Annual Report Recommendations 11

The Dodd-Frank Act requires the Council to make annual recommendations 

to: (1) enhance the integrity, efficiency, competitiveness, and stability of U.S. 

financial markets; (2) promote market discipline; and (3) maintain investor 

confidence. In this section, we discuss the ongoing work of the Council, its 

members, and the private sector to address these important mandates and lay out 

concrete recommendations. 

3.1 Reforms to Address Structural Vulnerabilities

Reforming Structural Vulnerabilities in Wholesale Short-Term Funding Markets

Stable wholesale short-term funding markets are a critical component of a wellfunctioning financial system, but if they suffer disruptions, these markets can 

rapidly spread shocks across financial institutions. The Council continues to be 

particularly focused on structural vulnerabilities in money market funds (MMFs) 

and the tri-party repo market, as follows.

Money Market Funds

The Council continues to support the implementation of structural reforms 

to mitigate the run risk in MMFs. Specifically, these reforms are intended to 

address the structural features of MMFs that caused a run on prime MMFs and 

the freezing of the short-term credit markets after the Reserve Primary Fund was 

unable to maintain a stable net asset value (NAV) in September 2008. In 2010, 

the SEC adopted MMF reforms designed to make MMF portfolios more resilient 

by improving credit quality standards, reducing maturities, and—for the first 

time—instituting liquidity requirements. The 2010 reforms appear to be working 

as designed and meeting the intended goals. However, the SEC’s 2010 reforms 

did not address—and were not intended to address—two core characteristics of 

MMFs that continue to contribute to their susceptibility to destabilizing runs. 

First, MMFs have no mechanism to absorb a sudden loss in the value of a portfolio 

security, without threatening the stable $1.00 NAV. Second, there continues to be 

a “first mover advantage” in MMFs, which can lead investors to redeem at the first 

indication of any perceived threat to the value or liquidity of the MMF. 

SEC Chairman Schapiro recommended two alternative reforms to address these 

remaining structural fragilities. They are (1) a mandatory floating NAV; and/

or (2) a capital buffer to absorb losses, possibly combined with a redemption 

restriction to reduce the incentive to exit the fund. The Council supports this 

effort and recommends that the SEC publish structural reform options for public 

comment and ultimately adopt reforms that address MMFs’ susceptibility to runs. 

In addition, the OCC issued a proposed rulemaking in April 2012 that would 

partially align the requirements for short-term bank common and collective 

investment funds (STIFs) with the SEC’s revisions to Rule 2a-7 under the 

Investment Company Act. In an effort to impose comparable standards on 

3 Annual Report Recommendations
12 2012 FSOC // Annual Report

comparable financial activities, the Council further recommends that, where 

applicable, its members align regulation of cash management vehicles similar 

to MMFs within their regulatory jurisdiction to limit the susceptibility of these 

vehicles to run risk.

Tri-Party Repo Market

The elimination of most intraday credit exposure and the reform of collateral 

practices in the tri-party repo market continues to be an area of intense focus for 

the Council. The Tri‐Party Repo Infrastructure Reform Task Force was formed 

in September 2009 in response to the financial crisis. Before being disbanded in 

February 2012, the Task Force accomplished a number of changes in process and 

practice that laid a foundation for future risk reduction, including: (1) moving 

the daily unwind of some repos from 8:30 a.m. to 3:30 p.m., which shortens the 

period of credit exposure; (2) introducing automated collateral substitution; and 

(3) introducing three-way trade confirmation functionality. While important, 

these changes do not meaningfully reduce reliance on intraday credit from the 

clearing banks. 

The industry has indicated that elimination of intraday credit associated with 

tri-party settlement will be a multi-year effort. The Council views this proposed 

timeline as unacceptable to achieve timely substantive reductions in risk. The 

Council recommends that the industry implement near-term steps to reduce 

intraday credit usage within the next 6 to 12 months and an iterative strategy over 

six-month increments to continue both to reduce intraday credit substantially 

and to implement improvements in risk-management practices across all market 

participants. In addition, the Council recommends that regulators and industry 

participants work together to define standards for collateral management in 

tri-party repo markets, particularly for lenders, such as MMFs, that have legal or 

operational restrictions on the instruments that they can hold.

Customer Protection Standards and Segregation of Customer Assets 

Financial intermediaries hold customer assets for a variety of purposes, such as 

maintaining cash balances prior to investment and as margin. Intermediaries 

are able to increase efficiencies and lower costs for their customers by investing, 

and earning a return on, these customer assets. However, appropriate limits 

on the ways in which intermediaries can use these assets, including customer 

segregation rules, are a necessary part of strong customer protection standards 

that contribute to market integrity and confidence. Customer protection 

standards also help ensure the prompt return of assets to customers in the event 

of a financial intermediary’s insolvency. Recent developments highlight the 

importance of such standards, including protection standards for trading in 

foreign markets, that are well-understood by market participants and enforced 

by regulators.

The CFTC and SEC recently took a number of actions to maintain strong 

standards for customer protection. Specifically, in December 2011, the CFTC 

amended its rules to add additional safeguards to the processes whereby 

customer funds may be invested by derivatives clearing organizations and futures 

commission merchants. In addition, in February 2012, the CFTC adopted new 
Annual Report Recommendations 13

standards to protect the collateral posted by customers clearing swaps through 

futures commission merchants on derivatives clearing organizations. Further, the 

SEC recently reopened the comment period on a 2007 proposal to amend certain 

customer protection rules.

The Council recommends that regulators continue to take steps to enforce 

existing customer protection standards and to enhance such standards going 

forward, particularly in light of the reforms to the swaps market introduced by 

the Dodd-Frank Act. The Council further recommends that regulators consider 

strengthening regulations governing the holding and protection of customer 

funds deposited for trading on foreign futures markets. 

Clearinghouse Risk Management

The Dodd-Frank Act mandates central clearing of standardized swaps to mitigate 

the counterparty risk inherent in bilateral, over-the-counter (OTC) transactions. 

Although central clearing decreases counterparty risk, it also increases the 

concentration and operational risks presented by a clearinghouse standing 

between the two sides of numerous transactions. 

The Dodd-Frank Act provides various tools that can be used to address this 

increased concentration risk. For example, the Council is authorized to designate 

financial market utilities as systemically important, which subjects such utilities 

to heightened risk-management standards. As discussed in more detail in Section 

6, the Council recently designated a number of financial market utilities. The 

CFTC and SEC also took actions to further strengthen clearinghouse riskmanagement standards. For example, in November 2011, the CFTC adopted 

new risk-management standards for derivatives clearing organizations and 

the SEC continues to work to finalize rules on risk-management standards for 

clearing agencies. 

The Council recommends that regulators continue to seek ways to strengthen the 

risk-management standards for clearinghouses and to work together to monitor 

clearinghouse practices across their respective jurisdictions to determine industry 

best practices that could be followed more broadly.

3.2 Heightened Risk Management and Supervisory Attention 

Robust Capital and Liquidity Planning 

Capital and liquidity buffers form the most fundamental protection for the 

broader financial system and the economy against unexpected risks or failures 

of risk management at financial institutions. Consistent with the Council’s 

2011 report, considerable progress has been made over the past 12 months on 

robust capital and liquidity planning at U.S. financial institutions. In addition 

to carrying out the 2012 Comprehensive Capital Analysis and Review (CCAR) 

exercise, the Federal Reserve proposed enhanced prudential standards, including 

capital and liquidity planning requirements, for the largest bank holding 

companies and for nonbank financial companies designated by the Council. 

Jointly with the FDIC and OCC, the Federal Reserve released supervisory 

guidance on stress testing for all banking organizations with total consolidated 
14 2012 FSOC // Annual Report

assets over $10 billion in May 2012. In June 2012, the Federal Reserve, FDIC, and 

OCC invited public comment on three proposed rules that would implement 

in the United States the Basel III and other regulatory capital reforms and 

the changes required by the Dodd-Frank Act. Concurrently, the agencies also 

approved a final rule to implement changes to the market risk capital rule. 

The Council recommends continued interagency coordination on regulation to 

help ensure enhanced capital planning and robust capital buffers for financial 

institutions. The Council also recommends continued research and development 

of stress-test methodologies to reflect evolution of the financial markets. 

On liquidity planning, supervisors and private sector risk managers should 

closely monitor the risks inherent in short-term funding of longer-term assets. 

Although this practice is an essential function of the financial system, institutions 

should refrain from over-reliance on wholesale short-term funding where it could 

create additional vulnerabilities in extreme but plausible stress scenarios. In 

2010, the federal banking agencies, state bank regulators, and the NCUA issued 

a policy statement on funding and liquidity risk management that addressed the 

importance of cash flow projections, diversified funding sources, stress testing, 

a cushion of liquid assets, and a formal, well-developed contingency funding 

plan as primary tools for measuring and managing liquidity risk. In late 2011, 

the Federal Reserve proposed a rule to require enhanced risk management of 

funding and liquidity risk by U.S. bank holding companies with total consolidated 

assets of $50 billion or more. In addition, the Basel III liquidity framework 

augments these expectations and proposes thresholds for short-term and longerterm funding resilience. The Council recommends that financial institutions take 

particular care to construct their funding models to be resilient to disruptions in 

wholesale short-term funding markets. 

Effective Resolution Plans

Effective resolution plans for the largest financial institutions are important 

supervisory tools to address the operational and legal complexity of these 

firms on an ongoing basis, as well as to implement the new orderly liquidation 

authority. Last fall, the Federal Reserve Board and the FDIC approved a final rule 

that requires bank holding companies with total consolidated assets of $50 billion 

or more and nonbank financial companies designated by the Council to develop, 

maintain, and periodically submit resolution plans, also known as “living wills.” 

The FDIC also issued another rule requiring FDIC-insured depository institutions 

with assets of $50 billion or more to file resolution plans. Taken together, these 

resolution plan requirements will improve efficiencies, risk management, and 

contingency planning. The Council recommends that firms use these plans 

to reduce organizational complexity to facilitate orderly resolution under the 

bankruptcy code. 

Bolster Resilience to Interest Rate Shifts 

While the ongoing environment of low interest rates supports the economic 

recovery, it can also pose particular challenges for financial institutions 

by compressing net interest margins and inducing losses on products with 

guaranteed returns, leading such institutions to pursue riskier investment 
Annual Report Recommendations 15

strategies in an effort to “reach for yield.” Often, such strategies only show their 

negative consequences when a shift occurs in interest rates or credit conditions. 

Banking regulators and the NCUA, working with the Federal Financial 

Institutions Examination Council (FFIEC), released an advisory on Interest 

Rate Risk Management in January 2010 and provided additional clarification 

on this advisory through the issuance of an FAQ in January 2012. This guidance 

recommends stress testing for: (1) instantaneous and significant changes in the 

level of interest rates; (2) substantial changes in rates over time; (3) changes in 

the relationships among key market rates; and (4) changes in the slope and the 

shape of the yield curve. The NCUA also issued a final rule in January 2012 aimed 

at mitigating interest rate risk in credit unions.

The Council recommends that regulatory agencies and private sector risk 

managers continue their scrutiny of how potential changes in interest rates could 

adversely affect the risk profiles of financial firms and recommends using extreme 

but plausible interest rate scenarios in stress testing. 

Maintain Discipline in Complex Trading Strategies, Underwriting, and New 

Financial Products

Events in the past year, including the publicly announced trading loss at 

JPMorgan Chase, demonstrate the importance of robust risk management 

when addressing complex trading strategies, illiquid positions, or concentrated 

exposures to areas of heightened risk. Such risk-management practices include: 

strong and clear lines of authority, reporting, and oversight; rigorous and 

ongoing validation of models used to design, execute, and control trading 

strategies; a formal process for changes to approved models; appropriate risk 

limits and metrics; and strong capital buffers. The Council recommends that 

financial institutions’ senior management establish, and directors approve, 

strong risk-management and reporting structures to help ensure that risks are 

assessed independently and at appropriately senior levels. The Council further 

recommends that institutions establish clear accountability for failures of 

risk management. 

While these examples highlight the importance of risk management in 

trading strategies, similar dynamics operate in maintaining disciplined credit 

underwriting standards and in vetting emerging financial products. In its 2011 

Report, the Council noted the importance of maintaining discipline in credit 

underwriting standards and responding appropriately when there are signs 

that loan terms may allow borrowers to take on excessive risk. The 2011 Report 

also highlighted leveraged lending as an area for continued monitoring. While 

there was a pull-back in leveraged lending during the crisis, volumes have since 

increased while underwriting practices have deteriorated. In response to these 

trends, the federal banking agencies in March 2012 issued for comment revised 

and strengthened supervisory guidance to govern leveraged transactions financed 

by banks. The Council recommends that oversight of all of these activities 

continue to form an ongoing focus of supervisors’ efforts and the Council’s 

monitoring of the financial system. 
16 2012 FSOC // Annual Report

High-Speed Trading 

High-speed trading activities, combined with automated mechanisms for the 

generation, transmission, and matching of orders, represent technological 

developments that require particular attention. Speed and automation confer 

important advantages to financial markets. However, potential operational, credit, 

transmission, and other risks require careful monitoring. This is particularly 

true for markets that have limited experience with high-speed and algorithmic 

trading or where regulatory circuit breakers are not in place. In its 2011 Annual 

Report, the Council stressed the importance of keeping pace with competitive 

and technological developments in financial markets. The SEC and CFTC have 

taken a number of steps to address potential risks, such as facilitating improved 

audit trails for surveillance use by regulatory authorities, and requiring risk 

controls that pause or halt trading in securities and futures markets, including a 

new “limit up-limit down” for equity securities (described further in Section 6). 

For example, in July 2012, the SEC adopted a rule requiring the self-regulatory 

organizations (SROs) to develop a plan to create a consolidated audit trail that 

would provide for a centralized order tracking system—capturing customer 

and order event information for orders in exchange-listed equities and equity 

options, across all markets, from the time of order inception, through routing, 

cancellation, modification, or execution. This single tracking system would 

enable regulators to monitor trading that is widely dispersed across a variety of 

market centers. The Council supports these efforts by the two Commissions. More 

generally, the Council recognizes that acceleration in the speed and automation 

of trade execution requires a parallel acceleration in trading risk management 

and controls. The Council recommends that the CFTC and SEC consider error 

control and risk-management standards for exchanges, clearing firms, and other 

market participants that are relevant for a high-speed trading environment. 

The Council also recommends that the CFTC and SEC continue to track 

developments in current and evolving market structure and analyze the need for 

policy responses when appropriate.

Issues Related to Cybersecurity

The quickly evolving cyber threat environment requires strengthening the 

ongoing collaboration and coordination among financial regulators and private 

entities in the financial sector. The Council recommends continued engagement 

by financial regulators with both public and private sector organizations to 

identify and respond to emerging cyber threats against the financial system. 

The development of mechanisms for sharing information related to cyber 

threats and vulnerabilities should continue to be explored. Regulators should 

continue to take steps to help ensure that information security standards for 

financial institutions are appropriate to the current threat environment, and that 

examinations assess institutions’ performance against those standards. 

3.3 Housing Finance Reforms

Reforms to the Housing Finance System

The U.S. housing finance system has required extraordinary federal government 

support over the past several years. Since September 2008, Freddie Mac and 

Fannie Mae (the government-sponsored enterprises, or GSEs) have been in 
Annual Report Recommendations 17

conservatorship under FHFA. Even today, nearly four years later, approximately 

90 percent of newly issued mortgages carry some form of government support, 

and the market continues to lack sufficient private capital to back residential 

mortgage credit risk.

During the past year, certain member agencies of the Council worked on 

a framework for housing reform that facilitates increased private sector 

involvement, while protecting consumers from abuses and reducing taxpayer 

exposures. In early 2012, FHFA released a Strategic Plan for the GSEs to develop 

approaches to mortgage finance infrastructure that could support any potential 

path towards broader housing reform going forward. The Strategic Plan is 

designed to reduce the GSEs’ risk profile and to increase incentives for the private 

sector to absorb mortgage credit risk through improved pricing and enhanced 

risk sharing. At the same time, it preserves a role for the GSEs in mitigating credit 

losses from the legacy book and providing foreclosure alternatives to borrowers. 

In addition, the CFPB is working toward implementing important Dodd-Frank 

Act rules to help ensure that lenders make a reasonable determination, based 

on verified information, that a consumer has the ability to repay a loan. Such 

provisions can help protect consumers from many of the abuses that led up to the 

crisis and can improve transparency and confidence in the mortgage markets. 

Member agencies of the Council are also working to promote more efficient 

markets for residential mortgage-backed securities (RMBS). In particular, the 

SEC continues to consider appropriate disclosure rules for RMBS, forming part 

of its Regulation AB, which will provide private market participants with more 

transparent information about the assets underlying RMBS. Enhanced clarity 

and guidelines for asset-backed securities, including securitization of residential 

mortgages, is also the goal of work by five Council member agencies, along with 

the U.S. Department of Housing and Urban Development (HUD), on the DoddFrank Act’s risk retention rule.

All of these efforts are important near-term steps to encourage private capital 

to take on additional mortgage credit risk. Nonetheless, additional certainty is 

necessary about the future of housing finance infrastructure and related policy 

issues to further promote the return of private capital. In particular, there do 

not yet exist broadly agreed-upon standards to characterize the quality and 

consistency of mortgage underwriting. Such standards are necessary to support 

the valuation and liquidity of mortgage-backed instruments. There continue to 

be non-uniform foreclosure practices across different states. And there remains 

uncertainty about the legal liability of a mortgage securitizer should a loan fail 

to conform to representations and warranties that were made about specific 

loan characteristics. 

Treasury and HUD, in their joint white paper on longer-term housing 

finance reform released in February 2011, put forth a range of options for the 

government’s role in a privatized system of housing finance. Treasury continues to 

evaluate these options and continues to pursue working with Congress on these 

issues to support a safer and more robust long-term housing finance system.
18 2012 FSOC // Annual Report

The Council recommends continued work to develop a long-term housing 

finance reform framework that supports the central role of private capital and 

the emphasis on consumer and investor protections in any future housing finance 

system. It is critical for the Council members, HUD, and Congress to continue 

their work to develop standards and best practices. In addressing these issues, 

Council members should be mindful of the important role of housing in the 

economy, the nascent recovery, and household finances and act to balance these 

concerns. As the Council members, HUD, and Congress continue their work to 

establish a new and lasting system for housing finance, it is critical to address the 

weaknesses that became evident in the recent housing crisis.

Mortgage Servicing Standards and Servicer Compensation Reform

The Council continues to focus on the need for national mortgage servicing 

standards and servicer compensation reform to strengthen confidence in the 

mortgage market. The lack of clear servicing standards in the period leading up 

to the housing crisis led to problems in assisting borrowers to avoid foreclosure, 

inappropriate servicing practices, and additional losses for investors. 

In early 2011, the federal prudential banking regulators, along with HUD, FHFA, 

and Treasury, formed an interagency working group to address the need for 

fair, clear, and uniform national servicing standards. This followed an earlier 

review by the Federal Reserve, OCC, and FDIC of major servicers that resulted 

in supervisory consent orders that are now being implemented by the largest 

mortgage servicers. Also in April 2011, FHFA announced the Servicing Alignment 

Initiative for Fannie Mae and Freddie Mac, which produced a consistent set of 

protocols for servicing mortgages from the onset of delinquency. In February 

2012, the federal government (led by the Department of Justice, together with 

Treasury and HUD) and 49 states reached a $25 billion settlement with the 

nation’s five largest mortgage servicers to address mortgage loan servicing and 

foreclosure abuses. The CFPB joined the interagency working group in July 2011, 

and in April 2012 provided a public outline of its plans for mortgage servicing 

regulations, with formal rules expected to be proposed for comment this summer. 

In addition, in September 2011, the Joint Mortgage Servicing Compensation 

Initiative, launched by FHFA, released a discussion document seeking comments 

on two alternative servicing compensation structures for servicing single-family 

mortgages. The current structure of mortgage servicing compensation could 

have contributed to an underinvestment in servicing capacity and greater 

concentration in the mortgage servicing industry. One proposal would establish a 

reserve account within the current compensation structure that could be used to 

increase servicing capacity in times of stress. The other proposal would create a 

new fee-for-service compensation structure to better align incentives and reduce 

the capital intensity of mortgage servicing assets. 

Mortgage servicing standards can contribute to long-term servicing improvements 

for all borrowers and other participants in the mortgage market. The Council 

recommends that the FHFA, HUD, CFPB, and the other agencies, as necessary, 

develop comprehensive mortgage servicing standards that require consistent 

and transparent processes for consumers and promote efficient alternatives to 
Annual Report Recommendations 19

foreclosure where appropriate. In addition, the Council recommends continued 

efforts to implement compensation structures that align the incentives of 

mortgage servicing with those of borrowers and other participants in the 

mortgage market. 

3.4 Progress on Implementation and Coordination of Financial Reform 

The Dodd-Frank Act

In the two years since the Dodd-Frank Act became law, members of the Council 

and their agencies have proposed and finalized a substantial number of rules 

implementing provisions of the Act, and they continue to work on additional rules 

in a coordinated manner. The reforms in the Dodd-Frank Act strengthen the 

resilience of the financial system and provide a clear agenda for the regulatory 

community to address vulnerabilities exposed in the recent crisis. As described 

in Section 6, the Dodd-Frank Act establishes new protections for financial 

consumers and investors. It improves financial markets through designation of 

and enhanced risk-management standards for systemically important financial 

market utilities. It provides for private fund adviser registration and reporting 

and imposes constraints on risk as well as transparency requirements for 

derivatives markets. In conjunction with international agreements on consistent 

global prudential standards, the Dodd-Frank Act will require financial firms to 

operate with larger capital and liquidity buffers and better risk controls, and it 

requires firms to submit resolution plans to the FDIC, Federal Reserve, and the 

Council. Finally, the Dodd-Frank Act provides important new authority to resolve 

a large, complex financial institution in an orderly manner. 

Finalizing the rulemakings under the Dodd-Frank Act and implementing the 

required changes effectively will require close coordination among the regulatory 

community and open dialogue with the public and industry. To meet the 

challenges of designing and enforcing these new rules, the resources dedicated 

to financial oversight must increase. Regulatory agencies must have sufficient 

resources to attract and retain talented individuals, acquire needed data, develop 

the requisite analytic capabilities, and invest in systems to monitor market activity 

and enforce the new rules. The Council recommends complete and expeditious 

implementation of the Dodd-Frank Act, along with the provision of the resources 

needed to accomplish this essential task. 

International Coordination

In its 2011 Annual Report, the Council stressed the importance of international 

financial regulatory coordination. Financial markets are global in scope, while 

regulation proceeds at the national level. To promote a level global playing field 

and to diminish the risk of having capital flow to the jurisdiction with the least 

restrictive regulatory regime, it is essential to have internationally strong and 

consistent regulations that form a coherent and effective whole, while allowing an 

appropriate degree of autonomy for individual countries to accommodate their 

own particular needs. It is particularly important for international regulators to 

consistently apply strong, well-calibrated standards for the critical areas of capital, 

liquidity, derivatives, central clearing, and failure resolution.
20 2012 FSOC // Annual Report

Considerable progress has been made over the past year on coordinating 

regulatory principles internationally. National regulators continue to implement 

the Basel III standards; and in June 2012, the Federal Reserve, OCC, and FDIC 

jointly issued the finalized market risk capital rules, as well as three notices of 

proposed rulemaking (NPR), that would replace the agencies’ current capital 

requirements with requirements consistent with aspects of Basel II, Basel 2.5 

and Basel III. The translation of these international agreements to domestic 

regulation is a key step in the regulatory reform efforts and is critical for 

enhancing the resiliency of regulated financial institutions and the financial 

system more generally. 

Furthermore, the Basel Committee established the assessment methodology and 

a capital surcharge framework for globally systemically important banks (G-SIBs) 

in November 2011 to enhance their loss absorbency capacity and reduce the 

probability of their failure. This methodology comprises five broad categories 

of size, interconnectedness, lack of readily available substitutes for the services 

provided, global (cross-jurisdictional) activity, and complexity. In the same 

month, the Financial Stability Board (FSB) issued the Key Attributes of Effective 

Resolution Regimes for Financial Institutions, which was endorsed by the G-20 

leaders and is intended to provide international standards for national recovery 

and resolution planning regimes. Specifically, it addresses the “too-big-to-fail” 

problem by making it possible to resolve any financial institution in an orderly 

manner without exposing the taxpayer to the risk of loss. 

In addition, the final version of the Principles for Financial Market 

Infrastructures (PFMI), issued by the Committee on Payment and Settlement 

Systems (CPSS) and the International Organization of Securities Commissions 

(IOSCO), was published in April 2012. The PFMI covers payments systems, 

central counterparties, securities settlement systems, and other financial 

utilities, and provides an updated set of international standards on issues such 

as governance, risk management, financial resources, liquidity, and operational 

robustness. These principles are especially important as the international 

community moves to implement the G-20 commitment to central clearing and 

reporting of OTC derivatives. In insurance, the International Association of 

Insurance Supervisors updated the Insurance Core Principles in October of 

last year. These principles provide a global framework for the supervision and 

regulation of the insurance sector.

The Council recommends continued international coordination of Basel III 

implementation, with an aim towards consistent and rigorous definitions of 

capital and risk weights across countries. The Council also recommends the 

continued development of international standards and national implementation 

for margin, central clearing, and reporting of OTC derivatives; and that 

supervision and regulation of financial market utilities (FMUs) embody the 

principles articulated in the PFMI. In addition, the Council recommends 

continued efforts to develop strong and internationally consistent procedures 

for the supervision and regulation of global systemically important financial 

institutions, including appropriate capital and liquidity requirements and 

internationally accepted resolution regimes for such institutions. The Council 
Annual Report Recommendations 21

strongly encourages international implementation and enhanced international 

coordination among home and host jurisdictions regarding recovery and 

resolution planning. 

Data Resources and Analytics

The Council recommends that improvement in data standards should be a 

high priority for financial firms as part of their risk-management process and 

for the regulatory community—not just in the United States but globally. The 

development of the Legal Entity Identifier is a valuable first step, one that will 

help to identify precisely the parties to particular financial transactions. It 

will also enable a more accurate and consistent understanding of legal entity 

hierarchies, which is essential for effective counterparty risk management. The 

Council recommends that the Office of Financial Research (OFR) continue to 

work with the member agencies to promote and establish, where necessary, data 

standards for identification of legal entities, financial products, and transactions, 

and to improve the access to and aggregation of data by the regulators. Finally, 

the Council recommends that cross-border exchange of supervisory data among 

supervisors and regulators continue to be facilitated in a manner that safeguards 

the confidentiality and privilege of such information, in order to help provide 

comprehensive oversight of financial institutions with a global reach and improve 

coordination on financial stability.