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This Issues Paper was prepared for the first annual GPFI Conference on Standard-Setting Bodies and Financial Inclusion hosted by the Financial Stability Institute at the Bank for International Settlements (BIS) in Basel on October 29, 2012. It discusses the application of the proportionality principle – the balancing of risks and benefits against costs of regulation and supervision – in the context of implementing standards and guidance of the global standard-setting bodies (SSBs) and the challenges of applying the proportionality principle in practice by countries pursuing a financial inclusion agenda.
It also discusses how proportionality is understood and interpreted by each of the five SSBs participating in the GPFI Conference: the Basel Committee on Banking Supervision, the Committee on Payment and Settlement Systems, the Financial Action Task Force, the International Association of Deposit Insurers and the International Association of Insurance Supervisors.
The growing number of countries officially committed to a policy agenda to bring all their citizens into the formal financial system face two broad types of challenges applying the proportionality principle in the financial inclusion context: first, though several of the SSBs have added considerable specificity to the concept of proportionality as set forth in their standards, there remains comparatively little guidance about how to apply it in the everyday practice of regulation and supervision; second, the application of proportionality triggers somewhat different issues in the case of each of the five SSBs.
Examples from Mexico, Pakistan and the Philippines provide concrete illustrations of how countries operationalize and apply the proportionality principle across the products and providers likely to contribute significantly to progress in closing the financial access gap.
