G20 Principals Agree On Bank Regulation, Tax Stance

by Ulrika Lomas, Tax-News.com, Brussels

08 September 2009

The Finance Ministers of the G20 countries have agreed on a framework for bank regulation and compensation practices, as well as confirming future action against countries not adopting tax information exchange standards.

The final communiqué published after their meeting in London stated that there should be clear and identifiable progress in 2009 on delivering the following framework for banks on corporate governance and compensation practices:

• Greater disclosure and transparency of the level and structure of remuneration for those whose actions have a material impact on risk taking;
• Global standards on pay structure, including on deferral, effective clawback, the relationship between fixed and variable remuneration, and guaranteed bonuses, to ensure compensation practices are aligned with long-term value creation and financial stability; and,
• Corporate governance reforms to ensure appropriate board oversight of compensation and risk, including greater independence and accountability of board compensation committees.

There was no mention of the taxation of bank bonuses, nor was any agreement announced on limits to bankers’ salaries.

However, in their communiqué, the Ministers asked the Financial Stability Board (FSB) to explore possible approaches for limiting total variable remuneration in relation to risk and long-term performance.

To this end, they requested the FSB to report to the full G20 meeting later in September with detailed specific proposals for developing the framework, which could then be incorporated into supervisory measures.

In addition, the Ministers called for the consistent and coordinated implementation of international standards, including Basel II, to prevent the emergence of new risks and regulatory arbitrage, particularly with regard to central counterparties for credit derivatives, oversight of credit ratings agencies and hedge funds, and quantitative capital retention requirements for securitisations.

They announced that convergence towards a single set of high-quality, global, independent accounting standards on financial instruments, loan-loss provisioning, off-balance sheet exposures and the impairment and valuation of financial assets was being sought.

The ministers discussed the set of high-level principles for hedge fund regulation, published in June of this year. The six principles include requirements on mandatory registration, regulation and the provision of information for systemic risk assessment purposes. The Ministers argued that regulators should cooperate and share information to facilitate the efficient and effective oversight of globally active hedge fund managers/hedge funds. Further work was called for in this area.

With regard to the OECD tax information exchange standards, they considered that unprecedented progress has been made since the November 2008 G20 summit. Major financial centres both within and outside of the OECD area which had strict bank secrecy rules or other impediments to achieving an effective exchange of information are, they said, in the process of removing these impediments. More than 70 Tax Information Exchange Agreements had been signed – a larger number than the total for the previous 10 years.

The G20 ministers now looked for the delivery of an effective programme to tackle so-called ‘non-cooperative jurisdictions’, standing ready to use countermeasures against tax havens from March 2010. They requested the FSB to report on criteria and compliance against regulatory standards by November this year.

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