BEIJING
BRUSSELS
CHICAGO
DALLAS
FRANKFURT
GENEVA
HONG KONG
LONDON
LOS ANGELES
The Role and Functioning
of the G20
Daniel M. Price
dprice@sidley.com
Sidley Austin LLP
NEW YORK
SAN FRANCISCO
SHANGHAI
SINGAPORE
TOKYO
WASHINGTON, D.C.
Introduction to the G20
• Originally founded in 1999 in response to the Asian
financial crises as a forum for finance ministers to
coordinate their actions
• Members represent 85% of global GDP, 80% of world
trade, and two-thirds of the world’s population
– Argentina, Australia, Brazil, Canada, China, France, Germany,
India, Indonesia, Italy, Japan, South Korea, Mexico, Russia,
Saudi Arabia, South Africa, Turkey, the United Kingdom, the
United States, and the European Union.
• Elevated to a Leaders’ Summit by President Bush in 2008
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Introduction to the G20
• Leaders’ Summits
– Washington (November 2008)
– London (April 2009)
– Pittsburgh (October 2009)
• The G20 has become “the premier forum for our
international economic cooperation.”
[Pittsburgh Leaders’ Statement]
• Future Summits
– Canada (June 2010)
– Korea (November 2010)
– France (2011)
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G20 Goals
• Coordinating global financial regulatory reform
• Avoiding trade-contracting protectionist measures
and encouraging the free and open markets
• Reforming the principal international financial
institutions to expand the role for developing
countries
• Developing a global framework “to generate
strong, sustainable and balanced global growth”
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Accounting Standards and the G20
• Three main goals:
– Single set of high-quality global accounting
standards
– Coordinate and develop accounting standards for
particularly sensitive issues (e.g., illiquid assets, fair
value accounting)
– Improve governance of the IASB
• Increasing prominence in successive G20
• Role of the Global Public Policy Committee
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Accounting Standards - Washington
• In the Leaders’ Statement, the G20 leaders tasked
their Finance Ministers with “[r]eviewing and
aligning global accounting standards, particularly
for complex securities in times of stress.”
[Para. 10]
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Accounting Standards - Washington
• In the Action Plan, the G20 encouraged “[t]he key
global accounting standards bodies” to:
– Create a single high-quality global standard
– Enhance guidance on the valuation and disclosure of
securities, illiquid products, off-balance sheet
vehicles, and complex financial instruments
– Reform the governance of the IASB
• Review its membership
• Ensure transparency
• Improve accountability
• Develop “an appropriate relationship between this
independent body and the relevant authorities.”
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Accounting Standards - London
• In the Leaders’ Statement, the G20 leaders:
– “call[ed] on the accounting standard setters to work
urgently with supervisors and regulators to improve
standards on valuation and provisioning and achieve
a single set of high-quality global accounting
standards” [Para. 15]
• In the Declaration on Strengthening the Financial
System, the G20:
– Reaffirmed fair value accounting
– Welcomed FSF Recommendations on procyclicality
– Called for certain reforms by the end of 2009
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Accounting Standards - London
• In the Declaration, the G20 committed to act by
the end of 2009 to:
– Reduce the complexity of accounting for financial
instruments
– Strengthen recognition of loan-loss provisions
– Improve standards for provisioning, off-balance
sheet exposures and valuation uncertainty
– Achieve clarity and consistency in the application of
valuation standards internationally
– Make significant progress towards a single set of
high quality global accounting standards
– Improve involvement of stakeholders, including
prudential regulators and emerging markets,
through the IASB’s constitutional review.
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Accounting Standards - Pittsburgh
• In the Leaders’ Statement, the G20 leaders
declared:
– “We call on our international accounting bodies to
redouble their efforts to achieve a single set of high
quality, global accounting standards within the
context of their independent standard setting
process, and complete their convergence project by
June 2011. The International Accounting Standards
Board’s (IASB) institutional framework should
further enhance the involvement of various
stakeholders.” [Para. 14]
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Accounting Standards - Pittsburgh
• FSB Progress Report
– Highlighted divergences between the IASB and FASB
and called for rapid convergence
• Identified potential points of divergence between
the IASB and FASB
– Improving and simplifying financial instruments
accounting
– Provisioning and impairment
– Off-balance sheet standards
– Netting/offsetting of assets and liabilities for
purposes of calculating an international leverage
ratio
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Accounting Standards - Pittsburgh
• In its report to the G20, the FSB recognized
progress in the development of standards,
including:
– Fair value in illiquid markets
– Off-balance sheet activities
– Reducing complexity of accounting for financial
instruments
– Procyclicality – provisioning and valuation
– Dialogue with prudential supervisors, regulators,
and other stakeholders
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Accounting Standards - Pittsburgh
• In its Proposed Charter, the FSB declared that:
– “The FSB will promote and help coordinate the
alignment of the activities of the SSBs to address
any overlaps or gaps and clarify demarcations in
light of changes in national and regional regulatory
structures relating to prudential and systemic risk,
market integrity and investor and consumer
protection, infrastructure, as well as accounting and
auditing.” [Article 2]
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