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Shaping financial market regulation for sustainable development

The Addis Ababa Action Agenda emphasizes the importance of strengthening regulatory frameworks at all levels to further increase transparency and accountability of financial institutions, and to address the regulatory gaps and misaligned incentives in the international financial system.

Within the Addis Agenda, Member States commit to:

Work to strengthen regulatory frameworks to increase transparency and accountability of financial institutions
Hasten completion of the reform agenda on financial market regulation
Address the risk created by “too-big-to-fail” financial institutions and address cross-border elements in effective resolution of troubled systemically important financial institutions
Sustain or strengthens frameworks for macroprudential regulation and countercyclical buffers
Assess and if necessary reduces the systemic risks associated with shadow banking, markets for derivatives, securities lending, and repurchase agreements
Reduce mechanistic reliance on credit rating agency assessments, including in regulations; promote increased competition and avoid conflict of interest in the provision of credit ratings; support building greater transparency requirements for evaluation standards of credit rating agencies and commit to continue ongoing work on these issues, including in the United Nations

In the Addis Agenda, Member States further acknowledged that:

When dealing with risks from large and volatile capital flows, necessary macroeconomic policy adjustment could be supported by macroprudential and, as appropriate, capital flow management measures

Latest developments

The Group of Twenty (G20) agreed to a number of financial regulatory reforms through the Financial Stability Board (FSB) in the wake of the 2008 world financial and economic crisis, with the final major policy reforms adopted by the global body of bank regulators—the Basel Committee on Banking Supervision—in late 2017. Some additional policy work remains, but most attention has now turned towards implementation of the reforms. Despite progress, implementation of the reforms is not complete and remains uneven:

Large banks are better capitalized, less leveraged and hold more liquidity.
Steps have been taken to address financial institutions that are considered too big to fail (TBTF).
Insurance industry supervisory reforms, such as creating effective resolution regimes, are less advanced, while the sector is also facing new challenges from climate change.
Derivatives markets have been another focus of regulators. The markets are now simpler and more transparent, although additional progress since 2018 has been limited.
Regulation of non-bank financial intermediaries (NBFIs), including structured finance vehicles, investment funds, money market funds, hedge funds, broker-dealers, trust companies, and other non-bank and non-insurance lenders, has also been on the FSB agenda.

Progress of regulatory reform implementation, 2019

Source:FSB

Note: For systemically important banks (SIBs), the six European Union members of the FSB are presented as separate jurisdictions.

Total global financial assets have continued to increase since the global financial crisis. Risk in the financial sector has declined since the global financial crisis, while risk may have increased in NBFIs during the period of high global liquidity.

A remaining risk factor in the banking sector is the growth of systemically important banks’ share of global banking assets, as large banks continue to become ever larger and more complex.

The FSB is in the process of evaluating the effects of TBTF reforms for systemically important banks and will launch a public consultation in June 2020. The FSB is continuing to conduct evaluations on different aspects of the reforms. The next evaluation, to be completed by end-2021, will be on the effects of money market fund reforms. These studies are intended not only to monitor the impact of FSB reforms, but also identify possible unintended effects of the reforms.

Relevant SDG indicator

10.5.1 Financial Soundness Indicators

Promoting safe migration

The migration-related commitments in the 2030 Agenda for Sustainable Development, which focus on the rights of migrants regardless of migration status, are complementary to those in the Addis Ababa Action Agenda, which focus on both their rights and their economic activities.

Within the Addis Agenda, Member States:

Commit to cooperate internationally to ensure safe, orderly and regular migration, with full respect for human rights
Endeavour to increase cooperation on access to and portability of earned benefits, enhance the recognition of foreign qualifications, education, and skills, lower the costs of recruitment for migrants, and combat unscrupulous recruiters, in accordance with national circumstances and legislation
Endeavour to implement effective social communication strategies on the contribution of migrants to sustainable development in all its dimensions, in particular in countries of destination, in order to combat xenophobia, facilitate social integration, and protect migrants’ human rights through national frameworks
Reaffirm the need to promote and protect effectively the human rights and fundamental freedoms of all migrants, especially those of women and children, regardless of their migration status

Update from the 2019 Financing for Sustainable Report

In December 2018, Member States of the United Nations adopted the Global Compact for Safe, Orderly and Regular Migration (GCM). This is the first intergovernmental agreement prepared under the auspices of the United Nations to cover all dimensions of international migration in a holistic and comprehensive manner. The GCM recognizes that migrants and migration dynamics affect development outcomes across a range of sectors and vice versa.

The GCM puts forward specific provisions to support development financing efforts, including encouraging, for example, the implementation of programmes and financial products that facilitate migrant and diaspora investments in entrepreneurship, and of digital platforms and other mechanisms for coordinated voluntary or philanthropic engagement of migrants and diasporas, especially in humanitarian emergencies in their countries of origin. If implemented as part of a coherent overall strategy, the 2030 Agenda, Addis Agenda and GCM can significantly improve migration governance globally.

Relevant SDG indicator

Combating transnational crime

The Addis Ababa Action Agenda commits to prevent all forms of violence, combat terrorism and crime, and end human trafficking and exploitation of persons, in particular women and children, in accordance with international human rights law.

In the Addis Agenda, Governments:

Commit to strengthen regional, national, and subnational institutions to prevent all forms of violence, combat terrorism and crime, and end human trafficking and exploitation of persons, in particular women and children, in accordance with international human rights law
Commit to strengthen national institutions to combat money laundering, corruption and the financing of terrorism, which have serious implications for economic development and social cohesion
Commit to enhance international cooperation for capacity building in these areas at all levels, in particular in developing countries
Commit to ensuring the effective implementation of the United Nations Convention on Transnational Organized Crime

Note

Efforts to follow up on combating money laundering, corruption and the financing of terrorism are covered under Action Area A on domestic public resources - see illicit financial flows and recovery of stolen assets and international tax cooperation: combatting money laundering/terrorist financing.

Additional material

Technology transfer

The Addis Agenda commits to a range of actions with the aim to directly and indirectly foster the development, dissemination and diffusion of technologies to promote sustainable development.

The Addis Agenda specifically:

Commits to transfer marine technology in order to improve ocean health and to enhance the contribution of marine biodiversity
Encourages the development, dissemination and diffusion as well as transfer of environmentally sound technologies to developing countries on favourable terms, including on concessional and preferential terms, as mutually agreed

Update from the 2019 Financing for Sustainable Development Report

Technology transfer has been a key element of the United Nations Framework Convention on Climate Change (UNFCCC). The Clean Development Mechanism (CDM) was developed as the central instrument for transferring green technologies from developed to developing countries. It was promoted in 1997 at the third UNFCCC conference and was significant from a technology-transfer perspective as it involved allowing developed countries to count emissions reduction from CDM investments in developing countries towards meeting their legally binding obligations. Reductions would count only for projects that would not be commercially viable under normal circumstances. The assumption was that CDM projects would bring with them new technologies or innovative applications and the accompanying know-how.

Estimates suggest that only one-tenth to one-third of the CDM projects have enabled technology transfer. South-South transfers represented only 10 per cent of the total. High-tech and energy projects, such as wind turbines or solar panels, generated more transfers, while traditional sectors such as agriculture or construction materials created less. Some of the factors that could affect the extent of technology transfer involved in CDM projects include tariffs on imported equipment and recipient countries’ capabilities to absorb technology.

Actions within the United Nations or by the United Nations system

The Addis Agenda commits to a range of actions within or by the United Nations system in order to strengthen overall cooperation and support on science, technology and innovation.

The Addis Agenda specifically:

Commits to strengthen coherence and synergies among science and technology initiatives within the UN system
Established a technology facilitation mechanism to support the SDGs
Commits to operationalize the Technology Bank for Least Developed Countries by 2017

Latest developments

Despite limited resources, significant progress has been made towards operationalization of the Technology Facilitation Mechanism (TFM). The Mechanism comprises four components: (i) the United Nations Interagency Task Team on Science, Technology and Innovation for the SDGs (IATT), which has 42 United Nations entities as members; (ii) the 10-Member Group of representatives from civil society, the private sector and the scientific community, who work together with the IATT to develop and operationalize TFM workstreams; (iii) the annual Multi-stakeholder Forum on Science, Technology and Innovation for the SDGs (STI Forum); and (iv) the TFM online platform as a gateway for information on existing science, technology and innovation initiatives, and as a platform for building partnerships and matchmaking.

Key areas of work of the IATT include:

STI road maps: The United Nations IATT subgroup for STI road maps has developed a joint guidebook which is piloted in five countries: Ethiopia, Ghana, India, Kenya and Serbia;
The new and emerging technologies subgroup has collected and synthesized inputs on the impacts of rapid technology change on the SDGs in the form of an informal document that continues to grow, and has coordinated United Nations work on this topic;
The subgroup on gender and STI has mapped relevant United Nations initiatives aimed at empowering women and girls in the field of STI through capacity-building, information sharing, policy setting and awareness-raising;
The IATT and the 10-Member Group has been working to operationalize the online platform, 2030 Connect, which will provide access to a wide range of resources, including publications, training opportunities, and technology offers and requests;
The IATT also conducts joint training workshops

The United Nations Technology Bank for Least Developed Countries was operationalized in December 2018. In 2019, technology needs diagnostic work was initiated in Bhutan, the Gambia, Guinea, Timor-Leste and Uganda, in collaboration with the United Nations Conference on Trade and Development (UNCTAD) and the United Nations Educational, Scientific and Cultural Organization (UNESCO). In 2020, an additional 10 countries will be added to this assessment programme.

Capacity building

The Addis Ababa Action Agenda and the 2030 Agenda recognize capacity development as an integral part of the global partnership for sustainable development. The Addis Agenda contains commitments to capacity building in each of its seven action areas, as well as on data and statistics including science technology and innovation and capacity building.

The Addis Agenda specifically:

Call for enhanced international support and establishment of multi stakeholder partnerships for implementing effective and targeted capacity-building in developing countries
Commit to reinforce national efforts in capacity-building in developing countries

Note

Refer to the different Addis Ababa Action Areas to see specific capacity building efforts, with broad coverage in international development cooperation.

Relevant SDG indicator

17.9.1 Dollar value of financial and technical assistance (including through North-South, South-South and triangular cooperation) committed to developing countries

Commits to take measures to improve and enhance global economic governance to arrive at a stronger, more coherent and more inclusive and representative international architecture for sustainable development (103)

Strengthening global governance

103

Addis Ababa Action Agenda

Recommits to broaden and strengthen the voice and participation of developing countries in international economic decision-making and norm-setting and global economic governance (106, SDG 16.8)

Strengthening global governance

106, SDG 16.8

Addis Ababa Action Agenda

Commits to further governance reform in both the IMF and the World Bank to adapt to changes in the global economy (106, SDG 10.6)

Strengthening global governance

106, SDG 10.6

Addis Ababa Action Agenda

Invites the Basel Committee on Banking Supervision and other main international regulatory standard setting bodies to continue efforts to increase the voice of developing countries in norm setting processes (106, SDG 10.6)

Strengthening global governance

106, SDG 10.6

Addis Ababa Action Agenda