the imperative of strong corporate governance for financial stability address by dr. alvin hilaire, governor of the central bank of trinidad and tobago launch of financial stability report june 13, 2017 1. the global financial crisis of 2007 / 09 brought into sharp relief the dangers that weak governance in financial institutions can pose for economic stability. it is well known that a major catalyst for the crisis in late 2007 was the subprime mortgage market debacle that rapidly spilled over into more general liquidity and eventual solvency problems in the united states. the contagion effects were virtually instantaneous and quite dramatic — moving from mortgage lenders in the us to other financial firms and then quickly spreading across the globe to usher in a full blown global economic downturn. as intriguing and intertwined as they were, the purely economic and financial components behind the nuclear bomb - type mushrooming of the situation — overleveraging, closely interlinked capital markets etc. — were just part of the problem. it quickly became apparent to most observers that weaknesses in governance of financial institutions played a significant part in actively encouraging or at minimum facilitating behaviors that turned out to be destabilizing. some analysts held the view that the governance framework — including the laws, codes of conduct, regulation and supervision — was deficient and needed to be substantially beefed up ; another school of thought posited that the apparatus itself was basically sound but implementation of established principles was deficient. however one cuts it, the consequences of the financial crisis were vast in terms of lost output, unemployment, financial instability, and bailout costs to taxpayers across the world, and meaningful efforts were subsequently devoted to explicitly strengthening financial sector governance. 2. at the company level, incentive systems can foster practices that progressively sow the seeds for failure unless there is consistent and diligent oversight by boards, shareholders and depositors. broadly speaking, corporate governance refers to “ a set of relationships between a company ’ s management, its board, its shareholders, and other stakeholders … the presence of an effective corporate governance system, within an individual company or group and across an economy as a whole, helps to provide a degree of confidence that is necessary for the proper functioning of a market economy. ” 1 for financial institutions in particular, a solid “ set of relationships ” is crucial given the pervasive role that these institutions play in all facets of an economy and people ’ s lives. also to be taken into account is the growing complication of financial transactions

three different pieces of regulation to offer you an interesting glimpse into the diversity of regulatory action. first, i will turn to the international principles for financial market infrastructures, or pfmi. second, i will take a look at the prospective european regulation on markets in crypto - assets, or mica. and lastly, i will present the eurosystem oversight framework for electronic payment instruments, schemes and arrangements – or pisa for short. so, let me start with the principles for financial market infrastructures, or pfmi. ten years ago, the committee on payment and settlement systems ( cpss ) and the international organization of securities commissions ( iosco ) issued these standards. since then, many – if not most – countries around the world have been implementing them. these principles are intended to enhance the robustness of the infrastructure supporting global finance markets and to improve their ability to withstand financial shocks. the approach is technology - agnostic. consequently, it became evident that systemically important stablecoins should also fall within the scope of the pfmi. as analysis showed, the transfer function of a stablecoin arrangement can be compared with that of other types of payment infrastructures. it is still based on participants, common rules and a transfer of value – neither central nor commercial bank money is involved, but there is a high degree of decentralisation of operations or even governance. hence, the responsible bis committee on payments and market infrastructures1 and the technical committee of iosco decided not to develop new standards for stablecoins. instead, they proposed practical guidance on the interpretation and application of the existing rules for systemically important stablecoin arrangements and the relevant authorities. after a public consultation of the draft report last autumn, the comments are currently being analysed and the final report is being drafted. 2 / 5 bis central bankers'speeches my second example is the regulatory approach pursued by the european commission in the context of its digital finance strategy for the eu. the commission ’ s proposal for a regulation on markets in crypto - assets, called mica, is a new legislative act that focuses on the issuance of stablecoins as well as utility tokens, and, more generally, on the provision of services related to crypto - assets. mica is intended to support innovation and at the same time preserve financial stability and protect investors. thus, it aims to provide a harmonised general framework that will offer legal certainty for the treatment of cryptoassets in