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1 1 (January 13, 2025)

handle is hein.crs/govesad0001 and id is 1 raw text is: Congressional Research Servic~ hikuming the Ieg~sIative debate since 1914 Updated January 13, 2025 Introduction to Financial Services: International Regulation While financial markets have become global, financial regulation and supervision is conducted by domestic agencies. Thus, domestic regulators take into account how financial institutions and markets they regulate are affected by international financial markets and foreign regulatory frameworks. In the absence of an international financial supervisor or regulator, countries negotiate voluntary international financial standards and best practices that domestic regulators may choose to implement. The 2008 financial crisis underscored the interconnectedness of the global financial system as well as its weaknesses. After the crisis, international financial stability became a policy priority that transcends national boundaries-policies that lead to financial instability in one country can cause it to spill over into other countries. Even before the crisis, international standards were negotiated to (1) avoid a race to the bottom to attract financial firms to jurisdictions through lax regulatory standards and (2) coordinate regulation of financial firms with international operations. Despite these efforts, substantial differences exist among national regulations. Congress grants U.S. financial regulators broad authorities to regulate financial markets to achieve particular policy objectives and has been interested in the extent to which international fora influence domestic regulation. This In Focus explains the general structure of the international organizations that set financial regulatory standards. ackground In contrast to the rules-based system governing international trade, centered on the World Trade Organization (WTO), international financial regulation is a standard-setting system and fragmented, with regulatory and supervisory authority dispersed among a range of international and national institutions (see Figure 1). The Group of 20 (G-20) and the Financial Stability Board (FSB) set the overall agenda for international regulatory frameworks, and more specialized international groups set standards for their respective financial markets. Domestic regulators and self-regulatory organizations participate in the international standard-setting bodies, where participants negotiate market or regulatory standards and agree to implement them domestically. The international agenda and standard-setting bodies operate on a consensual basis and have no legally binding authority. Because national regulators (or other authorities) cannot enter into treaties with other countries, agreements made at international fora or by regulators at standard-setting bodies require domestic legislation and/or rulemaking to be implemented. International financial institutions, such as the International Monetary Fund (IMF) and the Bank for International Settlements (BIS), provide overall surveillance of national compliance with the agreed-upon international financial standards, among other functions. Figure I. International Financial Regulatory Architecture Source: CRS. Key Standard-Settng nst itut ons The key international organizations involved in setting financial regulatory standards are: * The G-20 is an informal grouping of 19 major national economies (including the United States) and the European Union. Finance ministers and central bank officials work through the G-20 to agree on a global international financial regulatory agenda. * The FSB is a technical body established by the G-20 to coordinate the G-20 agenda and set the priorities for the international financial standard-setting process. FSB members include the regulators from G-20 members, several international financial institutions, and the most important standard-setting bodies (e.g., accounting, banking, insurance). The primary U.S. representatives to the FSB are the Federal Reserve, the Securities and Exchange Commission (SEC), and the Treasury Department, with other U.S. agencies participating in FSB working groups and activities. * The Basel Committee on Banking Supervision (BCBS) is part of the BIS and formulates standards, guidelines, and best practices in banking. BCBS members are the national banking regulators. The Federal Deposit Insurance Corporation (FDIC), the Federal Reserve, and the Office of the Comptroller of the Currency (OCC) are U.S. representatives.

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