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Good Transparency Practices for Financial Policies by Financial Agencies

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Good Transparency Practices for Financial Policies by Financial Institutions (IMF) 

Summary Advice: The IMF outlines desirable transparency practices for financial institutions in their conduct of financial policies.

Main Points: The case for transparency of monetary and financial policies is based on two main premises. First, the effectiveness of monetary and financial policies can be strengthened if the goals and instruments of policy are known to the public and if the authorities can make a credible commitment to meeting them. In making available more information about monetary and financial policies, good transparency practices promote the potential efficiency of markets. Second, good governance calls for central banks and financial agencies to be accountable, particularly where the monetary and financial authorities are granted a high degree of autonomy.

Transparency by financial agencies, particularly in clarifying their objectives, contributes to policy effectiveness by enabling financial market participants to assess better the context of financial policies, thereby reducing uncertainty in the decision-making of market participants. Moreover, by enabling market participants and the general public to understand and evaluate financial policies, transparency is likely to be conducive to good policy-making. This can help to promote financial as well as systemic stability.

The IMF recommends the following  Transparency Practices for Financial Policies by Financial Agencies:

Firstly, Clarify of Roles, Responsibilities and Objectives of Financial Agencies Responsible for Financial Policies needs to be established.

  1. The broad objective(s) and institutional framework of financial agencies should be clearly defined, preferably in relevant legislation or regulation.
  2. The relationship between financial agencies should be publicly disclosed. The role of oversight agencies with regard to payment systems should be publicly   disclosed.
  3. Where financial agencies have oversight responsibilities for self-regulatory organizations (e.g., payment systems), the relationship between them should be publicly disclosed.
  4. Where self-regulatory organizations are authorized to perform part of the regulatory and supervisory process, they should be guided by the same good transparency practices specified for financial agencies.

Secondly, an Open Process for Formulating and Reporting of Financial Policies needs to be established.

  1. The conduct of policies by financial agencies should be transparent, compatible with confidentiality considerations and the need to preserve the effectiveness of actions by regulatory and oversight agencies
  2. Significant changes in financial policies should be publicly announced and explained in a timely manner.
  3. Financial agencies should issue periodic public reports on how their overall policy objectives are being pursued.
  4. For proposed substantive technical changes to the structure of financial regulations, there should be a presumption in favor of public consultations, within an appropriate period.

Thirdly, Information on Financial Policies must be made available to the general public.

  1. Financial agencies should issue a periodic public report on the major developments of the sector(s) of the financial system for which they carry designated responsibility.
  2. Financial agencies should seek to ensure that, consistent with confidentiality requirements, there is public reporting of aggregate data related to their jurisdictional responsibilities on a timely and regular basis.
  3. Where applicable, financial agencies should publicly disclose their balance sheets on a preannounced schedule and, after a predetermined interval, publicly disclose information on aggregate market transactions.
  4. Where there are deposit insurance guarantees, policy-holder guarantees, and any other client asset protection schemes, information on the nature and form of such protections, on the operating procedures, on how the guarantee is financed, and on the performance of the arrangement, should be publicly disclosed.

Lastly, Financial Institutions needs to report on Accountability and provide Assurances of Integrity to a public authority.

  1. Officials of financial agencies should be available to appear before a designated public authority to report on the conduct of financial policies, explain the policy objective(s) of their institution, describe their performance in pursuing their objective(s), and, as appropriate, exchange views on the state of the financial system.
  2. Where applicable, financial agencies should publicly disclosed audited financial statements of their operations on a preannounced schedule.
  3. Where applicable, information on the operating expenses and revenues of financial agencies should be publicly disclosed annually.
  4. Standards for the conduct of personal financial affairs of officials and staff of financial agencies and rules to prevent exploitation of conflicts of interest, including any general fiduciary obligation, should be publicly disclosed.

The benefits for countries adopting good transparency practices in monetary and financial policies have to be weighed against the potential costs. In situations where increased transparency in monetary and financial policies could endanger the effectiveness of policies, or be potentially harmful to market stability or the legitimate interests of supervised and other entities, it may be appropriate to limit the extent of such transparency. Limiting transparency in selected areas needs to be seen, however, in the context of a generally transparent environment.

Source:  IMF (1999). IMF, “ Code of Good Practices on Transparency in Monetary and Financial Policies: Declaration of Principles”  Interim Committee on Monetary and Financial Policies, IMF, at http://www.imf.org/external/np/mae/mft/code/index.htm#goodtrans  (accessed 31 March, 2013).

Page Created By: Khilola B. Zakhidova. The content presented on this page is drawn directly from the source(s) cited above, and consists of direct quotations or close paraphrases. This material does not necessarily reflect the official view of the publishing organization.

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