To conclude this section, I’ll note that my colleagues in the Research Group at the New York Fed recently hosted a conference entitled “Supervising Large Complex Financial Institutions: Defining Objectives and Measuring Effectiveness.”1 This conference brought together academic economists, policymakers and senior supervisors to talk about the goals and objectives of supervision and different approaches to assessing supervisory success and effectiveness. While this conference focused on the largest institutions, the main themes apply more broadly to the objectives of supervision. One important theme of the conference was the conceptual distinction between regulation and supervision. Both are designed to help the Fed achieve its objectives and they are mutually reinforcing, complementary efforts. Broadly speaking, regulation involves writing the rules that govern what financial institutions can and cannot do. Supervision focuses on monitoring, oversight and enforcing compliance with law, and supervisory expectations for firms’ governance, internal processes and controls, and financial condition. Why is supervision necessary? I think it is useful to take a step back and talk about what motivates the need for public sector intervention in the form of ongoing supervision. Why doesn’t the market provide sufficient discipline on financial intermediaries as is presumed for some other industries? In the language of an economist, what are the frictions that lead to a market failure so that financial  1  2  Supervising Large, Complex Financial Institutions: Defining Objectives and Measuring Effectiveness. BIS central bankers’ speeches  institutions, left to their own incentives and choices, won’t necessarily make optimal choices from a societal perspective?

While we have seen about 420 Statements on the Global Index, only a small number are from buy-side market participants. At the global level, there is acknowledgement that more can be done to demonstrate to the buy-side community the benefits of the Code, and to articulate more clearly the benefits of adherence. For example, the Code helps the buy-side understand the practices that your counterparties abide by, and helps to inform what you should expect from the relationship, and in turn, who you may want to transact with. The Code also provides a useful opportunity for the buy-side to benchmark your internal processes against global standards of best practices. The GFXC has launched a group that will focus on buy-side outreach to create greater awareness and adoption of the Code. This will not be an effort bound by time, but will be a journey and one which we are committed to. In Singapore, we have seen strong support from buy-side associations and we will continue to encourage Singapore-based buy-side market participants to issue Statements to demonstrate adherence. 12 Second, to continue the existing work on cover and deal which arose in response to the feedback received from the consultation on “last look” practices, and to strengthen FX disclosures. On this front, further work will be done to understand the role that disclosures play in informing market participants how their trade requests are handled in ‘cover and deal’ arrangements.