Review of the Differentiated Nature and Scope of Financial Regulation - Key Issues and Recommendations

THE JOINT FORUM B A S E L C O M M I T T E E O N BA N K I N G S U P E R V I S I O N I N T E R N A T I O N A L O R G A N IZA T I O N O F S E C U R I T I E S C O M M I S S I O N S I N T E R N A T I O N A L A S S O C IA T I O N O F I N S U R A N C E SU P E R V I S O R S C / O B A N K F O R I N T E R N AT I O N A L S E T T L E M E N T S CH-4 0 0 2 B A S E L , S W I T Z E R LA N D Review of the Differentiated Nature and Scope of Financial Regulation Key Issues and Recommendations January 2010 Table of Contents Executive Summary ................................................................................................................... 1 I. Introduction ....................................................................................................................... 1 II. Mandate ............................................................................................................................ 2 III. Focus and guiding principles of this study ....................................................................... 2 IV. Key issues and gaps ........................................................................................................ 5 V. Recommendations and options for effective and consistent financial regulation across sectors ................................................................................................................. 11 Chapter 1 Key differences in regulation across the banking, securities, and insurance sectors ...................................................................................................................................... 25 I. Introduction ..................................................................................................................... 25 II. Background and approach adopted by the Joint Forum ................................................ 26 III. Key issues and gaps ....................................................................................................... 26 IV. Recommendations to reduce key differences in regulation across the banking, securities, and insurance sectors ................................................................................... 32 Chapter 2 Supervision and Regulation of Financial Groups .................................................. 34 I. Introduction ..................................................................................................................... 34 II. Background ..................................................................................................................... 34 III. Key issues and gaps ....................................................................................................... 36 IV. Recommendations to strengthen supervision and regulation of financial groups ......... 41 Chapter 3 Mortgage Origination ............................................................................................... 44 I. Introduction ..................................................................................................................... 44 II. Background ..................................................................................................................... 44 III. Key issues and gaps ....................................................................................................... 47 IV. Recommendations to promote consistent and effective underwriting standards for mortgage origination ....................................................................................................... 48 Chapter 4 Hedge Funds ........................................................................................................... 53 I. Introduction ..................................................................................................................... 53 II. Background ..................................................................................................................... 54 III. Key issues and gaps ....................................................................................................... 58 IV. Recommendations and policy options to broaden the scope of regulation to hedge fund activities ....................................................................................................... 64 Chapter 5 Credit Risk Transfer Products ................................................................................. 68 I. Introduction ..................................................................................................................... 68 II. Background ..................................................................................................................... 69 III. Key issues and gaps common to both CDS and FG insurance .................................... 70 IV. Key issues and gaps specific either to CDS or FG insurance ....................................... 75 V. Recommendations a