Principles for Regulatory Modernization

In remarks delivered last week, Michelle Bowman, Vice Chair for Supervision at the US Federal Reserve Board and Chair of the Financial Stability Board’s Standing Committee on Supervisory and Regulatory Cooperation (SRC), outlined principles the SRC has developed to guide efforts to modernize financial regulation and supervision globally.

“The financial system is constantly evolving, and our regulatory and supervisory framework must keep pace,” Bowman said. “We must ensure that our framework functions effectively and efficiently, preserves financial stability and bank safety and soundness, and promotes sustainable economic growth.”

Bowman set out four guiding principles for modernization efforts: prioritizing material financial risks; tailoring regulation to each institution’s risk profile; enhancing transparency and accountability; and ensuring frameworks are forward-looking to accommodate emerging risks and responsible innovation. Looking ahead, Bowman said the FSB would publish a modernization principles report for public consultation in the autumn, to be delivered to the G20 as a “milestone in [its] shared commitment to modernization.”

On technology, Bowman highlighted a consultation report published last month under a second SRC workstream on sound practices for financial institutions adopting AI. Rather than prescribing one-size-fits-all requirements, the report draws on real-world examples of how institutions are already using AI responsibly, offering guidance they can adapt to their own circumstances. The FSB is seeking public comment through July 22.

“Modernization is an evergreen approach to ensuring financial stability — starting with the banking sector,” Bowman concluded. “It is an ongoing commitment to improve, to learn, and to adapt our approach as markets, technology, and risks evolve. By following the principles and examples outlined in my remarks, the FSB can establish a strong foundation for regulatory and supervisory frameworks that learn from the past, address the present, and prepare for the future.”