Legal Risks and Good Governance for Central Banks
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Tuesday 18 September
THE CRISIS AND ITS IMPACT
The changing legal environment
René Smits, Professor of Law of Economics and Monetary Union, University of Amsterdam
The global financial crisis has shaken the established model of independent, technocratic central banking. It has also led many jurisdictions to begin an overhaul of their regulatory regime and the legal framework. With new mandates and new roles come new expectations and new risks. In this session, the chairman will give a broad overview of the legal and governance challenges he sees for central banks. He will invite the group to consider how different statutes and legal frameworks can affect the governance of central banks and help them meet emerging challenges. Group discussion will address the broad legal lessons of the crisis and the new risks which central banks face.
What can central bank lawyers learn from the crisis?
Thomas C. Baxter, Jr, General Counsel and Executive Vice President of the Legal Group, Federal Reserve Bank of New York
As markets buckled under the crisis, central banks were forced to adopt highly unusual policy responses - most notably emergency liquidity extensions to troubled financial institutions and the creation of new credit facilities. Typically, these initiatives had to be implemented within an extremely narrow timeframe to boost market confidence and restore a degree of functioning. In many cases, central banks have pushed to the limit their institutional mandate and the scope of the legal powers. In this session, Thomas Baxter, the general counsel of the Federal Reserve Bank of New York, will discuss the Fed's response to a series of market disruptions, in particular the Eurozone crisis, and longer term reforms to both markets and the central bank itself. Group discussion will identify the lessons that other central banks can take from this experience.
How the crisis and new policy responsibilities have changed supervisory liability
Charles Proctor, Partner, Edwards Wildman Palmer
With the policy response to the crisis demanding extraordinary interventions affecting both markets and individual institutions, central banks are likely to find themselves in uncharted waters with respect to the law. Moreover, as transparent and accountable institutions, central banks must be prepared to defend their actions in a judicial setting. The speaker will examine recent cases involving central banks' liability for their actions and omissions, and identify the potential legal tensions that arise of the policy response to the crisis.
Wednesday 19 September
PREPARING FOR NEW POWERS, MEASURES AND RISKS
The impact of changing mandates on central bank governance
Grace Koshie, Chief General Manager and Secretary to the Board, Reserve Bank of India
The past two decades have seen enormous changes in central banks and their practices. How should central banks deal with gaining new responsibilities? How can they fight the loss of powers or independence? At a time of great change in central banks and the business of central banking, the speaker will look at the governance lessons that can be drawn from the crisis and consider the future roles of central bank boards in light of this experience. While arrangements must be robust, they must also have the capacity and flexibility to respond to new challenges. The speaker will draw on the Reserve Bank of India's experience in dealing with the crisis to identify lessons for the sector broadly. In particular, the session will consider challenges such as conflict of goals, information availability, information flow between various departments, and the increasing technical demands central banks have to face.
Central bank law and governance: a comparative analysis
Atilla Arda, Senior Counsel, International Monetary Fund
In this session a series of case studies will explore and compare the Federal Reserve System, the Eurosystem and other central banks' governance systems, including the various acts that expanded their powers. Cross-sectorial analysis will highlight trends and divergences in practice. The speaker, a senior counsel from the International Monetary Fund and former senior counsel from the Dutch central bank, will use this framework to consider the various policy debates about the role and power of the central banks during the financial crisis and its aftermath.
Changed balance sheets: governance and legal implications
Ian Ingram, Former Director Internal Finance, European Central Bank
As central banks responded to the financial crisis, they engaged in new and unusual transactions with a far wider range of counterparties than ever before. They did so on a scale that is virtually without precedent. As a result, the composition and size of balance sheets have changed dramatically, and they have assumed significant financial and reputational risks. Now as they face the challenge of rebuilding economies, central banks must understand the new risks they face in the changed market and policy environment in which they operate. Legal offices must understand the risks these changes have created and how these affect the central bank's governance and statutory framework. Particular attention will be devoted to questions of capital, profits and relations with stakeholders.
Governance of financial market infrastructure: does the central bank have a role?
Ruben Lee, Founder and Managing Director, Oxford Finance Group
The efficiency, safety, and soundness of financial markets depend on the operation of core infrastructure - exchanges, central counterparties and central securities depositories. How these institutions are governed critically affects their performance. Yet, despite their importance, there is little certainty, still less a global consensus, about their governance. This session will consider how securities clearing and settlement institutions both are, and should be, governed, and will examine whether central banks should have a role in their governance.
Thursday 20 September
EMERGING CHALLENGES FOR THE GLOBAL FINANCIAL SYSTEM
Reform of the international financial architecture
Rhoda Weeks-Brown, Deputy General Counsel, IMF
The crisis has seen the IMF return to play a leading role in the oversight of the global financial system and the management of crises. In the wake of the crisis, the IMF has adopted a number of reforms of its lending and regulatory functions, laid out fundamental reforms in its governance structure, and launched an effort to increase its financial resources so as to enhance its ability to help members respond to the crisis Central banks will be affected by the outcome of any reform at the Fund. What are the legal implications of recent reforms within the IMF? What will reform mean for the Articles of Agreement and instruments adopted pursuant to it and what will be the consequences for central banks? This session considers IMF reforms, the financing of the Fund and the role of the IMF in a new international financial architecture.
Supranational supervision structure - the case of Europe
Rosa Lastra, Professor of Law, Queen Mary University of London
Regulatory and supervisory arrangements are in a state of flux. Among the key questions that need to be resolved include issues such as what should be the governance structures for financial supervision? Current proposals in the United Kingdom and Europe offer valuable lessons for other jurisdictions. How, for instance, can matters of accountability be tackled under the current and proposed arrangements? How does current international law help ensure international monetary and financial stability? How can legal and governance arrangement be improved? In this session, the speaker will discuss case studies from Europe and discussion will focus on the strengths and weaknesses of proposed supervisory approaches.
Islamic finance and the influence of religion on the law
Omar Salah LLM, Attorney at Law, De Brauw Blackstone Westbroek. PhD candidate at Tilburg Law School.
Islamic finance is an area of business which has seen strong development in the recent years. This expansion has included growth in markets with strong ‘Western' banking systems. Such a dual arrangement obviously creates tensions challenges for supervisors. This session will explain the interplay between religious law and supervision in Islamic finance. In addition, the question of whether Islamic finance products would have mitigated the seriousness of the financial crisis will be discussed.
Bank resolution regimes and "living wills": new challenges
James Polson, Director, Deloitte
The crisis highlighted the risks a bank that is near to collapse can pose for the financial system. Faced with increasing uncertainty, market participants withdrew liquidity, exacerbating the situation at a number of banks. More troublingly, interconnections and globalisation meant that problems can soon spread through the system. In light of this experience, supervisors are increasingly looking to new forms of resolution regimes and so called "living wills", also called Recovery and Resolution Plans. The majority of the global systemically important banks have now submitted initial drafts of their Recovery Plans and Resolution Analysis to their lead regulators. Both banks and regulators are now assessing these submissions and considering next steps in the iterative process of developing these plans. This session focuses on a practitioner's perspective looking at some of the specific issues and challenges around developing these plans and some of the open questions that remain to be answered in this area.
Friday 21 September
NEW ENFORCEMENT AND LEGAL IMPLEMENTATION
Financial Action Task Force Recommendations (FATF) and central bank enforcement
Darren Allen, Partner, Berwin Leighton Paisner LLP
A central bank's ability to enforce new recommendations introduced by FATF in March 2012 on anti-money-laundering and fight against terrorist financing depends on the legal powers at their disposal. Yet, the legal framework must be fair and flexible enough to ensure that it can evolve with fast-moving risks and not impose an unnecessarily heavy compliance burden. In this session, a leading expert on legal aspects of money laundering, will consider these recommendations the range of powers available to combat money laundering. Discussion will focus on how central banks and financial supervisors can contribute towards the creation of a robust legal framework to ensure they can act quickly and effectively once risks are identified.
New developments in cross-border enforcement
Alan Bacarese, Special Counsel, Peters & Peters LLP
As globalisation has grown, the amount of cross-border trade and cross-border movements of capital have also increased. Recent events have highlighted the issue of recovery of assets illegally moved abroad by deposed heads of government. Central banks have an interest in the laws established and the procedures adopted for the retrieval of such assets. In this session, a lawyer with significant expertise in AML and anti-corruption legislation and enforcement will discuss recent cases of asset retrieval and the role of central banks in the context of the fight against corruption and illicit capital flight.
Lessons learned and action points
Led by René Smits
The course concludes with a discussion led by the chairman drawing together the days' discussions and their applicability to participants' own institutions. Delegates will be asked to discuss what they have learned from the course and, to formulate points on the key themes and issues highlighted throughout the week.