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Archive of Quarterly Reports Reports on Observance of Standards and Codes (ROSCs) Standards and Codes See Also: Financial Sector Assessment Program (FSAP) Quarterly Update on the Special Data Dissemination Standard |
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Quarterly Report
on the Assessments of Standards and Codes1 — December 2001
Prepared by the Policy Development and Review Department February 6, 2002 1. Work on standards continues to progress on several fronts. This report provides an update on the production of Reports on the Observance of Standards and Codes (ROSCs) and other standards-related developments since the June, 2001 quarterly report2 and the Report of the Managing Director to the International Monetary and Financial Committee: The Fund's Crisis Prevention Initiatives (11/14/01). |
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ROSC production 2. Between October 1, 2001 and December 31, 2001, an additional 32 ROSC modules were completed (for 21 economies), with 18 of these published (Table 1).3 This brings the total number of ROSC modules completed to 201 (for 67 economies) as of end-December, of which 141 have been published (for 45 economies). Of the total ROSC modules completed, 58 percent have been derived from FSAPs. The World Bank has produced its first three accounting and auditing ROSC modules, its first insolvency and creditor rights module, as well as one new corporate governance module since October 1.4 3. In addition to producing ROSCs in its main areas of responsibility, the World Bank, in cooperation with the OECD, is also promoting dialogue on corporate governance reform through Regional Corporate Governance Roundtables. These roundtables provide a structured policy debate between the public and private sectors, standard-setting agencies and other stakeholders such as labor unions, based on the OECD Principles of Corporate Governance.5 An intended outcome of this process is the development of regional "White Papers," which highlight strategies for reform based upon the roundtable debate and analysis. Fourth review of the Fund's data standard initiative 4. As outlined in the Managing Director's report to the IMFC on crisis prevention, the Executive Board discussed the Fourth Review of the Fund's Data Standard Initiative on July 23, 2001. The Board endorsed the Data Quality Assessment Framework and its integration into the data ROSC module. The framework responds to calls for standards assessments and ROSCs to examine the quality of data being released as well as the frequency, timeliness, and coverage of data releases. 5. The Board agreed that, if a subscriber is not in observance of the standard, a notification would be placed on the Data Standards Bulletin Board indicating this fact and setting a time frame within which the subscriber was expected to come into observance. International Standards for Public Sector Accounting 6. The Public Sector Committee (PSC) of the International Federation of Accountants will have issued 17 international accounting standards for the public sector by the end of December 2001. The standards are based on accrual accounting. In addition, four draft standards, which have been issued for public comment, are expected to be finalized in early 2002. These include a standard on the cash basis of accounting. A separate transitional guidance document Cash Basis Accounting to Accrual Basis Accounting will be released in early 2002. Financial sector standards-related issues 7. Within the coordinating framework of the Bank-Fund Financial Sector Liaison Committee (FSLC), the development of financial sector standards and associated methodologies continues to be discussed.6 Work has been proceeding in both institutions on several tracks, with the objective of improving the quality, uniformity and consistency of assessments of observance of financial sector standards. This work is being undertaken in close collaboration with standard-setting bodies. Work is proceeding jointly by Fund and World Bank staff to finalize standardized templates for assessments under FSAPs and ROSC modules and to produce assessment guidance notes relating to the Core Principles for Systemically Important Payment Systems (in consultation with the CPSS) and to the IOSCO Objectives and Principles. In addition, joint Bank-Fund consultations on standards assessments under the FSAP were held in Paris in November 2001 with experts and assessors from cooperating official institutions and standard setting bodies, to determine ways to strengthen the assessment framework. Other Financial Sector Issues 8. In November 2001, Executive Directors agreed on proposals for intensified involvement of the Fund in work on anti-money laundering (AML) issues, and to extend its activities to limit the use of financial systems for terrorism financing in the aftermath of the events of September 11.7 They stressed, however, that the Fund's involvement in these areas should be consistent with its mandate and core expertise. Directors acknowledged the recent progress and supported: expanding the Fund's involvement to efforts aimed at countering terrorist financing and relevant legal and institutional issues; expanding the joint Fund/World Bank AML Methodology Document and Fund technical assistance to those areas; applying the expanded methodology in the FSAP and Offshore Financial Center (OFC) assessments (the pace of which would be speeded up); canvassing members in a related voluntary questionnaire circulated in the context of Article IV missions; and working closely and rapidly with the Financial Action Task Force (FATF) on a suitable assessment process that is compatible with the uniform, voluntary, and cooperative nature of the ROSC exercise. A progress report will be prepared for the Board by the Spring 2002 meeting of the IMFC, as well as a paper on the implementation of the action plan before the 2002 Annual Meetings. The revised Bank/Fund AML Methodology Document will be circulated to the Board as soon as it is ready. Outreach and feedback 9. Fund and Bank staff joined other members of the Financial Stability Forum Follow-Up Group on Incentives to Foster the Implementation of Standards for an outreach mission to New York in August.8 The level of knowledge and sophistication of participants with respect to standards and ROSCs was very high, and considerably higher than found in the previous outreach in New York, and in other financial centers. Many participants in New York displayed a detailed knowledge of the contents of particular ROSCs, and indicated that such information is used regularly in their credit analysis. 10. The feedback from exercises such as this and from members is informing efforts to make ROSCs more accessible to users. A common theme has been that ROSCs could be enhanced by being kept short, with a standardized format, and by broader country coverage. Private and public sector feedback has pointed to the varying quality of ROSCs, and users attach a high priority to timely publication. Private sector participants have also indicated that frequent updates are crucial, as is consistency. National authorities have expressed the desire for adequate technical assistance to be made available to help them address weaknesses identified in standards assessments. Steps are being taken to respond to these needs and to assess the associated resource implications. Fund external web site 11. As mentioned in the Managing Director's report to the IMFC on crisis prevention, the ROSC page on the Fund's external web site has been given a facelift, and has its own web address (http://www.imf.org/external/np/rosc/rosc.asp). The home page now lists all the published ROSCs, which can be sorted by country, date, or topic (e.g., banking supervision or data ROSCs). There is a "What's New" section and a user survey. The new site received positive reviews from market participants when unveiled in New York during outreach meetings in August. Private Sector and Civil Society Initiatives on Standards Assessments 12. One prominent investor and some non-governmental organizations (NGO) are doing their own assessments of countries observance against Fund-endorsed standards:
The IMF staff welcomes the growing interest in international standards and codes, however, it has not reviewed or endorsed specific private sector assessments. Financial Stability Forum 13. The Financial Stability Forum's (FSF) Follow-Up Group on Incentives to Foster Implementation of Standards reported to the FSF meeting in London in September. The Group recognized the need for systematic outreach aimed at raising the awareness of market practitioners and promoting peer group discussions among officials. 11 As a next step, the Group suggested that future outreach exercises be extended to legislators, given that implementing standards can involve legislative changes. The Group also welcomed the Fund's plans to undertake analytical work on the relevance of standards adherence to the private sector's country risk assessments. 14. In discussing the report, the FSF's September meeting noted that there was a growing recognition of the technical assistance demands of standards adherence, and the Fund and Bank were asked to catalogue the various initiatives underway to respond (within the Bank and the Fund's budgetary constraints) to the demands and report back to the FSF.12 Technical assistance coordination 15. There have been a number of requests addressed to the international financial institutions, including the Fund, to improve coordination in technical assistance delivery in support of standards and codes. These requests include calls from the G-7, G-20, and Financial Stability Forum (FSF) that the IFIs should catalogue and assess technical assistance resources and demands to ensure that support is channeled effectively to countries in implementing standards, and to fill the gap between the demand for technical assistance from the countries and the supply of funding and expertise from the international community.13 FSLC is continuing its efforts to enhance coordination among the Fund, the Bank and others with respect to technical assistance related to the financial sector, and similar work is also continuing to improve technical assistance follow-up with respect to Fund-led standards for data dissemination and fiscal transparency. Fund and Bank staff are collaborating on a paper on the coordination of technical assistance delivery for enhancing standards and financial stability that will be circulated to the Executive Board before being transmitted to these international fora. Table 1. ROSC Modules Published by December 31, 20011 Source: Staff estimates. 1 The main authors of this report are Ydahlia Metzgen, Dennis Jones, Robert Price, and Rachel Glennerster. 2 See Quarterly Report on the Assessment of Standards and Codes (6/29/01). 3 See http://www.imf.org/external/np/rosc/rosc.asp and http://www.worldbank.org/ifa/rosc.html. 4 The Bank is taking steps to integrate the accounting and auditing assessments into its overall country support framework and with the work of development partners. In addition, steps will be taken to further integrate these assessments with related work such as FSAPs and corporate governance and insolvency assessments when relevant (see below). 5 Bank staff have recently prepared for their Board International Financial Architecture: An Update on World Bank Group Activities, which gives a fuller report (November, 2001). 6 The Interdepartmental Task Force on Assessment and Monitoring of Standards and Codes (TAMS) provides a forum for such discussions between IMF departments. 7 Intensified Fund Involvement in Anti-Money Laundering Work and Combating the Financing of Terrorism, (11/05/01). 8 The target audience was senior managers from investment banks, rating agencies, and other financial institutions actively involved in making credit risk assessments or investment decisions. 9 The countries to be assessed are those where fiscal and monetary policy transparency were not publicly available in May 2001 or for which the ROSCs were considered out of date. A list of the countries being assessed is available on the CalPERS web site. 10 The Institute for Democracy in South Africa and the Gdansk Institute for Market Economics. 11 See Final Report of the Follow-Up Group on Incentives to Foster the Implementation of Standards, FSF, September 2001. 12 Fund staff prepared a background paper on "Technical Assistance for Assessment of Standards and Codes and Capacity Building-A Progress Report" for the FSF Follow-Up Group's July meeting. Bank staff have begun to catalogue requests and follow-up for such assistance in their areas of responsibility and have reported this in International Financial Architecture: An Update on World Bank Group Activities. 13 Strengthening the International Financial System and the Multilateral Development Banks (paragraph 17), Statement by G-7 Heads, July 7, 2001. This has been echoed by the G-20 in a letter from the G-20 Secretariat to G-20 Deputies, March 8, 2001, and by the FSF Follow-Up Group (see Final Report of the Follow-Up Group on Incentives to Foster the Implementation of Standards, FSF, September 2001) These issues will also be covered in the next Annual Review of Technical Assistance. |