G20 round-up: Leaders get tough on financial sector

The G20 summit in London yesterday ended with a $1trn plan to revive the global economy, including reforms of the IMF and stricter regulation of financial sectors.

Hedge funds, credit rating agencies and offshore tax havens can all expect a crackdown on their business operations, while the IMF will supply billions of dollars to the world's worst affected economies.

While Gordon Brown and US president Barack Obama achieved their main objective of providing new money to capital markets, but have been forced to compromise with other countries, which demanded greater regulation of the global financial system.

The IMF will receive $500bn to lend to struggling economies during the downturn, and a further $250bn to create an 'overdraft facility' for nation states.

A sale of gold reserves will net a further $6bn for the IMF to increase its lending for the poorest countries in the world. A further $100bn will be supplied to international development banks to lend to poor nations. Lastly, $250bn will be provided to boost global trade, though details of how this would work were not revealed.

However, strict rules will be brought in to govern global financial markets, with hedge funds and credit rating agencies - often criticised for playing a major role in the credit crunch - receiving regulatory oversight for the first time.

To improve international regulation, the Financial Stability Forum will become the Financial Stability Board (FSB), with increased powers.

The FSB will oversee the work of 'systemically important' hedge funds, as well as restricting pay and compensation schemes at financial services firms.

It will also extend regulatory oversight to credit rating agencies, with an international code of good practice to prevent unacceptable conflicts of interest.

Further details on the FSB and its new regulatory regime will be discussed in the coming months, with an announcement expected in November, when global finance ministers will meet in Scotland.

Contact: John Bakie, Tel: 020 7484 9805, e-mail: John.Bakie@incisivemedia.com