Global Organizations
The Bank of International Settlements (BIS) Basel Committee Issues a Paper, "Quantum Computing and the Financial System: Opportunities and Risks."
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The Basel Committee issued a paper, "Quantum Computing and the Financial System: Opportunities and Risks". In the future, quantum computers may have a profound impact on the financial system by providing faster, more efficient solutions, with the potential to solve complex problems of interest in the field of economics and finance. Quantum simulation algorithms can be leveraged in stress testing and macroeconomic analysis, and quantum optimization can be used in asset pricing. However, the advent of quantum computers introduces a potential threat to financial stability, especially via the ability to breach most widely used cryptographic algorithms.
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The Basel Committee issued a Press Release on the Global Basel III implementation progress, updating members on the adoption status of the Basel III framework in member jurisdictions as of 9/30/2024, covering final elements of Basel III published by the Committee in December, 2017. Many jurisdictions published final rules for revised credit risk, market risk, and operational risk standards as well as the capital output floor. Due to this progress, over 2/3 of member jurisdictions have published final rules for all Basel III final elements, noting that the series of shocks to financial markets over the past few years highlight the importance of having a global regulatory framework.
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The FSB's regional consultative group (RCG) for the Americas recently met to discuss macroprudential frameworks, climate risks, digital payments and operational resilience. For macroprudential frameworks, analyzed vulnerabilities being monitored including heightened volatility and asset repricing risks. For climate risks, severe weather events are increasing in frequency and intensity across the region, which affects the availability and affordability of climate and natural catastrophe insurance. For digital payments, the group discussed issues and challenges in fostering digital innovation in payments. Recent operational incidents (e.g. CrowdStrike) show 3rd party provider reliance risk.
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The Basel Committee has outlined key principles to manage the failure of financial institutions (principally Globally-Systemically Important Banks, or G-SIBs) to prevent taxpayer losses and maintain critical economic functions. The TLAC standard ensures that a G-SIB has sufficient capital, debt to absorb losses, the ability to recapitalize vital operations, and to fund restructuring during a resolution. TLAC is divided into external TLAC (issued to 3rd parties, used in resolution) and internal TLAC (iTLAC), which allows subsidiary losses to be passed to a resolution entity. Unallocated TLAC (uTLAC) is surplus liquid resources held by the resolution entity.
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The Basel Committee issued a working paper on introducing Language Models (CB-LMs) to discuss the performance of "domain-adapted encoder-only models" over more conventional large language models (LLMs) based on scenario complexity, as well as the challenges (confidentiality, transparency, replicability, and cost). Economists are increasingly applying natural language processing (NLP) techniques to analyze monetary policy communications, which offer valuable insights, but often rely on language models trained on collections of general texts. This limitation may hinder the models' ability to fully capture nuances unique to central banking and monetary economics.
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The Basel Committee met virtually in September, 2024 to take stock of recent market developments and risks to the global banking system including discussing a range of policy and supervisory initiatives. The Committee approved the results of the end-2023 assessment exercise for G-SIBs, with the results submitted to the Financial Stability Board (FSB) prior to publishing the 2024 list of global systemically important banks (G-SIBs). The Committee discussed progress on work to strengthen supervisory effectiveness by developing a suite of practical tools to support supervisors. In addition, they continued to review the consultation proposing Pillar 3 disclosure framework for climate-related financial risk.
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Overview: This document sets out 38 Principles of securities regulation, which are based upon three objectives: protecting investors; ensuring that markets are fair, efficient and transparent; and reducing systemic risk.
C. Principles for the Enforcement of Securities Regulation
- 10: The Regulator should have comprehensive inspection, investigation and surveillance powers.
- 11: The Regulator should have comprehensive enforcement powers.
- 12: The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program.
H. Principles for Market Intermediaries
- 31: Market intermediaries should be required to establish an internal function that delivers compliance with standards for internal organization and operational conduct, with the aim of protecting the interests of clients and their assets and ensuring proper management of risk, through which management of the intermediary accepts primary responsibility for these matters.
I. Principles for Secondary and Other Markets
- 33: The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight.
- 34: There should be ongoing regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants.
- 35: Regulation should promote transparency of trading.
- 36: Regulation should be designed to detect and deter manipulation and other unfair trading practices.
- 37: Regulation should aim to ensure the proper management of large exposures, default risk and market disruption.