FSB Consults on Modernization Principles

This week, the Financial Stability Board (FSB) published a consultation proposing eight high-level principles to guide the modernization of regulatory and supervisory frameworks, aiming to make them more effective, efficient, risk-focused, coherent, and forward-looking while preserving financial resilience.

The principles call on financial authorities to treat modernization as an “ongoing practice” rather than a periodic overhaul. They encourage greater proportionality based on factors such as an institution’s size, complexity, business model, and risk profile, alongside a sharper focus on material risks. Supervisory frameworks should also be forward-looking, risk-based, transparent, and accountable, with technology used to “complement, not replace” supervisory judgment.

On regulation and policymaking, the FSB calls for clearer and more consistent frameworks, better coordination among domestic authorities, and greater consideration of the costs, benefits, and cumulative effects of significant regulatory and supervisory changes. Reporting requirements should also be necessary and proportionate, with authorities seeking to reduce duplicative information requests and improve data sharing.

The consultation draws on 126 modernization initiatives reported by 24 jurisdictions and three international standard-setting bodies. The stocktake points to a common direction of travel: more targeted supervision, greater use of supervisory judgment and technology, more proportionate requirements, and less unnecessary complexity. It also identified potential risks, including oversimplification, under-calibration of prudential requirements, fragmentation, and perceptions that modernization amounts to a regulatory “race to the bottom.”

The FSB stresses that the principles “do not presume a specific outcome” or call for greater or lesser regulatory stringency. Authorities would retain discretion to apply them according to their legal frameworks and circumstances, with the common objective of keeping regulation and supervision responsive to changing risks, technologies, and market conditions.