Introduction

A.  Background and Development of the Supporting Document

Development of the Code of Good Practices on Transparency in Monetary and Financial Policies

1.  The Code of Good Practices on Transparency on Monetary and Financial Policies: Declaration of Principles¹ was developed in the context of the development of standards and codes for public disclosure and transparency practices designed to strengthen the international monetary and financial system.² Calls for greater transparency extend across a wide spectrum—to commercial banks, securities and insurance firms, and other institutions and participants in financial markets, to governments and their policies, and to multinational institutions, including the International Monetary Fund. The adoption of the MFP Transparency Code, therefore, is part of a larger focus on transparency.

2.  The objective of the MFP Transparency Code is to improve transparency of the objectives and operational processes governing monetary and financial policies. The underlying rationale and main elements of the MFP Transparency Code, including the benefits and limitations of transparency for monetary and financial policies, are discussed in more detail in the Introduction to the MFP Transparency Code.³

3.  For purposes of the MFP Transparency Code, transparency for central banks and financial agencies refers to an environment in which the objectives of monetary and financial policies, their legal, institutional, and policy framework, monetary and financial policy decisions and their rationale, data and information related to these policies, and the terms of central bank and financial agencies accountability are provided to the public in a comprehensible, accessible, and timely manner. The transparency practices listed in the MFP Transparency Code focus on: (1) clarity of roles, responsibilities and objectives of central banks and financial agencies; (2) the process of formulating and reporting of monetary policy decisions by the central bank and of financial policies by financial agencies; (3) public availability of information on monetary and financial policies; and (4) accountability and assurances of integrity by the central bank and financial agencies. The public refers to those entities with an interest in the design and implementation of monetary and financial policies.

Implementation of the MFP Transparency Code

4.  The various internationally developed codes and standards of good practices in the economic and financial spheres, including the MFP Transparency Code, are voluntary. These codes and standards are consensus documents directed at countries and institutions with significant diversity in institutional arrangements, market structures, and legal frameworks. Adoption of these codes, therefore, requires adaptation to individual country circumstances, taking into account the benefits and limitations of transparency that could be affected by specific policy and institutional circumstances.

5.  On September 26, 1999, the Interim Committee of the Board of Governors of the International Monetary Fund⁴ adopted the MFP Transparency Code. In the Communiqué, the Committee “urges all [Fund] members to implement the Code” To make the MFP Transparency Code operational, the Interim Committee in its Communiqué of April 27, 1999 charged the Fund “to proceed promptly in preparing, in cooperation with appropriate institutions, a supporting document to the Code.” Since mid-1999, Fund staff, in cooperation with international organizations and others, has been engaged in an intensive effort to develop such a document—the Supporting Document to the Code of Good Transparency Practices on Monetary and Financial Policies.⁵ The MFP Transparency Code contains a listing of broad principles related to transparency for monetary and financial policies that central banks and financial agencies should seek to achieve. The Supporting Document sets out in detail these practices and offers examples of how the practices of the MFP Transparency Code are applied by these institutions. By elaborating and illustrating the practices listed in the MFP Transparency Code, the Supporting Document serves as a guide to implement the MFP Transparency Code.

Process of developing the Supporting Document

6.  The practices in the MFP Transparency Code were drawn from a review of good transparency practices used by a number of central banks and financial agencies. The MFP Transparency Code thus represents a distillation of concepts and practices that are already in use and for which there is a record of experience. In preparing the Supporting Document, it was felt desirable to include a broad range of experiences of transparency practices of central banks and financial agencies. As a way to elicit more information related to transparency practices by these institutions, the staff mailed a comprehensive questionnaire to the IMF’s membership (as well as to such multinational central bank arrangements as the European Central Bank, the East Caribbean Central Bank, and the Central Bank of West African States). The questionnaire was keyed to each of the transparency practices of the MFP Transparency Code, seeking information about whether and how individual central banks and financial agencies observe the practices of the MFP Transparency Code.

7.  By end-July 2000, 265 institutions, representing 135 countries, submitted responses to the questionnaire to the IMF. There were 120 responses from central banks (with many covering monetary policy, banking supervision and payment system oversight) and 145 responses from a variety of financial agencies responsible for the regulation or oversight of banking, insurance, securities and deposit insurance, including 20 responses from composite financial supervisory agencies. The responses represent the full range of the IMF’s membership and of agencies from the principal financial sectors. Table 1 shows the composition of responses by policy function of the respondents.⁶

8.  The deliberations in the development of the MFP Transparency Code demonstrated that there are considerable differences regarding the desired degree of transparency in monetary and financial policies. The information in the responses to the questionnaire and in the assessments of the MFP Transparency Code confirm the diversity of central bank and financial agency experience on transparency, with some of these entities more active in promoting transparency than others. The extent of transparency also varies among central banks and financial agencies, with some promoting transparency on the full range of practices and with others being more selective, and advancing some practices and not others.

9.  The development of the Supporting Document also benefited from direct feedback and input by national authorities. The staff drew on the various assessments of the observance of standards and codes that the Fund staff has undertaken over the past year as part of the IMF-World Bank Financial Sector Assessment Program⁷ and Reports on Observance of Standards and Codes (formerly Transparency Reports) activities.⁸ In addition, the Fund organized seven regional consultative meetings on the Supporting Document.⁹ These regional meetings provided an opportunity to broaden the awareness of the MFP Transparency Code and to obtain useful feedback and input on an early draft of the Supporting Document from national authorities.

10.  A Consultative Group on the Supporting Document to the Code of Good Practices on Transparency in Monetary and Financial Policies was also constituted. This Group consists of representatives from five international/regional organizations ¹⁰ and four international financial sector groupings.¹¹ In preparing the Supporting Document, the IMF staff drew on the expertise of the members of this Group.
 

B.  Objective and Structure of the Supporting Document

Objective of the Supporting Document

11.  The transparency practices in the MFP Transparency Code are expressed in general terms. Phrases such as “should publicly disclose” or “should be publicly disclosed and explained” or “should be specified in legislation” or “should present to the public a report” or “should disclose. on a preannounced schedule” or “publicly announced and explained in a timely manner,” in which many of the practices in the MFP Transparency Code are couched, leave considerable scope for their interpretation in practice. These wordings leave open the manner of disclosure, the content of the explanations and reports, and the precise time dimensions of disclosure. They necessarily will have to vary from practice to practice and will need to take into account the different institutional arrangements with respect to the conduct of monetary and financial policies, the legal frameworks underlying these policies, and particular circumstances of the countries involved. It would be futile and inappropriate to prescribe precise content to these general terms.

12.  As a way to give operational meaning to the practices of the MFP Transparency Code that are expressed in such general terms, the Fund staff has surveyed the range of ways and mechanisms that central banks and financial agencies around the globe are using to practice transparency. The principal objective of the Supporting Document, therefore, is to present in a systematic way information on the various transparency practices of the MFP Transparency Code, including alternative ways to achieve the objective of transparency. In this way, the Supporting Document can serve as a useful reference source for central banks and financial agencies seeking to implement the MFP Transparency Code.

13.  For some areas covered by the MFP Transparency Code there are other international standards that have been developed, or that are in the process of being developed by the IMF and other organizations that deal with the conduct of monetary and financial policies and financial sector-related areas (such as accounting, auditing, banking regulation and supervision, bankruptcy, corporate governance, data dissemination, insurance regulation, payment system oversight, and securities market regulation).¹² The focus of these standards is broader than transparency and relate to the underlying content and quality of the policies, as well as to requirements directed to the institutions and firms under the jurisdiction of these standard-setting organizations. However, transparency and disclosure practices are also covered in these standards, and thus have direct relevance to the MFP Transparency Code and the Supporting Document, which are intended to be supportive and consistent with these other initiatives.

Structure and content of the Supporting Document

For each transparency practice of the MFP Transparency Code, the Supporting Document contains a two- or three-part entry.

1. Under the heading of “Explanation and rationale,” there is some elaboration and clarification of what is meant by the stated practice. In addition, this section offers the rationale for the practice in the context of transparency, i.e., why the particular practice is desirable and in which way it achieves transparency.
    
2. The second entry labeled “Application,” indicates where and how a particular practice is implemented, including alternative ways to achieve the objective. For some practices, particularly those where a considerable number of central banks or financial agencies apply the practice, although perhaps in different forms, the “Application” section quantifies how the practice is followed by central banks and financial agencies as a whole, without providing specific country or institutional examples. These summaries are derived from the responses to the questionnaire that was circulated to the central banks and financial agencies of the IMF’s membership and from the assessments by the Fund’s staff of standards and codes noted above.¹³ For other practices, the “Application” entry contains both a quantitative summary of central bank and financial agency practice supplemented by examples of where a central bank or a financial agency is transparent in a clear and distinctive manner.
    
3. Where relevant, for a number of the transparency practices there is a third entry, “Implementation considerations,” which identifies some of the practical factors that may affect the observance and implementation of a particular good transparency practice. For example, benefits and costs of transparency, transition issues of introducing transparency, the nature of the “public” to whom transparency is being directed, the domestic versus international dimensions of transparency, and the scope and content of transparency depending on the monetary policy framework or particular financial sector circumstances, are considerations that need to be taken into account in implementing particular transparency practices.

15.  The specific central bank and financial agency examples in the “Application” sections of the Supporting Document provide additional clarification of the ways in which transparency can be achieved. These examples should prove helpful to institutions seeking to adopt changes in their transparency practices. The examples cited should be viewed as illustrative of a sample of possible examples currently in use, and are not to be regarded as exhaustive, exclusive, or definitive. The examples cited do not imply approval or endorsement; nor should the examples cited be regarded as norms, benchmarks, or “best” practices. The fact that a particular central bank or financial agency is not cited as an example does not mean that it does not follow a particular transparency practice.

16.  The principal criteria for citing individual central banks or financial agencies as examples are that they (a) illustrate distinctive and instructive transparency/disclosure features of a practice (distinctive and instructive by the clarity of focus on transparency or special disclosure features); and/or (b) illustrate alternative means of meeting the transparency objective of the practice. In addition, an attempt has been made to select examples from different types of economies and from different regions to give the document a representative global coverage.

17.  Some central banks and financial agencies have opted in recent years to become more transparent, and have adjusted their transparency practices accordingly. Similarly, some countries have a tradition and culture for more openness than others do. The frequency that particular countries/institutions are cited in the “Application” sections reflect to a large extent these developments and conditions.

18.  The MFP Transparency Code’s transparency practices in Sections V-VIII of the MFP Transparency Code for financial agencies (Part 3 of this document) focus principally on those elements that are applicable to all types of financial agencies. However, not all transparency practices are equally relevant to all financial agencies, and the transparency objectives for different financial sectors vary. For some (e.g., securities regulatory agencies), the emphasis is on market efficiency considerations, for others (e.g., banking supervisory and payment system oversight agencies) the focus is on market and systemic stability, while for others (e.g., insurance regulatory and deposit insurance agencies) the principal consideration is client-asset protection. Moreover, some financial supervisory agencies are composite and responsible for more than one financial sector; some are independent agencies, while others are part of a larger government unit. To reflect some of these differences, where appropriate, the “Explanation and rationale” and “Application” entries for the practices in Section V-VIII of the MFP Transparency Code distinguish among financial agencies.

19.  The transparency practices listed in the MFP Transparency Code and elaborated upon in the Supporting Document, where applicable and adjusted as necessary, also apply to financial-sector type policies not specifically covered in the MFP Transparency Code and the Supporting Document. Thus, the Supporting Document is relevant for the conduct of those specialized agencies or bureaus of ministries assigned to manage the public debt, international reserves, foreign exchange controls, debt restructuring, or pension funds.

20.  Appended to this introduction are four appendices: the text of the MFP Transparency Code, references to professional literature and official documents that deal with transparency of monetary and financial policies, a glossary of key terms used in the Supporting Document, and a listing of website addresses of composite financial supervisory agencies. These additional items increase the reference value of the Supporting Document.
 

C.  Transparency, Disclosure, and the Supporting Document

Alternative means of disclosure

21.  To make transparency effective entails effort by national or, where applicable, multinational authorities to build public understanding of the objectives of policy, the nature of the responsibilities of these authorities, and the policy process. Promoting public understanding of these matters involves authorities being active in developing and conveying information, using the various means available to these institutions to disclose information, and tailoring the message according to the needs of particular audiences.

22.  There are a variety of means and methods of communicating with the public on the role, policies, decisions, performance, and operations of the central bank or financial agency. For many of the transparency practices in Sections I and V of the MFP Transparency Code, a fundamental form of disclosure is having those aspects related to the roles, responsibilities and objectives of central banks and financial agencies specified in legislation or regulation, which by their nature are public documents. A publicly available monetary or financial regulation, guideline, or ruling is another way of communicating with the public. For practices related to overlapping responsibilities and relationships between or among different institutions (e.g., central bank and finance ministry or different financial agencies), including consultation arrangements, a publicly released memorandum of understanding is an effective disclosure method. Less formal and more flexible forms of disclosure include written reports to the legislature and/or the public on aspects of policies and functions, press releases, appearances by officials before public audiences or the legislature, official publications (a quarterly or monthly review or bulletin), and the annual report. Finally, dramatic advances in communication technology, and in particular the potential of websites, have opened effective means for institutions to communicate with a wider public about central bank and financial agency policies and operations.

23.  In many instances, use of more than one of these forms of disclosure may be necessary if a central bank or financial agency seeks to achieve effective transparency. Depending on the extent that a central bank or financial agency desires to broaden the public understanding of aspects of its institutional mandate, for example, the legislation or regulation could be supplemented and detailed by a publicly released and readily available mission statement, and/or recurring discussion and explanation in the institution’s publications, public statements and public appearances, and/or posting on the central bank’s or financial agency’s website. Similarly, for other practices of the MFP Transparency Code, central banks and financial agencies can practice transparency by utilizing more than one form of disclosure.

24.  In a number of countries, some transparency requirements are imposed on a government-wide basis. These requirements form that part of legislation or regulation that apply to all units of government and to all or identified public servants.¹⁴ These laws and regulations are part of the public record. Central banks and financial agencies are typically subject to these government-wide provisions. Thus, for some of the transparency practices in the MFP Transparency Code, (e.g., 2.5 and 6.4, 3.4 and 7.5, 4.4 and 8.4, and 4.4.1 and 8.4.1), practices that deal with the above-mentioned issues, in countries where government-wide transparency practices are in effect, central banks and financial agencies follow the same practices as other units of government. In some cases, central banks and financial agencies reconfirm or supplement the government-wide transparency practices in their publicly available bylaws or similar document.

25.  Some of the alternative means of disclosure have limitations. Disclosure through legislation or regulation has the potential drawback that legislative or regulatory language often is technical or complex. Moreover, texts of laws and regulations are not always readily accessible. However, the development of websites makes it possible to post the text of relevant laws and regulations, thereby allowing institutions to make these available to a wide audience. Memoranda of understanding often are treated as (sensitive) internal documents, and thus may not be released to the public. The annual report, due to its publication a number of months after a calendar or fiscal year, serves better as a document of record than as a timely source of information to the public of ongoing developments and policies. Disclosure through other publications (bulletin and even press releases) and developing and maintaining an effective website involve outlays that some central banks or financial agencies are not able to afford.

Quality of transparency

26.  Related to the form of transparency is the quality of information that is disclosed. It is the content, clarity and accessibility of the information and data that are being disclosed that transforms “disclosure” into “transparency.” Creating effective transparency requires more than just making information available about policy objectives, responsibilities, policy decisions, and performance results. In the area of data disclosure, which is an important aspect of the MFP Transparency Code’s practices, the guidelines and procedures of the IMF’s data dissemination standards and other standards developed by different international organizations and associations aim at presenting readily accessible data in an orderly and timely basis, with an emphasis on reliability. Regarding the release of various statements and reports called for in the MFP Transparency Code, however, there are no equivalent guidelines.¹⁵ In order to achieve the objective of the transparency practices of the MFP Transparency Code, these statements and reports need to contain meaningful and relevant information and need to be released on a timely basis.

27.  The content of disclosure is critical for the efficient functioning of markets, which will only increase in importance with the evolving changes in international trading and financing arrangements and sophistication of markets. Failure to present public statements and reports on monetary and financial policy issues with appropriate content could undermine the credibility of central banks and financial agencies and thus become counterproductive. The focus of transparency practices should be on the materiality and relevance of the information that is being provided to the public. The objective of transparency would not be met by releasing reports that offer contradictory assessments, by issuing multiple regulations (particularly if earlier-issued and dated regulations are not revoked and withdrawn), or if regulations are written in highly technical or arcane language. Similarly, not applying transparency practices consistently (e.g., reversals of previously applied transparency practices when developments are unfavorable), would go against the spirit and intent of transparency and could weaken credibility.

28.  For monetary policy transparency, the scope for being transparent and the content of transparency is conditioned by the nature of the monetary policy regime. Countries that pursue an inflation target, for example, are disposed to be transparent and rely on frequent public statements and reports that offer detailed information and discussion on their target and performance as a means of establishing credibility. Countries with fixed exchange rates, on the other hand, may at times be inclined to limit certain disclosure practices. For example, extensive disclosure requirements about exchange market operations might disrupt markets. Similarly, moral hazard, market discipline, or financial market stability considerations often may influence the content and timing of the disclosure of some corrective actions or emergency lending decisions. In the same vein, in order to safeguard the confidentiality and privacy of information on individual firms, financial authorities may feel constrained from making public their supervisory deliberations or enforcement actions related to individual financial institutions, markets, and individuals. The case for limiting transparency in selected areas at particular times for the above-type circumstances, however, is more credible in the context of an otherwise transparent environment.

Changing environment and transparency

29.  The attitude with respect to transparency by central banks and financial agencies is evolving, reflecting changes in the international environment. There are several developments that are providing impetus for central banks and financial agencies to practice greater transparency in the conduct of their affairs. First, the notion of transparency has gained greater public attention, thus eliciting an increasing number of calls on central banks and financial agencies by legislatures, the media, markets, and the public at large to become more open about their policies and activities. Second, policymakers have recognized that globalization in general, and international integration of financial markets and products in particular, require a greater degree of transparency of monetary and financial policies and of regulatory regimes and processes as a means of containing market volatility. Third, the adoption of the General Agreement on Trade and Services is placing greater attention on the conduct of financial services. Fourth, an increasing number of central banks have adopted forms of inflation targeting as their ultimate policy objective. Public disclosure of how they are meeting these targets has become a critical element to establish credibility, shape expectations, and, thereby, strengthen the effectiveness of monetary policy. Finally, revolutionary advances in communication technology, and increasing public access to means of electronic communication such as websites, have greatly reduced the difficulties, costs, and time delays of disseminating information to the public. An increasing number of central banks and financial agencies are availing themselves of these easier and efficient means of communicating with the public about their policies and activities. As a result of these changes in the international environment, a number of central banks and financial agencies have become more transparent in their disclosure practices. The Supporting Document recognizes and takes into account this change in attitude to transparency.

30.  At the same time, in recent years a number of significant changes in the policy and regulatory structure have occurred. The creation of a multinational central bank arrangement in Europe and the formation of composite financial regulatory agencies in a number of countries¹⁶ has required these entities to focus on the role and form of transparency in the conduct of their affairs. The transparency practices that they have adopted, therefore, are relatively recent, experimental, and not yet fully tested.

Code of Good Practices on Transparency in Monetary and Financial Policies: Declaration of Principles

(The Code was adopted by the Interim Committee on September 26, 1999)

A. Introduction

1.  In the context of strengthening the architecture of the international monetary and financial system, the Interim Committee in its April and October 1998 Communiqués called on the Fund to develop a code of transparency practices for monetary and financial policies, in cooperation with appropriate institutions. The Fund, working together with the Bank for International Settlements, and in consultation with a representative group of central banks, financial agencies, other relevant international and regional organizations,¹and selected academic experts, has developed a Code of Good Practices on Transparency in Monetary and Financial Policies. The Code parallels the Code of Good Practices in Fiscal Transparency developed by the Fund and endorsed by the Interim Committee in April 1998.

2.  The Code of Good Practices on Transparency in Monetary and Financial Policies identifies desirable transparency practices for central banks in their conduct of monetary policy and for central banks and other financial agencies in their conduct of financial policies. The definitions of “central bank,” “financial agencies,” “financial policies,” and “government” as used in this Code are given in the attached Annex.

3.  For purposes of the Code, transparency refers to an environment in which the objectives of policy, its legal, institutional, and economic framework, policy decisions and their rationale, data and information related to monetary and financial policies, and the terms of agencies= accountability, are provided to the public on an understandable, accessible and timely basis. Thus, the transparency practices listed in the Code focus on: (1) clarity of roles, responsibilities and objectives of central banks and financial agencies; (2) the processes for formulating and reporting of monetary policy decisions by the central bank and of financial policies by financial agencies; (3) public availability of information on monetary and financial policies; and (4) accountability and assurances of integrity by the central bank and financial agencies.

4.  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. In cases when conflicts might arise between or within government units (e.g., if the central bank or a financial agency acts as both owner and financial supervisor of a financial institution or if the responsibilities for monetary and foreign exchange policy are shared), transparency in the mandate and clear rules and procedures in the operations of the agencies can help in their resolution, strengthen governance, and facilitate policy consistency.

5.  In making the objectives of monetary policy public, the central bank enhances the publics understanding of what it is seeking to achieve, and provides a context for articulating its own policy choices, thereby contributing to the effectiveness of monetary policy. Further, by providing the private sector with a clear description of the considerations guiding monetary policy decisions, transparency about the policy process makes the monetary policy transmission mechanism generally more effective, in part by ensuring that market expectations can be formed more efficiently. By providing the public with adequate information about its activities, the central bank can establish a mechanism for strengthening its credibility by matching its actions to its public statements.

6.  Transparency by financial agencies, particularly in clarifying their objectives, should also contribute 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. Transparent descriptions of the policy formulation process provide the public with an understanding of the rules of the game. The release of adequate information to the public on the activities of financial agencies provides an additional mechanism for enhancing the credibility of their actions. There may also be circumstances when public accountability of decisions by financial agencies can reduce the potential for moral hazard.

7.  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.

8.  In the case of monetary policy, the rationale for limiting some types of disclosure arises because it could adversely affect the decision-making process and the effectiveness of policies. Similarly, exchange rate policy considerations, notably, but not exclusively, in countries with fixed exchange rate regimes, may provide justification for limiting certain disclosure practices. For example, extensive disclosure requirements about internal policy discussion on money and exchange market operations might disrupt markets, constrain the free flow of discussion by policymakers, or prevent the adoption of contingency plans. Thus, it might be inappropriate for central banks to disclose internal deliberations and documentation, and there are circumstances in which it would not be appropriate for central banks to disclose their near-term monetary and exchange rate policy implementation tactics and provide detailed information on foreign exchange operations. Similarly, there may be good reasons for the central bank (and financial agencies) not to make public their contingency plans, including possible emergency lending.

9.  Additional concerns could be posed by some aspects of the transparency of financial policies. Moral hazard, market discipline, and financial market stability considerations may justify limiting both the content and timing of the disclosure of some corrective actions and emergency lending decisions, and information pertaining to market and firm-specific conditions. In order to maintain access to sensitive information from market participants, there is also a need to safeguard the confidentiality and privacy of information on individual firms (commonly referred to as “commercial confidentiality”). Similarly, it may be inappropriate for financial authorities to make public their supervisory deliberations and enforcement actions related to individual financial institutions, markets, and individuals.

10.  Transparency practices differ not only in substance, but also in form. With regard to informing the public about monetary and financial institutions and their policies, an important issue concerns the modalities that these public disclosures should take. In particular with regard to monetary policy, should transparency practices have a legislative basis in a central bank law, or be based in other legislation or regulation, or be adopted through other means? The Code takes a pragmatic approach to this issue and recognizes that a variety of arrangements can lead to good transparency practices. On matters pertaining to the roles, responsibilities, and objectives of central banks (and for principal financial regulatory agencies), it recommends that key features be specified in the authorizing legislation (e.g., a central bank law). Specifying some of these practices in legislation gives them particular prominence and avoids ad hoc and frequent changes to these important aspects of the operations of central banks and relevant financial agencies. Information about other transparency aspects, such as how policy is formulated and implemented and the provision of information, can be presented in a more flexible manner. However, it is important that such information be readily accessible, so that the public can with reasonable effort obtain and assimilate the information.

11.  In the context of good governance and accountability, as well as the promotion of efficient markets, reference to the public in this code should ideally encompass all interested individuals and institutions. In some cases, particularly for financial policies, it may be expedient for the purposes of administering or implementing certain regulations and policies to define the concept of the public more narrowly to refer only to those individuals and institutions that are most directly affected by the regulations and policies in question.

12.  The focus of the Code is on transparency. While good transparency practices for the formulation and reporting of monetary and financial policies help to contribute to the adoption of sound policies, the Code is not designed to offer judgments on the appropriateness or desirability of specific monetary or financial policies or frameworks that countries should adopt. Transparency is not an end in itself, nor is transparency a substitute for pursuing sound policies; rather, transparency and sound policies are better seen as complements. In the realm of financial policies, there are complements to this code that go beyond transparency to promote good policies, notably the Core Principles for Effective Banking Supervision formulated by the Basel Committee for Banking Supervision, the Objectives and Principles of Securities Regulation formulated by the International Organization of Securities Commissions (IOSCO), and standards being developed by the Committee on Payment and Settlement Systems (CPSS), the International Association of Insurance Supervisors (IAIS), and the International Accounting Standards Committee (IASC). As these and other financial sector groupings develop and make significant adjustments in their principles and standards as they relate to transparency practices for financial agencies (e.g., in data dissemination requirements for financial agencies), this Code may have to be adjusted accordingly.

13.  The Code is directed at the transparency requirements of central banks and financial agencies, not at the transparency procedures relating to firms and individual institutions. However, the benefits of transparency for monetary and financial policies may be fostered by appropriate policies to promote transparency for markets in general, for the institutions that are being supervised, and for self-regulatory organizations.

14.  Monetary and financial policies are interrelated and often mutually reinforcing, with the health of the financial system affecting the conduct of monetary policy and vice versa. However, the institutional arrangements for these two types of policies differ considerably, particularly with regard to their roles, responsibilities, and objectives and their policy formulation and implementation processes. To take account of this, the Code is separated into two parts: good transparency practices for monetary policy by central banks; and good transparency practices for financial policies by financial agencies. The basic elements of transparency for both policies are, however, similar. It should be recognized that not all transparency practices are equally applicable to all financial agencies, and the transparency objectives among different financial sectors vary. For some, the emphasis is on market efficiency considerations, for others the focus is on market and systemic stability, while for others the principal consideration is client-asset protection.

15.  The operation of a country’s payment system affects the conduct of monetary policies and the functioning of the financial system, and the design of payment systems has implications for systemic stability. The institutional structures of the payment system, however, are often significantly more complex than for monetary and other financial policies, and differ considerably across countries. In many instances, the operation of a country’s payment system is split between the public and private sectors, including self-regulatory bodies. Nevertheless, most of the transparency practices listed in the Code for financial agencies are applicable for the roles and functions of central banks or other relevant public agencies exercising responsibility for overseeing the nation’s payment systems. The coverage of transparency practices for financial policies in the Code includes those for the operation of systemically important components of the nation’s payment system, and, where appropriate, makes allowance for the special nature of the payment system’s operations (e.g., 5.3).

16.  The Code is of sufficient breadth to span and be applied to a wide range of monetary and financial frameworks, and thus to the full range of the Fund membership. Elements of the Code are drawn from a review of good transparency practices used in a number of countries and discussed in the professional literature. The Code thus represents a distillation of concepts and practices that are already in use and for which there is a record of experience. The manner in which transparency is applied and achieved, however, may differ, reflecting different institutional arrangements with respect to monetary and financial policies and legal traditions. The good transparency practices contained in the Code will, therefore, have to be implemented flexibly and over time to take account of a country’s particular circumstances. A number of Fund members currently lack sufficient resources and the institutional capacity to implement all of the good transparency practices listed in the Code. These practices are included in the Code in the anticipation that countries would aspire over time to introduce such good practices.
 

GOOD TRANSPARENCY PRACTICES
FOR MONETARY POLICY BY CENTRAL BANKS

I.  Clarity of Roles, Responsibilities, and Objectives of Central Banks for Monetary Policy

II.  Open Process for Formulating and Reporting Monetary Policy Decisions

III.  Public Availability of Information on Monetary Policy

IV.  Accountability and Assurance of Integrity by the Central Bank

GOOD TRANSPARENCY PRACTICES FOR FINANCIAL POLICIES BY FINANCIAL AGENCIES⁴

V.  Clarity of Roles, Responsibilities and Objectives of Financial Agencies Responsible for Financial Policies

VI.  Open Process for Formulating and Reporting of Financial Policies

VII.  Public Availability of Information on Financial Policies

VIII.  Accountability and Assurance of Integrity by Financial Agencies

Definitions of Certain Terms

To facilitate presentation, certain general terms are used to capture different institutional arrangements in a summary fashion. The following descriptive definitions are used in the Code.

Central Bank

The institutional arrangements for assigning responsibility for the conduct of a country’s monetary policy differ among the Fund’s membership. For most Fund members, this responsibility is assigned to the central bank or to a system of constituent national central banks in a multinational central bank arrangement. There are a number of countries, however, where this role is designated to a “monetary authority” or to a “currency board.” To facilitate presentation, the term “central bank” in the Code refers to the institution responsible for conducting monetary policy, which may or may not be a central bank.

Financial agencies

A wide range of institutional arrangements prevail among Fund members with regard to which unit of government carries exclusive or primary responsibility for the regulation, supervision, and oversight of the financial and payment systems. In a few countries, an agency has been established with responsibility for regulating and supervising an array of financial institutions (banking, insurance, and securities firms) and markets (securities, derivatives, and commodity futures). For most countries, the oversight responsibility for the financial sector is shared among several agencies. Thus, responsibility for the conduct of bank regulation and supervision or for bank deposit insurance policies in some countries is assigned to the central bank, or to an independent bank supervisory or deposit insurance agency, or split among several units of government. Similarly, responsibility for the conduct of policies related to the oversight of certain categories of financial institutions is assigned to the central bank or to a specialized agency. In some cases (e.g., payment systems) a public agency oversees the activities of private sector self-regulatory bodies. To facilitate presentation, the phrase “financial agencies” is used to refer to the institutional arrangements for the regulation, supervision, and oversight of the financial and payment systems, including markets and institutions, with the view to promoting financial stability, market efficiency, and client-asset and consumer protection. (Where the central bank carries responsibility for financial policies, some of the good transparency practices listed for financial agencies in Sections VBVIII of the Code are already specified in the transparency practices listed for central banks in Sections IBIV of the Code.)

Financial policies

The term “financial policies” in the Code refers to policies related to the regulation, supervision, and oversight of the financial and payment systems, including markets and institutions, with the view to promoting financial stability, market efficiency, and client-asset and consumer protection.

Government

Unless a particular unit of government is specifically identified in the Code, reference to “government” in the Code refers either to the executive branch of government or to a particular ministry or public agency, depending on the issue at hand or the established tradition of government in particular countries.
 

References on Transparency and Accountability by Central Banks and Financial Agencies

Balls, Edward, 1998, “Open Macroeconomics in an Open Economy,” Scottish Journal of Political Economy, Vol. 45, No. 2 (May), pp. 113 –32.

Barro, Robert, and David Gordon, 1983, “Rules, Discretion, and Reputation in a Model of Monetary Policy,” Journal of Monetary Economics, Vol. 12 (June) pp. 101–122.

Bernanke, Ben S., Thomas Laubach, Frederic S. Mishkin, and Adam S. Posen, 1999, Inflation Targeting—Lessons from the International Experience (Princeton: Princeton University Press).

Blandon, Michael, 1999, “More Transparency Please,” The Banker, May, pp. 22–25.

Blinder, Alan S., 1998, Central Banking in Theory and in Practice, (Cambridge, Mass: The MIT Press).

______, 1997, “What Central Bankers Could Learn from Academics—and Vice Versa,” Journal of Economic Perspectives, Vol.11, Spring, pp. 3–20.

Bloomfield, Robert and Maureen O'Hara, 1999, “Market Transparency: Who Wins and Who Loses?” Review of Financial Studies, Vol. 12, Spring, pp. 5–35.

Bordignon, Massimo and Enrico Minelli, 1999, “Rules, Transparency and Political Accountability,”  Innocenzo Gasparini Institute for Economic Research Working Paper Series, No. 147, March, (Milano, Italy).

Bossone, Biagio and Larry Promisel, 1999, “The Role of Financial Self-Regulation in Developing Economies”, Website Policy Note,  (www1.worldbank.org/finance/html/self-regulation-in-developing-.html), (Washington: World Bank Group).

Briault, Clive, Andrew Haldane, and Mervyn King, 1996, “Independence and Accountability,” in Towards More Effective Monetary Policy, edited by Iwao Kuroda, (London: MacMillan Press Ltd.).

Buiter, Willem, 1999, “Alice in Euroland,” Journal of Common Market Studies, Vol. 37, No. 2 (June), pp. 181-209.

Capie, F., C. Goodhart, S. Fischer and N. Schnadt, eds., 1994, The Future of Central Banking: The Tercentenary Symposium of the Bank of England, (Cambridge, England: Cambridge University Press).

Cordella, Tito and Eduardo Levy Yeyati, 1998, “Public Disclosure and Bank Failures,” Staff Papers, International Monetary Fund, Vol. 45 (March), pp. 110–131.

Cukierman, Alex, 1994, “Central Bank Independence and Monetary Control,” The Economic Journal, Vol. 104, pp. 1437–1448.

———, 1992, Central Bank Strategy, Credibility, and Independence: Theory and Evidence (Cambridge, Mass: The MIT Press).

———,  1994, “Commitment Through Delegation, Political Influence and Central Bank Independence,” in A Framework for Monetary Stability, edited by Wijnholds, J. de Beaufort,  S.C.W. Eijffinger, and L.H. Hoogduin, Financial and Monetary Studies, Vol. 27, (Dordrecht and Boston: Kluwer Academic Press), pp. 55-74.

———,  1997, “The Economics of Central Banking,” in Contemporary Economic Issues—Volume 5: Macroeconomic Policy and Financial Systems, edited by Holger C. Wolf, (New York: St. Martin’s Press).

———, Miguel Kiguel, and Leonardo Leiderman, 1996, “Transparency and the Evolution of Exchange Rate Flexibility in the Aftermath of Disinflation,” in Financial Factors in Economic Stabilization and Growth, edited by Mario I. Blejer et al. (Cambridge, England: Cambridge University Press), pp. 105–39.

Deckmyn, Veerle and Ian Thomson, eds., 1998,   Openness and Transparency in the European Union, European Institute of Public Administration (Maastricht, the Netherlands).

de Haan, Jakob, Fabian Amtenbrink, and Sylvester C. W. Eijffinger, 1999, “Accountability of Central Banks: Aspects and Quantification,” Quarterly Review - Banca Nazionale del Lavoro, Vol. 52, No. 209, June, pp. 169–93.

Delston, Ross S., 1999, “Statutory Protections for Banking Supervisors,” Financial Sector Website Paper No. 4, (www1.worldbank.or g/finance/html/statutory_protection.html), (Washington: World Bank Group).

Eijffinger, Sylvester C. W., 1997, Independent Central Banks and Economic Performance, (Chettenham, U.K.; Lyme, NH: Edward Elgar Pub.).

———,  and Jakob de Haan, 1996, “The Political Economy of Central Bank Independence,” Special Paper in International Economics, No. 19, International Finance Section, Department of Economics, Princeton University (Princeton).

———,  Marco Hoeberichts, and Eric Schaling, 1998, “A Theory of Central Bank Accountability,” Tilburg Center for Economic Research Discussion Paper 98103, October, (Tilburg, Netherlands).

Enoch, Charles, 1998, “Transparency in Central Bank Operations in the Foreign Exchange Market,” IMF Paper on Policy Analysis and Assessment 98/2 (Washington: International Monetary Fund).

———, Peter Stella, and May Khamis, 1997, “Transparency and Ambiguity in Central Bank Safety Net Operations,” IMF Working Paper 97/138 (Washington: International Monetary Fund). 

Faust, Jon and Lars E. O. Svensson, 1999, “The Equilibrium Degree of Transparency and Control in Monetary Policy,” National Bureau of Economic Research Working Paper Series, No. 7152, June, (Cambridge, Mass.).

———, 1998,  “Transparency and Credibility: Monetary Policy with Unobservable Goals,” Center for Economic Policy Research Discussion Paper Series, No. 1852, March.

Fischer, Stanley, 1995, “Modern Approaches to Central Banking,” National Bureau of Economic Research Working Paper No. 5084 (Cambridge, Mass.).

———, 1999, “Central Bank Independence Revisited,” American Economic Review, Papers and Proceedings, Vol. 85, May, pp. 201–206.

———, 1999, “Reforming the International Financial System,” Economic Journal, Vol. 109, No. 459, November, pp. 557-576.

Fry, Maxwell, De Anna Julius, Sandra Ruger, Lavan Mahadeva and Gabriel Sterne, 2000, “ Key Issues in the Choice of Monetary Framework,” in Monetary Frameworks in a Global Context, edited by Lavan Mahadeva and Gabriel Sterne, (London: Rutledge). [forthcoming, October 2000]

Gonzalez-Hermosillo, Brenda and Takatoshi Ito, 1997, “The Bank of Canada's Monetary Policy Framework: Have Recent Changes Enhanced Central Bank Credibility?” IMF Working Paper 97/171 (Washington: International Monetary Fund).

Goodfriend, Marvin S., 1986, “Monetary Mystique: Secrecy and Central Banking,” Journal of Monetary Economics, Vol. 17, pp. 63-97.

Goodhart, Charles, 1993, “Central Bank Independence,” London School of Economics and Political Science. LSE Financial Markets Group, Special Paper Series, No. 57, November, (London).

Gros, Daniel, et al, 2000, Quo Vadis Euro? The Cost of Muddling Through, (Brussels: Centre for Economic Policy Studies).

______ and Lorenzo B. Suraghi, 2000, Open Issues in European Central Banking, (Brussels: Centre for Economic Policy Studies).

Haldane, Andrew G. and Vicky Read, 2000, “Monetary Policy Surprises and the Yield Curve,” Bank of England Working Papers, No. 106, (www.bankofengland.co.uk/worki ngpapers.index/)

Herk, Leonard F., 1997, “Optimal Regulatory Transparency,” Columbia University, Department of Economics Discussion Paper Series: 9798/01, September, p. 30.

Herrendorf, Berthold, 1999, “Transparency, Reputation, and Credibility under Floating and Pegged Exchange Rates,” Journal of International Economics, Vol. 49, October, pp. 31–50.

Huisman, Ronald and Kees G. Koedijk, 1998, “Financial Market Competition: The Effects of Transparency,” De Economist, Vol. 146, October, pp. 463–73.

Issing, Otmar, 1999, “The Eurosystem: Transparent and Accountable or ‘Willem in Euroland’,” Journal of Common Market Studies, Vol. 37, No. 3, September, pp. 503–519.

______, 1999, “The ECB and Its Watchers,” speech at ECB Watchers Conference, www.ecb.int

Jaffer, Masooma, 2000, “Bank of England Act Brings Greater Transparency to the U.K. Financial System,” Journal of International Banking Regulation, Vol. 1, No. 4, January, pp. 71–74.

Kahn, George, 1999, “Transparency, Inflation Targeting, and the ECB,” Central Banking, Vol. 9, February, pp. 62–65.

King, Mervyn, 1995, “Credibility and Monetary Policy: Theory and Evidence,” Bank of England, Quarterly Bulletin, Vol. 35, February, pp. 84–91.

———, 1997, “Changes in U.K. Monetary Policy: Rules and Discretion in Practice,” Journal of Monetary Economics, Vol. 39, pp. 81–97.

Kofman, Paul and James T. Moser, 1997, “Spreads, Information Flows and Transparency Across Trading Systems,” Applied Financial Economics, Vol. 7, June, pp. 281–94.

Kuttner, Kenneth N. and Adam S. Posen, 1999, “Does Talk Matter after All? Inflation Targetting and Central Bank Behavior,” Federal Reserve Bank of New York Staff Report No. 88, (New York: Federal Reserve Bank of New York).

Kydland, Finn E. and Edward C. Prescott, 1977, “Rules Rather than Discretion: The Inconsistency of Optimal Plans,” Journal of Political Economy, Vol. 85, pp. 473–492.

Leiderman, Leonardo and Lars E. O. Svensson, eds., 1995, Inflation Targets, (London: Centre for Economic Policy Research).

Martijn, Ian Kees, and Hussein Samiei, 1999, “Central Bank Independence and Conduct of Monetary Policy in the United Kingdom,” IMF Working Paper 97/170, December (Washington: International Monetary Fund).

Masson, Paul R., Miguel Savastano, Miguel A. Sharma, and Sunil Sharma, 1997, “The Scope for Inflation Targeting in Developing Countries,” IMF Working Paper 97/130 (Washington: International Monetary Fund).

Mayes, David G., 1998, “Evolving Voluntary Rules for the Operation of the European Central Bank,” Bank of Finland Discussion Papers, No. 2, March 16.

——— and W. A. Razzak, 1998, “Transparency and Accountability: Empirical Models and Policy Making at the Reserve Bank of New Zealand,” Economic Modelling, Vol. 15, No. 3, July, pp. 377–394.

Mehrez, Gil and Daniel Kaufmann, 2000, “Transparency, Liberalization and Banking Crises,” World Bank Policy Research Working Paper 2286 (Washington: World Bank Group).

Mishkin, Frederic S., 1999, “International Experiences with Different Monetary Policy Regimes,” Journal of Monetary Economics, Vol. 43, No. 3, June, pp. 579–605.

Muller, Phillippe and Mark Zelmer, 1999, “Greater Transparency in Monetary Policy: Impact on Financial Markets,” Bank of Canada, Technical Report, No. 86, August.

Nolan, Charles and Eric Schaling, 1996, “Monetary Policy, Uncertainty, and Central Bank Accountability,” Bank of England Working Paper Series, No. 54, October.

Pringle, Robert, and Neil Courtis, 1999, Objectives, Governance and Profits of Central Banks, (London: Central Banking Publications).

Roll, Eric, et al., 1993, Independent and Accountable: A New Mandate for the Bank of England, (London: Centre for Economic Policy Research).

Schaling, Eric, 1995, Institutions and Monetary Policy: Credibility, Flexibility and Central Bank Independence, (Aldershot, U.K. and Brookfield, Vt.: Edward Elgard).

Sibert, Anne, 1999, “Central Bank Decision Making: Reputation, Accountability and Inflation Biases,” mimeo, London: Birbeck College, University of London and Centre for Economic Policy Research.

Stein, Jeremy C., 1986, “Cheap Talk and the FED: A Theory of Imprecise Policy Announcements,” American Economic Review, Vol. 79, March, pp. 32–42.

Stella, Peter, 1997, “Do Central Banks Need Capital?,” IMF Working Paper 97/83 (Washington: International Monetary Fund).

Sundararajan, V., Peter Dattels, and Hans J. Blommestein, eds., 1997, Coordinating Public Debt and Monetary Management (Washington: International Monetary Fund).

Tarkka, Juha and David Mayes, 1999, “The Value of Publishing Official Central Bank Forecasts,” Bank of Finland Discussion Papers, No. 22/99, December.

Volcker, Paul A., 1994, “Central Banks: Independent, Accountable, Linked,” International Herald Tribune (January 4).
 

Official Documents on Transparency, Accountability, and Standards¹

American Institute of CPAs, 1998, Framework for Internal Control, (New York).

Bank for International Settlements, 1998, “68^th Annual Report,” pp. 70–75, (www.bis.org/publ/ar98f01.pdf), (Basel).

Basel Committee on Banking Supervision, 1997, Core Principles for Effective Banking Supervision, (www.bis.org/publ/bcbs30a.pdf), (Basel).

______, 1999, Core Principles Methodology, (www.bis.org/publ/bcbs61.pdf), (Basel).

———, 1998, Framework for the Evaluation of Internal Control Systems, September, (www.bis.org/publ/bcbs33.pdf), (Basel).

———, 1998, Enhancing Bank Transparency, Document No. 41 (September), (www.bis.org/publ/bcbs41.pdf), (Basel).

Committee on Payment and Settlement Systems, 1999, Core Principles for Systemically Important Payment Systems [Consultative document], (www.bis.org/publ/cpss34e.pdf), (Basel).

Group of 22, 1998, Report of the Working Group on Transparency and Accountability, (www.worldbank.org/html/extdr/ifa-reports/taarep.pdf).

Institute of Internal Auditors, 1998, Statements on Internal Auditing Standards, (Orlando, FL).

International Association of Insurance Supervisors (IAIS), 1997, Insurance Supervisory Principles (Core Principles), (www.iaisweb.org/content/02pas/ 02principles.pdf), (Basel).

International Federation of Accountants, 1997, Codification of International Standards on Auditing and International Auditing Practices Statements, (New York).

International Monetary Fund, 1999, Experimental Reports of Observance of Standards and Codes, (www.imf.org/external/np/rosc/rosc.asp).

———, 1996, Special Data Dissemination Standard, (dsbb.imf.org/sddsindex.htm).

_______, 1997, General Data Dissemination System, (dsbb.imf.org/gddsindex.htm)

———, 1998, Code of Good Practices on Fiscal Transparency, (http://www.imf.org/external/np/fad/trans/code.htm#code).

———, 1999, Code of Good Practices on Transparency in Monetary and Financial Policies, (www.imf.org/external/np/mae/mft/code/index.htm ).

International Organization of Securities Commissions (IOSCO), 1998, Objectives and Principles of Securities Regulation, (www.iosco.org/download/p df/1998-objectives-eng.pdf), (Montreal, Canada).

Organization for Economic Cooperation and Development (OECD), 1999, Principles of Corporate Governance, (www.oecd.org/daf/governance/principles.pdf), (Paris).

United Nations, 1996, “Crime Prevention and Criminal Justice: Action Against Corruption,” Note by the Secretariat, September 26, A/C.3/51/L.2 (New York).

World Bank, 1992, “Governance and Development,” pp. vi, 61, (Washington).
 

Glossary of Key Terms

Accounting standards

Accounting standards are methodologies and disclosure requirements for the preparation and presentation of financial statements. Accounting standards are usually developed within the institutional and professional framework of a country, and promulgated by regulatory or professional accountancy bodies. Standards can also be backed by ethical standards issued by an accountancy body that provide for professional sanctions against members in the event of non-compliance. Accounting standards may also be developed in harmony with, or as an adaptation of, an internationally recognized set of benchmark standards such as International Accounting Standards (as promulgated by the International Accounting Standards Committee), or the U.S. GAAP (General Accepted Accounting Principles as promulgated by the Financial Accounting Standards Board in the United States of America).

Agency

An agency is a government or independent body to which certain operational, oversight, or regulatory functions have been delegated. See also the entry for financial agency.

Agency role

Agency role refers to the various tasks performed by the central bank on behalf of the government that do not relate directly to its monetary policy role. Examples of agency roles include acting as the manager of external reserves or public debt, or providing banking functions for the government (fiscal agent).

Aggregate market transactions

Aggregate market transactions refers to monetary operations, emergency financial support, and foreign exchange reserve activities, and emergency financial support provided to financial institutions by a financial supervisory agency and to the financial activities of deposit insurance agencies.

Central bank

The term central bank refers to the institution responsible for conducting monetary policy, which may be a central bank, a monetary authority, a currency board, or a system of national central banks in a multinational central bank arrangement.

Commercial confidentiality

Commercial confidentiality refers to safeguarding the privacy of sensitive information of individual firms (such as market position, financial health, or whether the firm is receiving financial support). Commercial confidentiality can help to promote the full and free disclosure of pertinent information to official agencies by financial firms, and ensures the fair and equal treatment of all firms.

Data dissemination standards

The International Monetary Fund's data dissemination standards consist of the Special Data Dissemination Standard (SDDS) and the General Data Dissemination System (GDDS). The SDDS was developed in 1996 as a “best practice” to guide countries that have, or that might seek, access to international capital markets in the dissemination of economic and financial data to the public. The GDDS was established in 1997 to guide countries in the provision to the public of comprehensive, timely, accessible, and reliable economic, financial, and socio-demographic data.

Financial agencies

Financial agencies refers to the bodies responsible for the regulation, supervision, and oversight of the financial and payment systems, including markets and institutions, which aim to promote financial stability, market efficiency, and client-asset and consumer protection. Some countries have an agency that has been established with responsibility for regulating and supervising an array of financial institutions (banking, insurance, and securities firms) and markets (securities, derivatives, and commodity futures). For most countries, the oversight responsibility for the financial sector is shared among several agencies. Thus, responsibility for the conduct of bank regulation and supervision or for bank deposit insurance policies in some countries may be assigned to the central bank, or to an independent bank supervisory or deposit insurance agency, or split among several units of government. Similarly, responsibility for the conduct of policies related to the oversight of certain categories of financial institutions may be assigned to the central bank or to a specialized agency.

Financial policies

Financial policies refers to policies related to the regulation, supervision, and oversight of the financial and payment systems, including markets and institutions, with the view to promoting financial stability, market efficiency, and client-asset and consumer protection.

Fiscal operations

Fiscal operations are actions taken by the government to implement budgetary policies, such as revenue and expenditure measures, as well as issuance of public debt instruments and public debt management.

Government

Unless a particular unit of government is specifically identified, reference to “government” refers either to the executive branch of government or to a particular ministry or public agency, depending on the issue at hand or the established tradition of government in particular countries.

Institutional framework

The term institutional framework refers to the overall structure of relations between different financial institutions and the relationship within that structure between the financial agency and other governmental and non-governmental bodies.

Institutional relationship

Institutional relationship refers to the demarcation of roles between agencies responsible for monetary and fiscal operations.

Legal protections of officials and staff

Legal protection of officials and staff relates to whether these individuals are subject to legal suits/liability for any adverse consequences of decisions made in the course of conducting their official duties. For example, if a central bank changes interest rates, and as a result investors incur capital losses, the question may arise whether central bank officials and staff have legal protection from being held accountable for such losses. Or, if a central bank declines to provide emergency financial support to a vulnerable financial institution, or decides to close such an institution, or refuses to license an institution, the question may come up whether officials and staff members of the central bank or a financial agency have legal protection for such decisions.

Memorandum of understanding

A memorandum of understanding is a signed document, which sets out a commonly agreed framework to govern relations between financial agencies within a country or between countries that could be publicly released or treated as a (sensitive) internal document. For instance, a central bank might make an agreement with the government about agency functions that it performs, and sign a memorandum of understanding to clarify the agreement. Financial agencies can also use signed memoranda of understanding to clarify the procedures for the exchange of information or consultation arrangements.

Modalities of accountability

Modalities of accountability refers to the means, methods, and procedures used by a central bank or financial agency to account for its actions and report on its activities.

Monetary policy instruments

Monetary policy instruments are the various tools that a central bank can use to influence money market and credit conditions and pursue its monetary policy objectives.

Monetary operations

Monetary operations are actions taken by a central bank to implement monetary policy, such as influencing overall money market and credit conditions in the economy. These consist of using the monetary policy instruments according to prescribed monetary policy operating procedures.

Payment systems

A payment system consists of a set of rules, institutions, and technical mechanisms for discharging financial obligations assumed by economic actors whenever they acquire real or financial resources.

Primary dealers

Primary dealers are a group of dealers in government securities who are usually designated by the authorities to play a role as specialist intermediaries in government securities markets between the authorities and the market. Primary dealers usually have special rights to deal with the central bank in its open market operations or privileges in bidding at primary auctions. In exchange for these special rights, primary dealers are usually obliged to participate in the primary market and perform market-making services in the secondary market, in addition to maintaining standards for minimum capital and skilled human capital.

Primary markets

Primary markets are asset markets where securities are first issued and sold through some form of tender or auction process.

Public

Reference to the public in this document should ideally encompass all interested individuals and institutions. In some cases, particularly for financial policies, it may be expedient for the purposes of administering or implementing certain regulations and policies to define the concept of the public more narrowly to refer only to those individuals and institutions that are most directly affected by the regulations and policies in question.

Publication program

The term publication program refer to the full range of publications by a central bank or financial agency, encompassing an annual report, an official bulletin/review, staff research output, speeches and testimony by officials, and non-technical descriptions of role and functions of the agency. A periodic report on principal activities of the central bank on financial agency is a subset of the above, and it could be an annual report that covers the central bank’s or financial agency's principal activities (policies/decisions) over the previous year or an official public report/statement to the public or parliament that reviews the central bank’s or agency's principal activities and/or the state of economy or the particular financial sector for which the agency carries official responsibility.

Public consultation

Public consultations are procedures used by central banks and financial agencies to inform the public and provide an opportunity for feedback and input about particular regulatory changes under consideration. Such consultations can range from public hearings (with or without an opportunity for public intervention), an open period for submission of written comments, postings on a website, or meetings with parties most directly affected by the changes.

Publicly disclosed

Public disclosure refers to the act of making information or data readily accessible and available to all interested individuals and institutions. Some examples of the different forms that public disclosure may take include: verbal or written statements released to a public forum, to the news media, or to the general public; publication in an official bulletin, gazette, report, or stand-alone document; and information posted on a website.

Public reporting of aggregate data

Public reporting of aggregate data refers to the dissemination of data on a particular industry or sector as a whole. Such reporting can be facilitated by a central bank or financial agency publicly reporting the data itself, or by encouraging other public or private entities to do so.

Regulatory framework

Regulatory framework is the overall structure of financial laws and regulations governing the behavior of participants in the financial system and the relationship within that structure between the financial agency and other government and non-government bodies.

Secondary markets

Secondary markets are asset markets where securities are traded after they have been issued or sold on primary markets.

Self-regulatory organization

Self-regulatory organizations are autonomous nonpublic bodies that regulate and monitor the behavior of affiliated participants in financial markets. Self-regulatory organizations may have formal powers delegated to them by financial agencies, and often have some form of relationship with public financial agencies. Examples of self-regulatory bodies include stock exchanges, commodity exchanges, and dealer associations for securities markets.

Substantive technical changes in regulations

Substantive technical changes in regulations refer to major modifications in the regulatory framework and environment. A substantive technical change to the structure of monetary regulations could include: significant changes in the rules the central bank uses to govern its activities such as reserve requirements, or procedures in the auctions for treasury or central bank bills. Some examples of a substantive technical change to the structure of financial regulations include a change from off-site bank examinations to on-site bank examinations, a change in the actuarial reserve calculation methods for insurance companies, a change in the coverage of the deposit insurance scheme, a change in the circuit breakers that a financial agency sets in securities markets, or an overhaul in the clearing and settlement procedures.

Targets

Targets are specific observable goals that a central bank pursues in the conduct of monetary or financial policy. Examples of central bank targets include numerical goals, such as a level or range of inflation over a specified time frame, or operational targets such as a particular level of interest rates or growth rate of central bank liabilities.

Term of office

A term of office relates to the tenure of a position for the heads and members of the governing body of a central bank or financial agency. Details of the terms of office include issues such as whether the term is fixed or at the discretion of some other office holder, and whether there are any restrictions on appointment and re-appointment.

Transparency

Transparency refers to an environment in which the objectives of policy, its legal, institutional, and economic framework, policy decisions and their rationale, data and information related to monetary and financial policies, and the terms of agencies’ accountability, are provided to the public in a comprehensible, accessible, and timely manner.

¹ A number of standards are listed in Financial Stability Forum, 1999, Compendium of Standards, (www.fsforum.org/Standards/Home.html), (Basel).