POLICY COHERENCE TO WIDEN Financial Inclusion in Community

1. POLICY COHERENCE TO WIDEN Financial Inclusion in Community ENGAGE EMPLOYEES FOR EFFECTIVE PEER REVIEWS FOR BETTER STANDARDS IN FINANCE INDUSTRY Jayasri Priyalal Director, UNI Apro Finance Sector Activities UNI Finance – UNI LC Japan Global Workshop on Greater Resilience against Failure of Financial Policy Based on Market Fundamentalism 10-11 JUNE 2013, TOKYO, JAPAN

2. PRESENTATION OUTLINE • Background – Where are we now? How the past Regulations worked? • Shortcomings –Regulatory Vacuums -BASLE I>>> BASLE II >>>> G20 FSB >>>BASLE III • Two Schools of thought – “Consistency or Coordination” – Appropriate Regulation Depending on Country situations • FSB initiatives – through SCSI – Thematic Review and Country Reviews – WB and IMF – FSAP [Finance Sector Assessment Program] • Firm Stakeholder Engagement for Effective Peer Reviews – Experience of Central Bankers, Employees and Representative Finance Industry Trade Unions – Global Reach - Networks – Taking account of differences in Development levels of individual countries- ENGAGE FROM THE BEGINNING • CONCLUSIONS

3. Dynamics of Trade in Services WTO Liberalizations ATTEMPTS– De-regulations Towards Opening up Capital AccountOVERVIEW OF THE SITUATION AS AT END 2005 • Services accounts 1/5 of Global Trade • Three Quarters of trade in Services are accounted by OECD countries • Services contributes 60 -70% of GDP of OECD countries • Only one quarter of services un-equally distributed among developing countries • Travel/Transport dominates in Services but FINANCE has a huge potential- Endless Innovations • Increased cross boarder capital flows – impact on macro economy, destabilizing effects • Undermines the prudential measures of domestic regulators/authorities

4. WTO GATS :Trade Union Responses • Risks overweigh Opportunities • Promotes transparency on Governments What about Corporate Entities/MFIs? • Beyond Wisdom gained through past Financial Crises in South America, Nordic, Eastern Europe and in South East Asia – in spite of prudential and regulatory measures • Limitation of Article X – non reversibility of commitments – ONE WAY • Cost of financial crisis in Economies, particularly in informal/rural sectors in South Asia – Marginalized populations – Macro Economy/inflation • Change of direction – Standards to be set with the inclusions of experts, regulators, Central Bankers from financial industries and not limiting to trade specialists • Consultations with Trade unions as an important stake holders in the industry THIS SLIDE IS FROM PRESENTATION MADE AT 1ST SAFSUC MEETING HELD IN DELHI APRIL 2006

5. Evolutions: BASLE I >>>> III • BASLE I : Asset & Liability Management to Risk Management • BASLE II : “Outsourcing Regulatory Function to Third Parties – Rating Agencies” – Internal Ratings Based [IRB] approach for risk assessment • Lacks : Attention to Systemic Risk, Focus on Off Balance Sheet items, Control on Shadow Banking • Reputation Risks under emphasized assessing Operational Risks • BASLE III : Regulation on Leverage Ratio & Liquidity as a supplement to risky assets. SAFETY precedes EFFICIENCY, transparency and timely disclosure, promote role of Government

6. Consistent vs. CoordinatedRegulatory Framework • Developing Emerging Economies have low level of financial development and innovation • Needs to loosen the regulation to increase EFFICIENCY • Bank Based Financial Systems • Diverse Regulatory systems through coordinated approach works better • International Coordination and Cooperation is necessary as out of US$ 34.2 Bn Banking Assets monitored by BIS 30.3 Bn are external assets (as of 2011) – Needs cross country coordination • Case of India – RBI is keen to set up colleges of supervisors for local banks those who possess 15% or more external assets ( as per new banking industry reforms) • Current – Consistent framework concentrate on Developed economies – OECD – Market Based Financial Systems • Active and continuous financial innovation in developed economies – Focus is on SAFETY • Limits financial innovation to maintain stability in the system • Interest of Developing economies has not received adequate focus and derive NO benefits

7. FSB – Peer Reviews Monitored by Standing Committee on Standards Implementation [SCSI] • A mechanism – to promote complete & consistent implementation of REFORMS – Why regulate? What is the right balance? Stringent Regulation or No Regulation • Excessive Innovation or insufficient • Achieves new Products Efficacy • Risk Diversification • Economy Wide Welfare

8. Objectives of FSB PEER Reviews • Exchange information on Regulatory supervisory and finance sector policies • Evaluate Adherence – Financial Stability>> Openness & Transparency>> International Standards • Foster a race to the top by effective implementation of Regulatory and Supervisory Policies • Assess the Effectiveness of International Financial Standards • Mutual, Cross –Sectoral, Cross –Functional, System wide Evaluations – Employees and Trade Unions Voice is a valuable component in the process - Value volunteerism and Expertise of Trade Unions

9. TWO TYPES OF PEER REVIEWS PROCESS SCSI CHAIR TO SOLICIT VOLUNTEER NOMINEES FINANCE INDUSTRY TRADE UNIONS TO FIND SPACE AT THE TABLE BE PART OF THE TEAM • CRITERIA TO BE A MEMBER IN PEER REVIEW TEAM. • RELEVANT EXPERTISE • INDEPENDENCE OF JUDGEMENT • ABILITY TO DELIVER HIGH QUALITY TIMELY WORK E.g. Country Review - South Africa E.g. Reducing Reliance of CRA Ratings

10. Conclusions • Causes and Effects led to the GFC • Unrestricted financial innovation accelerated the speculative drive and destabilized the financial market • Structural imbalance between financial innovation and financial regulation • Innovations were limited to balance sheets for profit engineering through increase leverage and returns • Finance industry employees and their representative trade unions have a long term interest for sustainable business growth by promoting holistic economy wide welfare. Peer reviews appears to replace the concept of college of supervisors – Common Call by UNI and Global Union Council • Engage Trade Unions in FSB’s PEER review mechanism for appropriate regulation –as a bottom up approach for effective regulation –to stimulate responsible innovation that harms no other economic agents welfare