DECLARATION ON STRENGTHENING THE FINANCIAL SYSTEM – 

LONDON, 2 APRIL 2009 

We, the Leaders of the G20, have taken, and will continue to take, action to

strengthen regulation and supervision in line with the commitments we made in 

Washington to reform the regulation of the financial sector. Our principles are 

strengthening transparency and accountability, enhancing sound regulation, 

promoting integrity in financial markets and reinforcing international cooperation. 

The material in this declaration expands and provides further detail on the

commitments in our statement. We published today a full progress report against each 

of the 47 actions set out in the Washington Action Plan. In particular, we have agreed 

the following major reforms. 

Financial Stability Board

We have agreed that the Financial Stability Forum should be expanded, given a 

broadened mandate to promote financial stability, and re-established with a stronger

institutional basis and enhanced capacity as the Financial Stability Board (FSB). 

The FSB will: 

• assess vulnerabilities affecting the financial system, identify and oversee action 

needed to address them; 

• promote co-ordination and information exchange among authorities responsible 

for financial stability; 

• monitor and advise on market developments and their implications for regulatory 

policy; 

• advise on and monitor best practice in meeting regulatory standards; 

• undertake joint strategic reviews of the policy development work of the

international Standard Setting Bodies to ensure their work is timely, coordinated, 

focused on priorities, and addressing gaps; 

• set guidelines for, and support the establishment, functioning of, and participation 

in, supervisory colleges, including through ongoing identification of the most 

systemically important cross-border firms; 

• support contingency planning for cross-border crisis management, particularly 

with respect to systemically important firms; and 

• collaborate with the IMF to conduct Early Warning Exercises to identify and 

report to the IMFC and the G20 Finance Ministers and Central Bank Governors 

on the build up of macroeconomic and financial risks and the actions needed to 

address them. 

Members of the FSB commit to pursue the maintenance of financial stability, enhance 

the openness and transparency of the financial sector, and implement international 

financial standards (including the 12 key International Standards and Codes), and 

agree to undergo periodic peer reviews, using among other evidence IMF / World 

Bank public Financial Sector Assessment Program reports. The FSB will elaborate

and report on these commitments and the evaluation process. 

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We welcome the FSB’s and IMF’s commitment to intensify their collaboration, each 

complementing the other’s role and mandate. 

International cooperation

To strengthen international cooperation we have agreed: 

to establish the remaining supervisory colleges for significant cross-border firms

by June 2009, building on the 28 already in place; 

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to implement the FSF principles for cross-border crisis management immediately, 

and that home authorities of each major international financial institution should 

ensure that the group of authorities with a common interest in that financial 

institution meet at least annually; 

to support continued efforts by the IMF, FSB, World Bank, and BCBS to develop 

an international framework for cross-border bank resolution arrangements; 

the importance of further work and international cooperation on the subject of exit 

strategies; 

that the IMF and FSB should together launch an Early Warning Exercise at the 

2009 Spring Meetings. 

Prudential regulation

We have agreed to strengthen international frameworks for prudential regulation: 

until recovery is assured the international standard for the minimum level of

capital should remained unchanged; 

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where appropriate, capital buffers above the required minima should be allowed to 

decline to facilitate lending in deteriorating economic conditions; 

once recovery is assured, prudential regulatory standards should be strengthened. 

Buffers above regulatory minima should be increased and the quality of capital 

should be enhanced. Guidelines for harmonisation of the definition of capital 

should be produced by end 2009. The BCBS should review minimum levels of 

capital and develop recommendations in 2010; 

the FSB, BCBS, and CGFS, working with accounting standard setters, should take 

forward, with a deadline of end 2009, implementation of the recommendations 

published today to mitigate procyclicality, including a requirement for banks to 

build buffers of resources in good times that they can draw down when conditions 

deteriorate; 

risk-based capital requirements should be supplemented with a simple, 

transparent, non-risk based measure which is internationally comparable, properly 

takes into account off-balance sheet exposures, and can help contain the build-up 

of leverage in the banking system; 

the BCBS and authorities should take forward work on improving incentives for 

risk management of securitisation, including considering due diligence and

quantitative retention requirements, by 2010; 

all G20 countries should progressively adopt the Basel II capital framework; and 

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the BCBS and national authorities should develop and agree by 2010 a global 

framework for promoting stronger liquidity buffers at financial institutions,

including cross-border institutions. 

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The scope of regulation

We have agreed that all systemically important financial institutions, markets, and 

instruments should be subject to an appropriate degree of regulation and oversight. In 

particular: 

we will amend our regulatory systems to ensure authorities are able to identify and 

take account of macro-prudential risks across the financial system including in the 

case of regulated banks, shadow banks, and private pools of capital to limit the 

build up of systemic risk. We call on the FSB to work with the BIS and 

international standard setters to develop macro-prudential tools and provide a 

report by autumn 2009; 

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large and complex financial institutions require particularly careful oversight

given their systemic importance; 

we will ensure that our national regulators possess the powers for gathering 

relevant information on all material financial institutions, markets, and

instruments in order to assess the potential for their failure or severe stress to

contribute to systemic risk. This will be done in close coordination at international 

level in order to achieve as much consistency as possible across jurisdictions; 

in order to prevent regulatory arbitrage, the IMF and the FSB will produce

guidelines for national authorities to assess whether a financial institution, market, 

or an instrument is systemically important by the next meeting of our Finance 

Ministers and Central Bank Governors. These guidelines should focus on what 

institutions do rather than their legal form; 

hedge funds or their managers will be registered and will be required to disclose 

appropriate information on an ongoing basis to supervisors or regulators, 

including on their leverage, necessary for assessment of the systemic risks that 

they pose individually or collectively. Where appropriate, registration should be 

subject to a minimum size. They will be subject to oversight to ensure that they 

have adequate risk management. We ask the FSB to develop mechanisms for

cooperation and information sharing between relevant authorities in order to 

ensure that effective oversight is maintained where a fund is located in a different 

jurisdiction from the manager. We will, cooperating through the FSB, develop 

measures that implement these principles by the end of 2009. We call on the FSB 

to report to the next meeting of our Finance Ministers and Central Bank 

Governors; 

supervisors should require that institutions which have hedge funds as their 

counterparties have effective risk management. This should include mechanisms

to monitor the funds’ leverage and set limits for single counterparty exposures; 

we will promote the standardisation and resilience of credit derivatives markets, in

particular through the establishment of central clearing counterparties subject to 

effective regulation and supervision. We call on the industry to develop an action 

plan on standardisation by autumn 2009; and 

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we will each review and adapt the boundaries of the regulatory framework 

regularly to keep pace with developments in the financial system and promote 

good practices and consistent approaches at the international level.

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Compensation

We have endorsed the principles on pay and compensation in significant financial 

institutions developed by the FSF to ensure compensation structures are consistent

with firms’ long-term goals and prudent risk taking. We have agreed that our national 

supervisors should ensure significant progress in the implementation of these 

principles by the 2009 remuneration round. The BCBS should integrate these 

principles into their risk management guidance by autumn 2009. The principles, 

which have today been published, require: 

firms' boards of directors to play an active role in the design, operation, and 

evaluation of compensation schemes; 

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compensation arrangements, including bonuses, to properly reflect risk and the 

timing and composition of payments to be sensitive to the time horizon of risks. 

Payments should not be finalised over short periods where risks are realised over 

long periods; and 

firms to publicly disclose clear, comprehensive, and timely information about

compensation. Stakeholders, including shareholders, should be adequately 

informed on a timely basis on compensation policies to exercise effective 

monitoring. 

Supervisors will assess firms’ compensation policies as part of their overall 

assessment of their soundness. Where necessary they will intervene with responses 

that can include increased capital requirements. 

Tax havens and non-cooperative jurisdictions

It is essential to protect public finances and international standards against the risks 

posed by non-cooperative jurisdictions. We call on all jurisdictions to adhere to the 

international standards in the prudential, tax, and AML/CFT areas. To this end, we

call on the appropriate bodies to conduct and strengthen objective peer reviews, based 

on existing processes, including through the FSAP process. 

We call on countries to adopt the international standard for information exchange 

endorsed by the G20 in 2004 and reflected in the UN Model Tax Convention. We

note that the OECD has today published a list of countries assessed by the Global

Forum against the international standard for exchange of information. We welcome

the new commitments made by a number of jurisdictions and encourage them to 

proceed swiftly with implementation. 

We stand ready to take agreed action against those jurisdictions which do not meet

international standards in relation to tax transparency. To this end we have agreed to 

develop a toolbox of effective counter measures for countries to consider, such as: 

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• increased disclosure requirements on the part of taxpayers and financial 

institutions to report transactions involving non-cooperative jurisdictions; 

• withholding taxes in respect of a wide variety of payments; 

• denying deductions in respect of expense payments to payees resident in a noncooperative jurisdiction; 

• reviewing tax treaty policy; 

• asking international institutions and regional development banks to review their

investment policies; and, 

• giving extra weight to the principles of tax transparency and information 

exchange when designing bilateral aid programs. 

We also agreed that consideration should be given to further options relating to 

financial relations with these jurisdictions 

We are committed to developing proposals, by end 2009, to make it easier for

developing countries to secure the benefits of a new cooperative tax environment. 

We are also committed to strengthened adherence to international prudential 

regulatory and supervisory standards. The IMF and the FSB in cooperation with 

international standard-setters will provide an assessment of implementation by 

relevant jurisdictions, building on existing FSAPs where they exist. We call on the 

FSB to develop a toolbox of measures to promote adherence to prudential standards 

and cooperation with jurisdictions. 

We agreed that the FATF should revise and reinvigorate the review process for 

assessing compliance by jurisdictions with AML/CFT standards, using agreed 

evaluation reports where available. 

We call upon the FSB and the FATF to report to the next G20 Finance Ministers and 

Central Bank Governors’ meeting on adoption and implementation by countries. 

Accounting standards

We have agreed that the accounting standard setters should improve standards for the 

valuation of financial instruments based on their liquidity and investors’ holding 

horizons, while reaffirming the framework of fair value accounting. 

We also welcome the FSF recommendations on procyclicality that address accounting 

issues. We have agreed that accounting standard setters should take action by the end 

of 2009 to: 

• reduce the complexity of accounting standards for financial instruments; 

• strengthen accounting recognition of loan-loss provisions by incorporating a 

broader range of credit information; 

• improve accounting standards for provisioning, off-balance sheet exposures and 

valuation uncertainty; 

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• achieve clarity and consistency in the application of valuation standards

internationally, working with supervisors; 

• make significant progress towards a single set of high quality global accounting 

standards; and, 

• within the framework of the independent accounting standard setting process,

improve involvement of stakeholders, including prudential regulators and 

emerging markets, through the IASB’s constitutional review. 

Credit Rating Agencies

We have agreed on more effective oversight of the activities of Credit Rating 

Agencies, as they are essential market participants. In particular, we have agreed that: 

• all Credit Rating Agencies whose ratings are used for regulatory purposes should 

be subject to a regulatory oversight regime that includes registration. The 

regulatory oversight regime should be established by end 2009 and should be 

consistent with the IOSCO Code of Conduct Fundamentals. IOSCO should 

coordinate full compliance; 

• national authorities will enforce compliance and require changes to a rating 

agency’s practices and procedures for managing conflicts of interest and assuring 

the transparency and quality of the rating process. In particular, Credit Rating 

Agencies should differentiate ratings for structured products and provide full 

disclosure of their ratings track record and the information and assumptions that 

underpin the ratings process. The oversight framework should be consistent across 

jurisdictions with appropriate sharing of information between national authorities, 

including through IOSCO; and, 

• the Basel Committee should take forward its review on the role of external ratings

in prudential regulation and determine whether there are any adverse incentives 

that need to be addressed. 

Next Steps

We instruct our Finance Ministers to complete the implementation of these decisions

and the attached action plan. We have asked the FSB and the IMF to monitor 

progress, working with the FATF and the Global Forum, and to provide a report to the 

next meeting of our Finance Ministers and Central Bank Governors. 

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