Journal Issue
IMF Survey Vol.30, September 2001

Standards and codes: IMF reviews experience in assessing members’ implementation of international standards

International Monetary Fund. External Relations Dept.
Published Date:
January 2001
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When countries conduct their economic and financial affairs prudently and transparently, guided by internationally recognized standards and codes of good practice, the international financial system is more stable and less prone to crises. Many countries, especially those with established financial markets, have long followed national standards and codes. As long ago as 1988, international standards were acknowledged with the issuance of the Basel Core Principles for Effective Bank Supervision. In the wake of the financial crises of the 1990s, the world community has stepped up efforts to reduce risk and avoid future crises. Central to these efforts is increased transparency. Equally pivotal are refining existing international standards and developing new ones as needed in areas relevant to the effective functioning of members’ economic and financial systems, disseminating information on standards, and encouraging their implementation.

These tools are effective only to the extent they are recognized and consistently applied. To help ensure stability in the global financial system, the Bretton Woods institutions are, therefore, assessing member countries’ implementation of standards and codes that they and various international expert bodies have formulated. While the work on standards is not new, the IMF’s increased attention to standards and standards assessments will help sharpen the focus of IMF policy discussions with national authorities and strengthen the functioning of markets.

Observance of standards and codes

The IMF and the World Bank have adopted, according to their respective responsibilities, core standards in 11 areas to assess among their members; these standards fall into three broad categories covering (with some overlap) government, the financial sector, and the enterprise sector (see accompanying box, page 20). In 1999, the IMF initiated a pilot program of summary reports–subsequently called Reports on the Observance of Standards and Codes, or ROSCs–that assess individual members’ implementation and use of standards that the country believes are most relevant to its circumstances. ROSCs are a tool for assessing implementation and are used to supplement surveillance. The position of the IMF’s Executive Board is that the link between standards assessment and surveillance must be kept informal; procedures that push some standards close to being member obligations risk overburdening surveillance.

During financial year 2001, the staffs of the IMF and the World Bank launched an outreach program of seminars and other activities, complemented by events organized by other bodies as well, to explain the role of standards and codes in helping countries develop sound economic and financial systems, describe progress in developing standards, provide information on the results of the assessment reports, and seek feedback on this work. By April 2001, more than 100 ROSCs had been prepared for some 40 countries. The IMF encourages countries to publish their ROSCs (about 80 percent of the reports already prepared are available on the IMF website:, which creates an added benefit: information on the observance of standards may help investor decision making.

Standards and codes useful for IMF and World Bank operational work

Group 1: Areas defined as within the IMF’s direct operational focus—international monetary and financial stability—when the ROSC pilot was initiated.

Data dissemination: The IMF’s Special Data Dissemination Standard (SDDS) and General Data Dissemination System (GDDS).

Fiscal transparency: The IMF’s Code of Good Practices on Fiscal Transparency.

Monetary and financial policy transparency: The IMF’s Code of Good Practices on Transparency in Monetary and Financial Policies (usually assessed under the Financial Sector Assessment Program (FSAP)).

Banking supervision: Basel Committee’s Core Principles for Effective Banking Supervision (usually assessed under the FSAP).

Group 2: Because of the IMF’s focus on financial sector monitoring under surveillance and the World Bank’s responsibility for financial sector development, these areas are included in the operational work of both institutions (and are usually assessed under the FSAP).

Securities market regulation: International Organization of Securities Commissions’ Objectives and Principles for Securities Regulation.

Insurance supervision: International Association of Insurance Supervisors’ Insurance Supervisory Principles.

Payments systems: Committee on Payments and Settlements Systems’ Core Principles for Systemically Important Payments Systems.

Group 3: Areas important for the effective operation of domestic and international financial systems, now being assessed by the World Bank under the ROSC pilot.

Corporate governance: Organization for Economic Cooperation and Development Principles of Corporate Governance.

Accounting: International Accounting Standards Committee’s International Accounting Standards.

Auditing: International Federation of Accountants’ International Standards on Auditing.

Insolvency regimes and creditors’ rights: The World Bank, in collaboration with other organizations, is currently working toward the development of a standard in this area.

In April 2001, the Executive Board discussed money laundering, labeling it a problem of global concern that could jeopardize the integrity of the international financial system, good governance, and the fight against corruption. Noting that international cooperation had to be stepped up to address money laundering, the Board agreed that the IMF could enhance its contribution to the effort. The IMF’s main focus would continue to be on financial supervision principles and would not extend to law enforcement activities. In addition, the IMF would work more closely with major international anti-money-laundering groups, provide countries with more technical assistance, and include concerns about money laundering in its surveillance and other activities when relevant to macroeconomic policies.

Through the Financial Sector Assessment Program and its work on standards and codes, the IMF plays an important role in preventing financial abuse by helping its members adopt appropriate legal, institutional, and procedural arrangements and develop more efficient supervisory systems.

The Executive Board has called on IMF staff to cooperate with the Financial Action Task Force (FATF), which, along with regional anti-money-laundering task forces, leads international efforts to combat money laundering. It is generally agreed that FATF’s 40 recommendations should be recognized as the appropriate standard for anti-money-laundering efforts and should be adapted to the IMF’s work. Specifically, the FATF process needs to be made consistent with the ROSC process–that is, it should be applied uniformly, cooperatively, and voluntarily.

Lessons learned

When it reviewed the experience with the assessment of standards in January 2001, the Executive Board noted lessons learned:

  • The voluntary nature of ROSC participation is an important element in securing support for the exercise in the countries assessed.
  • Assessments must be conducted independently and applied consistently across countries.
  • Care must be taken to consider and incorporate in standards assessments members’ developmental, cultural, and legal differences.
  • ROSCs can help national authorities develop their own reform plans, assess compliance with international standards and codes, and serve, if published, as a signal of their policies’ transparency.
  • They can provide helpful input into IMF surveillance and technical assistance.
  • The assessments must not become a country-rating mechanism or make use of pass-fail judgments.

Concerns about the process

Some members have expressed concerns about the way in which standards are developed and the role of their own authorities in this process. IMF Executive Directors want to ensure that all members help to shape and guide the work on standards. Therefore, the Board plans to review regularly the list of standards used for assessments as well as assessment procedures. Authorities’ views on ROSC assessments will be sought. The IMF has taken steps to prioritize assessments so that members are assessed first against those standards that would make the greatest contribution to their macroeconomic stability and performance. In several cases, the IMF has adopted an approach that sets out modified benchmarks for countries at different stages of development (although this has raised the question that discrimination could result against countries held to a lower standard). Executive Directors recognize, too, that the work on standards has led to increased demand for technical assistance to facilitate self-assessments, implement standards, and respond to assessments’ recommendations—and that the IMF has a role in coordinating such assistance.

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