The FSB's modernisation principles need an emerging-market test

This is an Opinion piece from Plumb Line, EM Governance Review's analysis, explainer and opinion column. It argues for a position on a live regulatory debate; the facts it rests on are linked.

For fifteen years the direction of travel in financial regulation was clear: agree a standard in Basel, then implement it everywhere. The Financial Stability Board has now opened a consultation that accepts the direction may change. On 14 October it published eight high-level principles for "regulatory and supervisory modernisation", meant to improve "the effectiveness, efficiency, risk focus, coherence, and forward-looking nature" of regulatory and supervisory frameworks, its release says. The consultation responds to a request from the US G20 Presidency and runs until 8 January 2027, with a final report due in the first half of 2027.

Emerging-market regulators should take part, and should use the consultation to ask for one thing above all: a common way of showing that modernisation has not lowered resilience.

What the FSB proposes

The principles rest on four understandings: that financial stability is the foundation of sustainable growth; that the principles "build on the commitment to implement internationally agreed standards"; that they must be applied consistently with each jurisdiction's legal framework and circumstances; and that they "aim to preserve or enhance existing levels of financial system resilience", the consultation report says. It was informed by a stocktake of modernisation already under way in member jurisdictions and by a symposium on proportionality, tailoring and impact analysis.

The report's own questions show where the tension lies. It asks how authorities can modernise "while ensuring sufficient predictability for financial institutions and the public", how "cliff effects for proportionality/tailoring" should be managed, and how communication can avoid "misperceptions (e.g., that modernisation compromises existing levels of resilience)". A framework that has to ask how to avoid that perception knows the perception exists.

The timing matters as well. In his letter to G20 finance ministers and central bank governors ahead of their 15 October meeting in Bangkok, the FSB chair, Andrew Bailey, pointed to "heightened volatility in sovereign bond markets", vulnerabilities in private credit markets and risks related to artificial intelligence, the FSB said. Modernisation is being debated in a period the standard setters themselves describe as risky.

Why emerging markets have a stake

The FSB brings together authorities from 24 countries and jurisdictions and reaches about 70 others through six Regional Consultative Groups, according to the same release. Many emerging-market supervisors therefore sit outside the room where the principles will be finalised, yet they live with the consequences in three ways.

First, implementation. A companion report, the 2026 G20 Implementation Monitoring Review, follows earlier findings of "a worrisome slowdown in implementation" and concludes that national circumstances, "including legal frameworks, market structure, and political capacity", are the main reason implementation has been uneven, the FSB says. If the largest jurisdictions modernise by recalibrating standards they already apply, while emerging markets are still assessed on full adoption of the original texts, the result is a two-speed system in which the stricter rules apply where the banks are smaller.

Second, competition for capital. Supervisors in Istanbul, Riyadh, Warsaw or Tashkent compete for investment partly on the credibility of their rulebooks. They cannot easily follow a deregulatory turn in a major centre without paying for it in perceived risk. They need to know which changes in core jurisdictions count as modernisation within the standards and which count as departures from them.

Third, proportionality. Here emerging markets have something to gain. Tailoring rules to the size and risk of institutions is useful for banking systems with many small lenders and a few large ones. The FSB asks how proportionality can be balanced against frameworks that are "well-understood and easy for financial authorities to implement and administer"; supervisors with limited capacity have practical answers to that question and should give them.

What to ask for

Plumb Line would put three requests into the consultation. The first is a published template: any jurisdiction that changes a rule under the modernisation banner should state, against a common format, which international standard it touches and what impact analysis shows for capital, liquidity and resilience. The report already asks how authorities should "adequately disclose assumptions and limitations" of impact analysis; the answer should be a shared format rather than national discretion.

The second is symmetry in monitoring. If national circumstances explain uneven implementation, as the review finds, the same allowance should be visible when the FSB and the standard setters assess emerging markets, and recalibration in large jurisdictions should be reported in the same peer reviews.

The third is a role for the Regional Consultative Groups before the final text, not after it. Responses to the consultation will be published unless respondents ask otherwise, the report notes. Emerging-market authorities that respond in their own name, rather than leaving it to industry associations, will shape what "modernisation" means for the next decade.

Modernisation is a reasonable aim. Without a yardstick, it risks becoming a word that means simplification in some jurisdictions and full implementation in others.