Its  members include 19 countries and the European Union. Since 2008, the G20 leaders have  met at least annually. The G20 leaders generally have called on their national authorities— along with FSB; standard setting bodies, such as the Basel Committee  and IOSCO; and other bodies—to convert their broad financial reform  commitments into more specific standards (including policies, principles,  practices, or guidance). United States Has Played an Active Role in International Financial Regulatory Reforms but Has Faced Challenges

The United States has been active in the international financial regulatory  reforms intended to address regulatory and other weaknesses revealed  by the 2007-2009 financial crisis. According to  Treasury officials, during the acute phase of the financial crisis in 2008,  the United States proposed elevating the G20 forum from the traditional  level of finance ministers and central banks to the level of heads of state  or government. To that end, the G20 leaders, including the U.S.  President, held a summit for the first time in Washington, D.C., in  November 2008. Among other things, the G20 leaders established principles for financial  regulatory reform and developed a list of initial reform commitments. For example, in the lead-up to the London G20 summit in  2009, the United States publicly supported increasing capital  requirements for banks, creating FSB, and expanding the scope of  regulation to systemically important institutions and markets. As members of FSB and international standard setting bodies, U.S.  financial regulators and Treasury have been actively involved in  developing many of the international financial standards (including  policies, principles, practices, or guidance) that implement the G20  financial reform commitments. United States and Other Jurisdictions Report Having Made Progress Implementing International Reforms, but Most Reforms Have Not Been Fully Implemented

The United States and other jurisdictions report having made progress  implementing the G20’s international financial reforms, but most reforms  have not been implemented by all jurisdictions. In collaboration with standard setting  bodies, FSB established a framework in 2011 to monitor and report on  the implementation of the G20 financial reform commitments, including   In addition, FSB and IMF  the related international financial standards.have programs to assess members’ compliance with international  financial standards and foster a level playing field. FSB  selects the areas based on the importance of their consistent and  comprehensive implementation to global financial stability. Jurisdictional Differences and Other Factors May Create Implementation Challenges for the G20 Financial Reforms

As recognized by regulators, industry associations, and academics, a  broad range of legal, economic, and political factors can create  implementation challenges for jurisdictions. Finally, domestic regulators may apply or interpret the standards  differently from other domestic regulators. For example, financial markets or services could migrate to less-regulated  or unregulated jurisdictions. Our report summarizes the international financial reform process, drawing  a clear line between the development of international standards under the  auspices of FSB or standard-setting bodies (or both) and the voluntary  adoption of rules or policies consistent with these standards by  jurisdictions, such as through legislation or regulations. To address the first objective, we reviewed and analyzed declarations,  communiqués, and other statements issued by the G20 leaders about  their agreed-to commitments to reform financial regulations. In addition,  we reviewed and analyzed reports or other documents issued since 2008  by various international bodies—including the Financial Stability Board  (FSB), International Monetary Fund (IMF), Basel Committee on Banking  Supervision, International Organization of Securities Commissions,  Committee on Payment and Settlement Systems, and International  Accounting Standards Board—about their role in implementing the G20  reforms, such as through the development of international financial  standards, or monitoring the implementation status of the G20 reforms at  the international and jurisdictional levels. We reviewed the accuracy of U.S. responses to  questionnaires administered by FSB or a standard setting body that  covered U.S. progress implementing Basel II, 2.5, and III and the G20’s  OTC derivatives reforms, including the requirements for OTC derivatives  transactions to be centrally cleared, traded on organized trading  platforms, and reported to trade repositories, and we generally found the  U.S. responses were accurate. We also asked audit offices of 14  jurisdictions that are members of FSB—and which are participating in an  International Organization of Supreme Audit Institutions working group on  financial reforms—to do the same for their regulators’ responses. Finally,  as identified above, we interviewed officials representing U.S. regulators,  FSB, IMF, industry associations, and academics about challenges or  concerns that uneven implementation of the G20 financial reforms across  jurisdictions could present. Appendix IV: Implementation Status of the Group of Twenty’s Reform Commitments Reported by Select Member Jurisdictions of the Financial Stability Board

The Financial Stability Board (FSB) is responsible for coordinating the  implementation of the Group of Twenty’s (G20) financial reform  commitments and reporting implementation progress to the G20.
Why GAO Did This Study

Cross-border interconnections in the financial markets and other factors helped spread disruptions during the 2007-2009 financial crisis and increased systemic risk. In response to the crisis, the G20 positioned itself as the main international forum for reforming financial regulations. In 2008, the G20 leaders committed to implement a broad range of reforms designed to strengthen financial markets and regulatory regimes.
In light of the G20's reform efforts and the potential implications of the reforms for the United States, GAO examined (1) the U.S. role in the international financial reform efforts and (2) the implementation status of recent international financial reforms in the United States relative to other countries and challenges that uneven implementation may present. To address these issues, GAO reviewed and analyzed reports or other documents issued by the G20, FSB, IMF, and other international bodies since 2008 and studies on the G20 reforms by academics, industry associations, and others. GAO reviewed the accuracy of U.S. responses to select questionnaires administered by FSB and asked other countries' national audit offices to do the same for their regulators' responses. Finally, GAO interviewed officials representing U.S. agencies, FSB Secretariat, IMF, industry associations, and academics.
GAO is not making any recommendations in this report.

What GAO Found

The United States has played an active role in helping to reform financial regulations to address weaknesses revealed by the 2007-2009 financial crisis. According to Treasury officials, during the acute phase of the crisis, the United States proposed elevating the Group of Twenty (G20) forum—representing 19 countries (including the United States) and the European Union—from the level of finance ministers and central banks to the level of heads of state or government. In 2008, the U.S. President and other G20 leaders held their first summit in Washington, D.C., in part to establish a framework to help prevent financial crises. The G20 leaders established principles for financial regulatory reform and agreed on a series of financial reforms, which they have revised or expanded at subsequent summits. To implement their reforms, the G20 leaders generally have called on their national authorities—finance ministries, central banks, and regulators—and international bodies, including the Financial Stability Board (FSB) and standard setting bodies, such as the Basel Committee on Banking Supervision. In 2009, the G20 leaders established FSB to coordinate and promote implementation of the financial reforms, which typically involves standard setting bodies developing international standards (e.g., principles, policies, or guidance) and then jurisdictions voluntarily adopting rules or policies consistent with these standards, such as through legislation or regulations. As members of FSB and international standard setting bodies, U.S. federal authorities have actively helped formulate the standards that implement the G20 reforms and cover, among other things, banking, derivatives, and hedge funds.
The United States and other jurisdictions have made progress implementing many of the G20 financial reform commitments, but most reforms have not been fully implemented by all jurisdictions. FSB and standard setting bodies collaboratively monitor and report on the implementation status of the G20 reforms. According to recent progress reports, the United States, like most FSB members, has implemented or is implementing G20 reforms that FSB designated as a priority based on their importance to global financial stability—including higher capital standards, derivatives reforms, compensation practices, policy measures for systemically important financial institutions, and regimes for resolving failing financial institutions. However, implementation varies among jurisdictions. For example, according to a September 2013 progress report, only the United States reported having rules at least partly in effect to implement the G20 reforms requiring derivatives to be centrally cleared, traded on organized trading platforms, and reported to trade repositories, while many other jurisdictions reported having rules in effect for only some of these reforms or adopted or proposed legislation to implement the reforms. To promote and monitor the adoption of the international standards by each jurisdiction, such as to ensure a level playing field, FSB, the International Monetary Fund (IMF), and the Basel Committee have established programs to review and assess their members' implementation of the standards. At the same time, legal, economic, and political factors can create implementation challenges for jurisdictions. For example, regulators in different jurisdictions may apply or interpret the standards differently. However, in some cases, inconsistent implementation of international financial standards could lead to certain activities migrating to less regulated jurisdictions (regulatory arbitrage) or adversely affect financial stability.