IMF warns countries against roll back of reforms

The IMF on Wednesday warned countries against rolling back reforms which could make the global financial system "less safe" and "jeopardise" stability, saying reform efforts must continue to be coordinated internationally.

The remarks by the global financial body came during the release of its report 'Regulatory Reform: 10 years after the global financial crisis: Looking back, looking forward'.

"Financial sector reform efforts must continue to be coordinated internationally. An evaluation of the broader impact of the reforms is advisable 10 years after the global financial crisis, and any unintended consequences of the reforms should be assessed and addressed," it said.

In its report, the International Monetary Fund (IMF) said it supports a proportionate approach to regulation and supervision, whereby the complexity of technical standards and supervisory efforts and scrutiny are assigned in proportion to an institution's systemic importance and a jurisdiction's global importance.

"A rollback of reforms could spawn opportunities for regulatory arbitrage and lead to a race to the bottom in regulation and supervision. This could make the global financial system less safe and could jeopardise financial stability," the IMF warned.

It said that 10 years after the onset of the global financial crisis, progress is clear, but the reform agenda must be completed.

The broad agenda set by the international community has given rise to new international standards, guidance and best practices, the IMF said.

Implementation of measures for capital, liquidity and systemic oversight has been successful, and vulnerabilities related to derivatives and wholesale funding have been reduced, it said.

Observing that the development of fintech has been rapid, it said despite its potential benefits, the knowledge of its potential risks and how they might play out is still developing.

Increased cybersecurity risks pose challenges for financial institutions, financial infrastructure and supervisors, the IMF said.

"These developments should act as a reminder that the financial system is permanently evolving, and regulators and supervisors must remain vigilant to this evolution and ready to act if needed," the report said.

Asserting that regulators must avoid complacency, the IMF said no financial regulatory framework can or should aim to reduce the probability of crisis to zero, so regulators should remain humble.

Noting that the current regulatory reform agenda was designed to compensate for weaknesses that led to the global financial crisis, and the measures taken have contributed to a less leveraged, more liquid, and better supervised financial system, the IMF said however, risks tend to rise during good times, such as the current period of low interest rates and subdued volatility, and those risks can always migrate to new areas.

Amidst escalating global trade tensions in the wake of US policies under President Donald Trump, IMF chief Christine Lagarde Monday urged countries to work together to build a global trade system that is stronger, fairer and fit for the future.