BEIJING BRUSSELS CHICAGO DALLAS FRANKFURT GENEVA HONG KONG LONDON LOS ANGELES NEW YORK SAN FRANCISCO SHANGHAI SINGAPORE TOKYO WASHINGTON, D.C.

The Role and Functioningof the G20Daniel M. Pricedprice@sidley.comSidley Austin LLP

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Introduction to the G20• Originally founded in 1999 in response to the Asian

financial crises as a forum for finance ministers to coordinate their actions

• Members represent 85% of global GDP, 80% of world trade, and two-thirds of the world’s population– Argentina, Australia, Brazil, Canada, China, France, Germany,

India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United States, and the European Union.

• Elevated to a Leaders’ Summit by President Bush in 2008

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Introduction to the G20• Leaders’ Summits

– Washington (November 2008)– London (April 2009)– Pittsburgh (October 2009)

• The G20 has become “the premier forum for our international economic cooperation.” [Pittsburgh Leaders’ Statement]

• Future Summits– Canada (June 2010)– Korea (November 2010)– France (2011)

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G20 Goals• Coordinating global financial regulatory reform

• Avoiding trade-contracting protectionist measures and encouraging the free and open markets

• Reforming the principal international financial institutions to expand the role for developing countries

• Developing a global framework “to generate strong, sustainable and balanced global growth”

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Accounting Standards and the G20• Three main goals:

– Single set of high-quality global accounting standards

– Coordinate and develop accounting standards for particularly sensitive issues (e.g., illiquid assets, fair value accounting)

– Improve governance of the IASB

• Increasing prominence in successive G20

• Role of the Global Public Policy Committee

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Accounting Standards - Washington• In the Leaders’ Statement, the G20 leaders tasked

their Finance Ministers with “[r]eviewing and aligning global accounting standards, particularly for complex securities in times of stress.” [Para. 10]

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Accounting Standards - Washington• In the Action Plan, the G20 encouraged “[t]he key

global accounting standards bodies” to:– Create a single high-quality global standard– Enhance guidance on the valuation and disclosure of

securities, illiquid products, off-balance sheet vehicles, and complex financial instruments

– Reform the governance of the IASB • Review its membership• Ensure transparency• Improve accountability• Develop “an appropriate relationship between this

independent body and the relevant authorities.”

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Accounting Standards - London• In the Leaders’ Statement, the G20 leaders:

– “call[ed] on the accounting standard setters to work urgently with supervisors and regulators to improve standards on valuation and provisioning and achieve a single set of high-quality global accounting standards” [Para. 15]

• In the Declaration on Strengthening the Financial System, the G20:– Reaffirmed fair value accounting– Welcomed FSF Recommendations on procyclicality– Called for certain reforms by the end of 2009

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Accounting Standards - London• In the Declaration, the G20 committed to act by

the end of 2009 to:– Reduce the complexity of accounting for financial

instruments– Strengthen recognition of loan-loss provisions– Improve standards for provisioning, off-balance

sheet exposures and valuation uncertainty– Achieve clarity and consistency in the application of

valuation standards internationally– Make significant progress towards a single set of

high quality global accounting standards– Improve involvement of stakeholders, including

prudential regulators and emerging markets, through the IASB’s constitutional review.

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Accounting Standards - Pittsburgh• In the Leaders’ Statement, the G20 leaders

declared:– “We call on our international accounting bodies to

redouble their efforts to achieve a single set of high quality, global accounting standards within the context of their independent standard setting process, and complete their convergence project by June 2011. The International Accounting Standards Board’s (IASB) institutional framework should further enhance the involvement of various stakeholders.” [Para. 14]

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Accounting Standards - Pittsburgh• FSB Progress Report

– Highlighted divergences between the IASB and FASB and called for rapid convergence

• Identified potential points of divergence between the IASB and FASB– Improving and simplifying financial instruments

accounting– Provisioning and impairment– Off-balance sheet standards– Netting/offsetting of assets and liabilities for

purposes of calculating an international leverage ratio

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Accounting Standards - Pittsburgh• In its report to the G20, the FSB recognized

progress in the development of standards, including:– Fair value in illiquid markets– Off-balance sheet activities– Reducing complexity of accounting for financial

instruments– Procyclicality – provisioning and valuation– Dialogue with prudential supervisors, regulators,

and other stakeholders

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Accounting Standards - Pittsburgh• In its Proposed Charter, the FSB declared that:

– “The FSB will promote and help coordinate the alignment of the activities of the SSBs to address any overlaps or gaps and clarify demarcations in light of changes in national and regional regulatory structures relating to prudential and systemic risk, market integrity and investor and consumer protection, infrastructure, as well as accounting and auditing.” [Article 2]