern and et cetera, et
cetera?

Paul Andrew:

And without fail in all of those roundtables, what we heard as a regulator, now of course, we have our
own biases, and we have our own perspectives and whatnot. But what we heard from industry
participants was similar to what Carolyn was saying, which is in country X, you have this rule and and
country Y, you have that rule. And in country Z, you have this other rule, and you're killing us, we have to
comply with this set of rules and this set of rules and this set of rules. And it's so burdensome, it's so
costly, and you need to fix it.

Paul Andrew:

And that was their definition of fragmentation and harmful fragmentation was it was costing the
industry money. And I don't want to minimize the impact that those kinds of things have on the
industry. Yes, it absolutely does. But from a regulator's point of view, those kinds of things fall on deaf
ears. And I think the discussion really needs to turn a little bit about what is truly harmful about
fragmentation that we're worried about? How does it impact investor and investor and investors
generally, investor protection perhaps more specifically, but also markets generally and market
integrity?

Paul Andrew:

And I think if we can have that discussion, that would be a more fruitful way to go about it. So yes, am I
concerned about it? I am concerned about it and IOSCO is concerned about it as an organization and
we've picked that up and I hope we have a chance later to talk a little bit about some of the work we've
done in that area but for now, let me leave it at I am concerned about it but perhaps slightly differently
than maybe the industry is.

Babak Abbaszadeh:

Thank you very much to both of you for your answer and also nuances you brought into it. I guess it's
reassuring to hear that you are both not concerned about protectionism in this day and age where a lot
of the levers of internationalism are being pulled apart, at least in the financial sector sounds like
organizations you lead, the standard setting have the robust architecture to be able to bring the world
closer together rather than dealing with other things.

Babak Abbaszadeh:

Look at WHO and others who are dealing with countries trying to pull out or WTO and at least you're
immune to that, at least for now. So that's great. Before we go on, I just want to give a quick note that
we have participants from over 40 countries, ranging from Argentina to Zambia, and every level of letter
of alphabet in between and literally all continents, Europe, Asia, Africa, Latin America, so it's a very good
turnout. 240 people registered, so good for everyone.

Babak Abbaszadeh:

Carolyn, we have witnessed unprecedented flexibility in supervision. I referenced that in my opening
remarks since the beginning of this pandemic. Is this temporary? Or do you see the pandemic leading to
longer term fundamental or structural changes on how banks are regulated and/or supervised?

Carolyn Rogers:

So I would say yes and yes. So I do think the intention, absolutely from our members on the policy
measures that they've implemented, by and large, most of them have been temporary and targeted
measures that I think are made to deal with what is a pretty unique crisis. And so I do think that is the
intention going in. Will that be difficult to maintain? Going back to my earlier comments about the
pressure that will come when economies are trying to recover from this shock, I think it will be very
difficult. But certainly the intention going in is that these are targeted and temporary measures. But the
last of your question, Babak of will there be long term structural changes to how banks are supervised
and regulated. I mean, I think there likely will be, but I think it will come because I think there will be
long term structural changes to how banks operate after the crisis. I think we're going to see the
business going into the crisis, I think there were fundamental changes happening to the banking
business model. And some of the pressures that were creating those changes before the crisis, low
interest rates, proliferation of technology, those types of things I think the crisis has accelerated. So I
think banks are going to fundamentally change and so good sound financial regulation of banks will have
to change along with it.

Babak Abbaszadeh:

Thank you, Carolyn. And Paul, turning to you for you to be able to talk a little bit about your work at
IOSCO. Implementation of the joint, VCSP IOSCO margin requirements for non centrally cleared over the
counter derivatives has been deferred due to the pandemic. Although this was warmly received by the
industry and trade associations, do you think there is a risk that there will be strong pushback or
insufficient motivation and appetite to prevent implementation of these final phases?

Paul Andrew:

I mean, the short answer is I'm not really worried about that, to be completely frank, for two reasons. I
would say number one, when we worked together, Carolyn and I worked together on this with our
respective governing bodies to implement this delay. And we did it for a very specific reason, which was
to alleviate some operational pressures on firms so that they can devote the time and attention that
was necessary to address COVID-19. And it was the right decision back several months ago when we
made it. And I think it remains the right decision today as we look back.

Paul Andrew:

So we were very, very clear that we were not rolling back the requirements or any of the issues that
gave rise to why those requirements came into place in the first place. So that's the first reason why I'm
not so worried about pushback. But the other reasond is actually more practical and something that I
will say surprised me a little bit, which was the criticism that we took for actually delaying the
implementation. There were a number of market participants and there were press articles about this,
that criticized us for implementing that delay.

Paul Andrew:

And the rationale was well, as an industry, we've made such a push to get to this September 2020
deadline. And then sort of several months ahead of time you say, "Oh, forget it. We're going to pull
back." And you're not taking into account the fact that we made all these preparations. We were pretty
much ready to go. And now you said, "Don't worry about it." And I guess it was surprising to me that we
heard this type of criticism, and I think our response to that was well, there's nothing stopping the
industry from proceeding if they choose to do so. But the fact that we were trying to be, I think good
corporate citizens, writ large and try to make accommodations given the pandemic, it was sort of an
interesting reaction, I thought. But at the end of the day, I'm not worried. I think the industry will be
ready. I think they'll be there and I think they're well on their way.

Babak Abbaszadeh:

Thanks, Paul. If I could summarize or paraphrase your answer, it could be no good deed will go
unpunished, right? So Carolyn, turning back to you again, the Basel Committee and its governing body
announced a delay or deferral for implementing some of the Basel III reforms. Similarly, are you
concerned that these temporary measures may become permanent? I guess you see a bit of a theme
here, which is pandemic has really disrupted everything. To what extent, and we're all trying to reclaim
the new normal one way or another, sSo to what extent you're concerned about that or how are you
dealing with that problem?

Carolyn Rogers:

Yeah. I wish I could be a same one as Paul [inaudible 00:17:43]. I already see a trend in banks trying to
position the fact that they came into the crisis stronger and they're part of the solution, not part of the
problem. There's all kinds of marketing going on. And now if only they had let a regulation, they could
help so much more. And I think that argument will find, I worry that that argument will find fertile
ground in governments who are desperate to stoke their economies.

Carolyn Rogers:

So I am worried. There has, I mentioned this earlier, there's long been this I think false narrative that
regulation constrains economies. I think healthier banks support healthy economies. So that is a
narrative that I think will only get fed by the COVID-19 arguments. So I think it's an ironic one, and I think
the fact for a bank to say on one hand, "I get to be part of the solution. I came into this stronger because
I have more capital. And so now the obvious thing to do would be to let me have less capital." I don't
understand the argument.

Carolyn Rogers:

But it is being made. And I do think, as I said, I worry that it will find favor. But like Paul said, it's
interesting of what you get in terms of feedback. We made the deferral in the Basel, the final Basel III
reforms for the same reasons we made the deferral with IOSCO on the derivative reforms, and that was
exclusively to free up operational capacity. So it was not a decision that we would forbear on the capital
requirements or anything like that. We made the decision because we knew that the operational effort
to implement that last set of reforms was significant, not only for banks, but for supervisors.

Carolyn Rogers:

And we knew that both banks and supervisors needed to be focused on the task at hand and so it
seemed a logical decision, but the fundamental requirements, quite honestly, I think what we really felt
is we regretted we hadn't got them in. So a really good example is, there's a lot of threading going on
right now across cyclicality. And if we were off Basel II, and under Basel III, that conversation would be
different. But we didn't quite get there. The credit risk in most jurisdictions is still largely Basel II, and it
does have some of the cross cyclical requirements. So I do worry, but I remain optimistic that the final
Basel III reforms will continue to hold and will be implemented on time.

Babak Abbaszadeh:

Thanks, Carolyn. And a bit of worry is very sobering and very needed. I mean for those of the audience
and others who are not steeped in banking regulation and the work that you do, I mean the key thing to
keep in mind is this pandemic has disrupted everything. Supervisors, like everybody else stepped in,
brought a lot of flexibility to fold governments in terms of fiscal measures, and anything short of that
would have been unpatriotic. But now it's up to the financial institutions that really smeared their
names back in the 2008 global financial crisis and now have a chance to launder their name and
reputations to also step up and do more work. So sorry about that commentary. I just couldn't resist
mentioning but I know that you will not be able to say comments like that. But anyway, Paul, turning to
you. IOSCO has just published its report entitled Good Practices on Processes for Deference, which is
relevant to a previous report in 2019 relating to market fragmentation. Can you explain what those
suggested good practices are and what IOSCO expects they may achieve in relation to market
fragmentation issues?

Paul Andrew:

Now, very happy to talk about that and I appreciate you bringing it up because it is a piece of work that
we just recently accomplished, and frankly, we're pretty proud of it. And it does relate very much so to
the market fragmentation discussion we were having just a couple of minutes ago. And essentially, what
the report that you refer to in 2019 did was lay out what are some of the sources of fragmentation and
what could be done to overcome fragmentation, at least from a capital markets, from regulation point
of view. And in the 2019 report, we listed three approaches, one of which was to come up with good
practices with respect to deference.

Paul Andrew:

And that's what this report that you just mentioned, that we just published a couple of weeks ago
actually, are all about. And the idea was to try to create a series of processes that would make the
deference discussion, more or less, I should say, frictionless. And so it wasn't about the politics of
whether you should engage in a deference discussion. The discussion was if you choose to go down the
deference road, what are the processes and procedures that you could use to help make the process
easier, more efficient and more effective.

Paul Andrew:

And that's what these good practices really are attempting to do. And so in the course of putting them
together, we looked at a range of of different agreements that have been entered into how, they went
about it, what worked, what didn't work and those kinds of things. And I think what we found was that
the agreements and the work that we did, all of these deference discussions are happening at least
today, based on certain, let's call them philosophies or certain underpinnings and those are fairly
obvious, but just to tick them off, I mean it's about looking at outcomes as opposed to specific rules and
trying to be an outcomes based approach to how you look at deference, being sensitive to risks in each
jurisdiction to be sure that you're looking at the issues from the various different points of view, being
transparent about the process and what works, what doesn't work and how you can make make things
even better, looking at flexibility to be sure that deference decisions are not straitjacketed so that if one
jurisdiction gets a deference determination and makes a change to its regulatory framework, it doesn't
have to start the process all over again, assuming other things are in place, and then making sure that
there is strong underlying cooperation between the jurisdictions that engage in the deference
discussions.

Paul Andrew:

And so we took those philosophies and then came up with 11 good practices, and they about those
things, about transparency, about criteria for how you go about making an outcomes-based decision,
looking at the risks and the nature of the risks, what should the level of engagement be between the
entities, but also then making sure that we address the issue of revocation, because in some cases, an
agreement may not be able to withstand changes that have undergone in one jurisdiction or another.
And so we put in a couple of good practices that tried to address that. And our hope, our hope is that
entities, jurisdictions, regulators will put these 11 good practices into place so that when they do decide
to engage in the discussion about whether to defer or not defer, we've taken some of the friction or the
angst out of how you go about doing it, because we did find that as much as we don't like to reinvent
the wheel, sometimes we find that countries do reinvent the wheel each time. And if we can avoid that,
it will make it much easier for everybody down the road. So that's the high level approach in what we
were trying to deal with the report.

Babak Abbaszadeh:

Financial sector is very conservative, as you know, supervision is also even more conservative than that.
And can you hear me? Because I saw some instability there. And we often associate financial sector and
supervision and all of that with serious people in serious suits and looking at equations, looking at
different meetings. But let's bring the people into the equation for a sec. So there's a growing
international consensus on the importance of climate change, financial inclusion and gender equality.
These are sustainable development goals 5, 8 and 13 out of the 17 Sustainable Development Goals. The
UN, IMF, World Bank and many national governments' central bank supervisory authorities are focusing
increasingly on these issues.

Babak Abbaszadeh:

A few years ago, even the FSB, Financial Stability Board, which one way or another is the parent of the
standard setting bodies, launched the Task Force on Climate Disclosure Process. Given these global
developments, do you believe Carolyn, and then Paul, same for you, is there also scope for international
standards to focus more on the SEGs either in core principles themselves or in accompanying
assessment criteria and related guidance? Related to that, could international standard setters provide
some impetus for national supervisory authorities to take additional steps in these areas? So I'd be very
interested in your views on that.

Carolyn Rogers:

So I guess, I'd first come back to maybe the setup of the question. And so the shift that I've noticed in
these types of issues in recent year or two, and particularly in the recent six months, is I think people do
see them as serious issues. They aren't sort of separate from the sort of traditional hard numbers issues.
I think people have come to appreciate, even before the pandemic, I think people in all sectors and
certainly in the financial sector had definitely started to take certainly climate change issues seriously,
and I think have started to give hearing to some of the other social goals as you set them up with that.

Carolyn Rogers:

I think the thing that we're struggling with is our framework is naturally designed to measure things. And
we have, I think, a solid, well earned reputation for supporting our policy decisions with data and
numbers, empirical evidence, that type of thing. And so you hear us often pressing for data and one
shouldn't mistake that for pressing for truth or show me your truth that this is an issue. I don't think
that's it at all. But I do think that we do want to preserve the integrity of the framework by making sure
that we support our policy decisions with the empirical evidence. And so I think the real push in the next
several years will be to try to take the disciplines of science and social science and translate some of
how they measure things to how we measure things, and to try and make those things work in our
framework. Because I think at a conceptual level, I don't know of very many supervisors who don't think
that these are serious issues that we need that do contribute to risk. We just need help measuring them.

Paul Andrew:

You know, I would-

Babak Abbaszadeh:

Thank you very much. Go ahead, Paul. Go ahead, Paul.

Paul Andrew:

I think Carolyn makes great points. I mean, I think it's very much not a discussion about if. It's really
about how, and for us, I would say at IOSCO, where we're focused is really a subset, I would say, of the
SDGs. And it's really about sustainable finance, for us. And I know people use the shorthand ESG for
environmental and social and governance. But I think where we think we could make perhaps the
greatest contribution would be in the climate area or the sustainable finance area. And it's taken us a
little while, I would say, to get into this mode about what can we do? What can capital markets
regulators really do when it comes to these issues? Because, we have a set of standards about disclosure
for example, and in many countries around the world, we all take the position that if something is a
material risk to investors, it needs to be disclosed, whether that's by an issuer or whether that's by an
intermediary or some other stakeholder, those issues have to be disclosed.

Paul Andrew:

But in other jurisdictions now, I think what we're starting to see is, is when it comes at least to climate
related issues, governments and other jurisdictions are saying, "Well, these are material per se. And
therefore they have to be disclosed, regardless of all the other things that are material that will come to
operating a particular business." And so I think what what we're looking at and we just issued a report in
April, from what we call our sustainable finance network, which was put together across the IOSCO
membership, about some of these issues around disclosure. And I think what we found were three
general themes that we're going to try to address now going forward.

Paul Andrew:

The first is, you look across the globe, and there are multiple and diverse sustainability frameworks,
sustainability standards, and it's trying to bring some semblance of commonality and I hate to say order
because they're all orderly, but commonality may be the best way. So that was the first set of issues that
we identified. The second was that there's just a lack of common definitions about what are sustainable
activities and how you go about achieving those and trying to think through those types of issues are
going to be I think, very, very important. And then the third is really something that's dear to us at
IOSCO is around issues of investor protection and greenwashing and how those things really relate to
what disclosures are made and what are the investor protection concerns that we should be thinking
about and be worried about, frankly, as an organization.

Paul Andrew:

So that report just came out in April. And now we've transformed the network into a task force. And the
task force is going to take forward a number of those issues. And I'm not sure where we will end up at
the end of the day, because it's a little hard to tell because there is an alphabet soup of standards and
other regulators. And I think one of the things that we're going to try to do is utilize our convening
power to bring people together to have some discussions about what can we do and how can we
rationalize some of these different approaches and see if there's a feasible path forward. So we'll see. I
say stay tuned. We're in the very, very early days for us at IOSCO, but I'm thrilled that we actually made
and are making some good progress in this area.

Babak Abbaszadeh:

Thank you, Paula and Carolyn for sharing your views. And very soon I'm going to go to the audience for
their Q&A. And there's quite a lot of interesting questions here. But just to wrap up this part of it and
this last question, thank you for actually sharing these thoughts because you raised some really
interesting points. Carolyn, you talked about that. And Paul, you talked about these initiatives, and then
basically, your convening powers are great. We are a much smaller organization than you and don't have
the same global convening authority that you have. But think of us more as a canary in the coal mine. If
you are in the Vatican, we are the liberation theology on the ground. But we see a lot of these things
percolating. And we've done quite a lot of this work, written Toronto Centre notes and guidance on
supervision and dealt with some of these issues.

Babak Abbaszadeh:

So I'll be very happy to share some of them with you offline to the extent that you might find them
reasonable, or you might find them helpful to the work that you do and look at us as a resource that can
help you on this. So let's move to the audience. As I said, there's quite a lot of questions. Let me start
with a couple of them. This is an interesting question on the business continuity aspect. So I guess this
one can go to Carolyn. Has the pandemic changed the way the VCSP interacts and IOSCO interact with
one another? How about your member countries? How do they approach their responsibilities? Has the
pandemic really affected anything, or did you find that the systems you have are robust enough?

Carolyn Rogers:

Yes, absolutely. So typically, the Basel Committee would meet here in Basel for two days every quarter.
And between the end of March [inaudible 00:35:39] last week, the Basel Committee has met eight
times, about a half a day each time, and I think we are scheduled to meet 12 more times between now
and the end of the year. So we're meeting way more frequently, shorter times but more frequently,
more frequent touchpoints. I think, Paul, I think IOSCO's doing something similar, meeting sort of more
often, but shorter, more sort of focused meetings.

Carolyn Rogers:

I'm happy to say that the other thing that has changed is the contact and coordination between the
standard setters. So Paul and I probably talk to each other and we talk to our colleagues at the FSB and
the IAS several times a month where that might have happened once a month, once every other month
before. So lots and lots of frequent touchpoints, all virtually though. So we're using some of the same
platforms I'm sure you guys are. We're using WebEx and Teams and Zoom and all getting quite a bit
more acquainted with technology.

Carolyn Rogers:

So the other question I saw in the chat, I'll just answer really quickly, is somebody asked about how
supervisors are doing their job in this environment, and particularly if we've lost the ability to do on site
examinations and if you're worrying about that, you're in good company. Most of our members are not
doing onsite inspections right now, either of their banks, and they are worrying about it. I think most of
us that have been at this for a long time are good old fashioned supervisors. We want to crack open the
loan files and look the CRO in the eyes and that sort of thing. So definitely a lot more reliance on data. I
do think supervisors are in contact with their banks. They're using some of the same platforms. But
there is a lot of thinking going on right now about how do you substitute for some of the things that you
used to do online or onsite.

Paul Andrew:

A couple of things, I mean Carolyn put her finger on it. I mean, I think one of the positives, I mean you
hate to think of positive in a difficult situation, but I'm an optimistic person and I try to find the silver
lining in things and to me, one of the best things that's happened with respect to the COVID-19 and the
lockdown and all the virtuality that we are all living with, has been the interaction with our colleagues,
at the FSB, at the VCBS, IAS and CPMI, the alphabet soup of standard setting bodies, but it has really
been a great experience and a great approach. We make decisions much more quickly. We just pick up
the phone and you have five minutes for a phone call. Yes, we did. And we resolve things in a way that I
think would not... I can't say would not have happened, but I think probably would have taken a bit
longer to happen and evolve, whereas the pandemic kind of pushed us forward. And I have to say it's
really been a positive development.

Babak Abbaszadeh:

Thanks. And Paul, one of the amazing as you said, it's hard to talk about opportunities, one of the
amazing opportunities of the pandemic is that we're all in it together. So we're all sitting home, we're all
facing the thing. And of course, the workload has increased a lot. But you understand the importance of
reaching out. So thank you for that. Paul, we have a couple of questions here. They're asking you to
please list the good practices you refer to in your document. So I mean, maybe you can touch on it at a
very high level, but also you can maybe guide Toronto Centre offline, send an email to me or to Demet
so that we can distribute it to the participants. So could you please list those a little bit?

Paul Andrew:

Yeah, no, I'd be happy to certainly send you a link. One of the nice things we do with reports now that
we publish is the good practices are embodied in the document and it's a 20, 22 page, 25 page
document. But at the end, it's two pages. If you just want to go to the good practices themselves,
they're two pages. And what the report tries to do is list not only the good practices, but provide some
guidance about what we really mean when we talk about looking at, like the first one, for example, it
talks about trying to come up with the most appropriate arrangements for ensuring transparency. And
so we list down a number of things about how you could go about doing that.

Paul Andrew:

So it could be, you set up a weekly phone call, or at the very beginning, you exchange documentation,
legislative texts, guidance, those kinds of things, making sure that you agree on basic things like
language, believe it or not, sometimes we found that in our work, that there wasn't even an agreement
on the use of a common language. And so what we were finding is people were exchanging texts of
laws, but one was in one language, and the other was in another language. And so there was a lot of
cross sort of talking.

Paul Andrew:

So the first set of good practices are really around transparency and then how you go about doing an
outcomes based assessment. So it could be you need to look at the legal frameworks, and what are their
criteria for assessing whether an entity or another jurisdiction should be deferred to, what's the nature
of the oversight in that particular jurisdiction when it comes to markets, investor protection, those kinds
of things. And so I hate to sort of take our time and read all 11 good practices, but I think providing the
link and then maybe perhaps you can distribute that might be a more effective use of time. Not that I
don't want to talk about that. I'm very proud of this report. We spent a lot of time working on it. And I
put a lot of blood, sweat and tears into it personally. So very pleased with the report, but I know we
have a number of other things probably to talk about as well.

Babak Abbaszadeh:

Yeah. Well, thank you very much for that and we'd be very happy to distribute it and no shaming,
putting some commercials for IOSCO or BCP in here. So Carolyn, let me put you on the spot. I mean, I'm
not. This questioner is doing it. What supervisors or institutions suspended distribution of dividends to
be paid in 2020? Do you think that this measure should also be extended in 2021?

Carolyn Rogers:

That's a tough one. There's a few tough ones in the Q&A function. So I think different supervisors have
taken a different approach to this. The Basel framework has some built in distribution restrictions, but
some of our members have chosen to trigger them earlier than they would otherwise have occurred in
the capital stack. I think you have to take a few things into account if you're a supervisor and you're
thinking about this.

Carolyn Rogers:

One is what is the capital cushion your banks have? How much capital conservation, how early do you
want that to occur? But you do also have to think about a bank's ability to raise capital later in the crisis
if they need to. So I think that consideration. How profitable is your bank? What's their ability to, what
are their other alternatives to build back that capital? But what our members, some of our members
who have chosen not to restrict dividends are saying, "Look, our rates are healthy." They're profitable.
The distribution restrictions are built into the framework. They were transparent to the investors at the
time. Our banks have a solid capital plan. We've stress tested them, we think there's room and so they
haven't just neglected the issue. They've made a considered decision for what I think are valid reasons.

Carolyn Rogers:

Likewise, other members of the Basel Committee have opted to restrict those dividends. I think part of
the issue too is how do your banks distribute capital? Is it dividends? Is it share buybacks? So I think you
have to be careful to compare apples to apples here too, when you're looking at cross jurisdictions.

Babak Abbaszadeh:

Thank you. And Paul, I want to pass on this question to you. And before we do that, we just have a nice,
I want to give a nice shout out to [inaudible 00:44:31] from Abuja, Nigeria. Welcome, everyone. So we
welcome you back. Thank you. So Paul, back to you. The questioner talks about both VCBS and IOSCO
but let's just focus on yeah, let's just ask what you think. Have VCSP and IOSCO, in your case IOSCO,
developed a plan for removing the current forbearance introduced due to COVID-19?

Paul Andrew:

Well, it's actually a very interesting question because we're going through sort of an exercise right now
as part of working with our colleagues at the Financial Stability Board, about issues around flexibility and
what have been good practices, what's been the assessment of that and whatnot. And the good news
from an IOSCO point of view is that the way we write our principles, our recommendations, our
standards, there is sort of built in flexibility already.

Paul Andrew:

And one of the reasons we do it that way is because we have over 150 jurisdictions that we're trying to
build consensus with, when it comes to implementing and promulgating international standards and
guidelines and things of that nature. And so by the very nature of that, what we do cannot be very
prescriptive. So in a time of COVID-19, we were able to sort of rely on a number of those flexible
flexibility mechanisms that we already have built in. And so direct answer to the question is we don't
really have a plan to say, "Oh, no more flexibility on recommendations when it comes to liquidity risk
management." We're not going to do that because the way the standard was written in the first place
was to account for different times, different places, different circumstances, different jurisdictions,
different entities that allow for the use of, the way or the flexibility that's sort of built in.

Paul Andrew:

And I think that's the beauty of being a standard setting body internationally is, at least in IOSCO's point
of view, you can be a little more high level, and that's suited us quite well.

Babak Abbaszadeh:

Thank you. And, Carolyn, do you have anything to add to this question?

Carolyn Rogers:

I think Paul did a good job. I think, I don't know that I can say that we've really had a thorough
conversation yet about the path out. We keep talking about the fact that we're going to need to. But I
think right now, we're still feeling like we're in the eye of the storm.

Babak Abbaszadeh:

Just saying it's actually a very reasonable perspective as well. I mean, it's good to do planning for that.
But as we were looking at naming this series, we thought about reopening, we thought about recovery.
And we thought both of them, given all the deaths and destruction that we've seen, it's kind of
insensitive. And frankly, a lot of countries are going and coming back and the virus is surging. So we're
really in a new normal right now. And we're still going through the eye of the storm. So maybe it is a
little bit too early.

Carolyn Rogers:

What I was going to say is I'm, it's a little bit different to I mean, maybe the difference between Paul's
remit and mine, I think the way we're looking at it is the impact to the banking sector, at least, has been
delayed a lot by the fiscal interventions, the guarantee programs, the deferral programs and stuff. And
so I think we're still... there was a pretty severe market volatility at the beginning. So the capital markets
took a really early hit in terms of volatility and stress. The banking sector though so far, I think, we have
the worst to come.

Babak Abbaszadeh:

Let me read this question and see which of you is interested in taking it on. And I may just volunteer one
of you.

Paul Andrew:

I volunteered Carolyn already so it's okay.

Babak Abbaszadeh:

All right. Yeah, you can go. So considering the projected unpleasant economic and financial impacts of
COVID-19 globally, and particularly how this will affect financial institutions, should we expect reviews of
existing standards of BASEL and IOSCO? If there will be such reviews to that, to what extent will these
reviews take place? So Paul, do you want to take a crack at that?

Paul Andrew:

No, I'm happy to take that. I mean, I would say there's probably two or three areas where we're
probably going to have to take a look given where things have unfolded or how things have unfolded
with COVID-19. The first and we're already started on this, so that's the good news, is around some
recommendations we put in some years ago around money market funds, and how those money market
funds have performed. And that was certainly a difficult area when it came to COVID-19. Because in
many countries, the money market fund industry essentially froze up. And in the U.S., it was a difficult
time until the Fed came in and loosened, greased the wheels a little bit with some of its interventions.
And so I think our review is going to look at those recommendations we did and frankly, are they still fit
for purpose?

Paul Andrew:

And we went through a live stress test through COVID-19. And how did we fare? So that's an area we're
definitely going to have to take a look at. The other area is around business continuity planning. Now,
we issued some recommendations just two or three years ago really around business continuity plans
for markets and for intermediaries. And again, we've been through a live stress test. And I think looking
at how those business continuity recommendations have held up in light of COVID-19 will be a good
exercise for us because we may need to make some tweaks to those and create different expectations
given where we ended up. So those will be a couple of areas I think we're going to probably have to take
a look and see whether or not we need to make some changes.

Babak Abbaszadeh:

Thank you and Carolyn, this next question goes to you. It's a very good question, perhaps a bit tough and
talk about profiles [inaudible 00:50:48]. This is an anonymous attendee asking, so anyway, VCSP and
IOSCO have published guidance on the use of flexibility by banks when applying accounting standards
IFRS 9 to payment holidays, and while it is easy for regulators to say that such flexibility is available, it is
much more difficult for supervisors to check whether banks are using this flexibility consistent,
prudently and sensibly. Have you just created a minefield here that will lead to some banks making
insufficient provisions?

Carolyn Rogers:

Yeah. So look, I think IFRS 9, expected credit loss is fundamentally a model. And we just went through a
whole bunch of work in Basel III to try to moderate a bank's ability to use models in unhelpful ways. And
then we've gone and introduced a pretty important model that guides provisioning. And I think, long
before COVID, we were worried about the first downturn for this model. All models benefit from
historical data, practice using them being through a cycle or two, knowing how they operate.

Carolyn Rogers:

And we knew that the first downturn under this new model was going to be difficult. And then of
course, we have sort of the mother of all downturns. So I think it will be difficult. It is going to be a big
job for supervisors to stay on top of banks' provisioning models, particularly now. But I think it's
important for us to remember why we have ACL and what it replaced. I hear a lot of hand wringing
about the cyclicality of ACL. And I think we have to be careful, I mean, the incurred loss model was also
pretty cyclical. So I think there's a certain amount of provisioning that is, by its nature going to be
cyclical because bank lending is cyclical, credit markets are cyclical. So I don't know that there's a better
mousetrap out there. So I think we have to use the one that we have as wisely as we can. And that's
going to take really, really solid supervision.

Babak Abbaszadeh:

Thank you very much for that. And Paul, over to you. Another question from anonymous. And this
actually speaks to the global reach of your organization, like you have growth and emerging markets and
all kinds of different components, fabulous components to IOSCO. So one size does not fit all when it
comes to IOSCO. What are your views on the application of standards, core principles when it comes to
mature markets versus emerging, even frontier markets? What should the drivers be to reduce what the
participants are calling compliance burdens. Is this simple fact that market promotes buyer beware, and
therefore requires disclosure enough for a regulator to be comfortable with potential investor losses?
I'm sure that's the kind of stuff that you talk with and deal with all the time. Any views on that?

Paul Andrew:

Yeah. Well, there's a couple of components to that question as I see it. I mean, I started at IOSCO four
years ago plus, and when I first came in, there was this, I would say divide in views that there were
emerged or advanced market country issues, and there were emerging market country issues. And we
had to sort of keep the two separate, because they were different. And I think, I don't know, I'm not
pressuring or anything but I will say that in the first six months or thereabouts, I started scratching my
head and saying, "We're worried about cybersecurity. We're worried about investor protection. We're
worried about issues around market integrity."

Paul Andrew:

These are not advanced market issues and emerging market issues. These are market issues. These are
regulatory supervisory enforcement issues. And so we in effect stopped sort of making this divide
between corporate governance and things that we thought were just emerging market country issues,
and started looking at things a little more holistically. And by doing that, we would bring in, let's say, the
emerging market perspective on a particular standard. So it could be around liquidity, risk management,
or it could be around business continuity, those kinds of things.

Paul Andrew:

And so in the fashioning of the recommendations that we would issue, we would try to be mindful of
the fact that yes, these do in some respects have applicability in all sorts of contexts and markets and
circumstances. And so that's why we tried to build in the flexibility. That's one component of the
question. But the other component of the question is where there is a huge need, I would say, when it
comes to emerging market countries is around market development. And this is a theme we hear a lot,
because many regulators around the world and not just from emerging markets, but other emerged and
middle tier markets as well, have a mandate to develop the market in addition to regulating and
overseeing and enforcing.

Paul Andrew:

And so we spend some time thinking about how can our standards and recommendations be used to
help develop the markets for those countries and those jurisdictions where it's a mandate. And I'll give
you one quick example because I know we're running short on time, which is around a topic we talked
about just a couple of minutes ago, which was around sustainable finance. So it's an issue for all
markets, no matter what, but what our GEM committee did, our growth and emerging markets
committee did was come up with a series of recommendations about how to look at sustainable finance
from a market development point of view, and what could be done. And not just by emerging markets
but it was focused on emerging markets, using green finance as a manner and a mode to develop the
market. And we think that looking at things sort of from those vantage points will suit all of us quite
well, because the issues are for everyone. But there are some certain and there are peculiarities that do
apply to emerging markets that we, IOSCO, have to be very, very sensitive and mindful of.

Babak Abbaszadeh:

Thank you, and we're really coming close to the end. So one of the reasons why we do have a following
and people attend our webinars is because we try to keep time. It basically comes to be as simple as
that. So at this point, I'd like to thank both of you. You were very generous with your time and very frank
with your answers. And some of these questions were not that easy. And we still have a couple of
questions left on the table. And I apologize, and we will try our best to respond to those. We'll keep it as
part of our series. We are contemplating what to do with these 14 or so webinars that we have
conducted because they were conducted during a very, very difficult time period since the pandemic
was declared. A lot of very interesting insights came out of that. And we will reach out to you, Carolyn
and Paul for some follow up at some point in the future. But for now, I really want to thank you. And I
hope that we can see you at another Toronto Centre program or through another kind of an
engagement. So yeah, thanks again and have a great time. And as I said, you really kicked ass. Take care.

Paul Andrew:

Thank you. It was a real pleasure to be here. Thank you.

Carolyn Rogers:

Yeah. Thanks, Babak. Bye bye.

Babak Abbaszadeh:

Thank you, everyone. Bye.