G20 Leaders Draft Global Regulation Agreement

World leaders on Saturday are ready to task finance ministers with drawing up recommendations for improving the regulation and functioning of financial markets, according to a G20 official reading from a draft agreement.

Global Markets
Global Markets

New guidelines should be established by the end of March for discussion at a follow-up meeting in April, after President-elect Barack Obama takes over in the White House, the official said. The host nation of the next summit is not specified in the draft document, he said.

The official said leaders are close to giving their approval to the draft statement. He declined to be identified before the text is formally adopted.

The text is divided into two parts. A five-page document of principles calls for intensified government efforts at bolstering national economies, cooperation on international regulation of the financial system, reform of global structures to aide needy developing countries and a refusal of protectionism, the official said.

In an effort to avoid surprise calamities like the one now sweeping the globe, finance ministers will be asked for specific recommendations to review and align global accounting rules and improve the governance of the International Accounting Standards Board, the official said. That would include more effective accounting rules governing how companies value their assets, a weakness seen as partly responsible for the current financial crisis.

"We pledge.... to ensure that all financial markets, products and participants are regulated or subject to oversight," the draft document says, according to the official.

Regulation of hedge funds and derivatives will be strengthened — and governments will work together to protect themselves against "noncooperative" offshore tax havens, the official said.

Leaders are also seeking recommendations on changing how risk is rewarded in compensation practices and reviewing the governance and requirements of the international financial institutions. They also want a way of defining which financial institutions are crucial to the global economy.

Leaders agreed on closer cooperation for growth boosting policies "as deemed appropriate to domestic conditions," the official said.

A second five-page document, called an "action plan" looks at measures intended to improve transparency and responsibility, improve regulation, improve the trustworthiness of markets, strengthen international cooperation and reform international institutions, the official said.

In the medium term, that would involve regulating rating agencies.