[DRAFT] Investment Transparency and Responsibility

[Doing it Rightland]

Investment Transparency and Responsibility

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Category: Regulation
Area of Effect: Consumer Protection
Proposed By: Doing it Rightland

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The World Assembly,

Understanding that complex and interconnected economic networks are a defining part of the current world,

Noting that minimal legislation has been made by the World Assembly to promote investment responsibility within member states,

Aware that the availability and security of investment spending has an amplified impact on the stability or instability of national and international economies,

Realizing that many developing nations must have access to stable financial institutions to promote economic growth,

Reminding the World Assembly of its duties to help foster cooperation, responsibility, and accountability among members,

This resolution hereby:

1. Defines:

• “Financial Institution” as any establishment that conducts investments, including but not limited to loans, mortgages, stock trade, and other banking-related services.
• “Investment” as any use of money by or through a Financial Institution for the purpose of creating additional wealth. This includes, but is not limited to loans, mortgages, and other services offered by or through Financial Institutions.

2. Asserts the independence of Financial Institutions and individuals from the World Assembly, and their ability to, within the rights of their nation, invest as they desire.

3. Creates the Bureau of International Financial Management (BIFM) as an independent and international oversight entity with the goal of promoting responsible investment worldwide. The Bureau will be tasked with:

• Outlining a standardized set of risk levels for assessing Investments. The levels will be based on the following general framework:
  
  1. High Risk: Not including stocks, these investments have a high probability of failure, in which some or all of the investment is lost
  2. Stable Risk: Not including stocks or High Risk, these investments have a low to nonexistent probability of failure
  3. Stocks: Due to stocks being inherently volatile and not the target of this resolution, stocks and any derivatives contracts whose underlying assets are stocks are not included in the risk assessment.
• Assessing the validity, stability, and operations of Financial Institutions.
• Providing consultations and advice on matters of investments
• Enacting emergency legislation in times of economic crisis

4. Mandates that Financial Institutions provide the BIFM access to information regarding all unclassified Investments made by said institutions, in order to ensure that High Risk investments are identified. Personal information, including but not limited to names, addresses, and identity numbers, is not to be included. The BIFM must purge from their records any information they are given unless the information regards High Risk or illegal investments. Information regarding illegal and high-risk activity will be turned over to member nations, who must act on that information.

5. Demands that member nations pass laws that prohibit Investments deemed High Risk by the BIFM, except in cases that the BIFM has deemed acceptable, and further prohibits member nations from refusing to enforce said laws.

6. Requires the BIFM maintains a pool of funds for use in funding their operations and for spending in international recessions, and in normal economic circumstances, prohibits the BIFM from deficit spending.

7. Calls upon the BIFM to offer consultation and advisory services to member nations, Investors, and Financial Institutions regarding strategies to minimize High Risk investments, promoting connections between investors and those seeking investments, precautions for High Risk investments, and other concerns.

8. Allows the BIFM to, in an international recession, enact emergency policies to promote investment. These policies may include, but are not limited to, emergency spending and loaning procedures, and temporarily waiving self-imposed restrictions on deficit spending in order to return the international economy to normal operation.

9. Prohibits BIFM personnel from using their influence to shield High Risk or illegal activity from the World Assembly and member states. As such, all instances of and actions against High Risk or illegal activity will be available to the public in conjunction with member nation(s) from which said activity originates.

10. Permits Financial Institutions to, with the expressed permission of the member nation which they are based in, to apply for exemption from some or all of BIFM legislation. The application must have a justification, including but not limited to national security, market interests, or other economic factors. Applications will be reviewed by the BIFM on a case-by-case basis, where the BIFM may grant some, all, or none of the requests.

11. Prohibits the World Assembly, all nations, and all Financial Institutions from attempting to bias the BIFM against or for investments by or to said entities. This includes, but is not limited to, national or international legislation that attempts to restrict the independence of the BIFM.

Sorry all, I know this is a long one, but I noticed that there's been very little legislation to promote responsible investment (lending, mortgages, etc). The goal of this proposal is to create an oversight entity that can help direct member nations to take more responsibility in financial policy, and can also respond quicker than nations in times of market uncertainty. However, this has to be done in a manner which doesn't outright set financial policy for each nation, as members may need vastly different policies depending on their current state. If you have issues with specific points and phrasing, comment away. If you don't understand why this could be relevant, see below.

In the 1930s, during the midsts of the Great Depression, an economist by the name of John Maynard Keynes popularized a new policy set to return the collapsed economies of western nations back to a strong state. He accurately realized that business investment, one of the components of GDP measurement, was the most unstable group of spending. He also noted that investment had a magnified effect on the GDP (i.e. strong investing meant stronger economy, while weak investing meant recessions and depressions). He pioneered Demand-Side Fiscal Policy (Lower taxes and more government spending money in recessions to have a magnified effect on GDP growth and return the economy to normal, and reducing spending and raising taxes when economies are strong to prevent burning out). While we can't control the Fiscal Policies of nations directly, we can promote good investment habits, alert nations of irresponsible investments that could cause problems in the national or international economy, and act as a spending entity in times of recession to "prime the pump" (common expression used to indicate how a small bump in spending causes strong changes)

[Cosmopolitan borovan]

Interesting. I think some information on risk is already provided by publicly known information, investments and companies usually have to file public disclosures but like the idea on overseeing financial institutions i don't think providing consultations for investors is necessary there are ways already to get educated and some financial companies have this service

[Kenmoria]

“On a formatting note, putting line breaks between your clauses makes them easier to read, and I see no reason to make them lists; just put numbers at the beginning without indenting. On a mechanical note, how would the BIFM be separate from the WA? As an organisation created by a GA proposal, it seems quite World Assembly based to me. With regards to actual content though, this is very good, and looks as though it would make a fine resolution in the future.”

[Doing it Rightland]

Interesting. I think some information on risk is already provided by publicly known information, investments and companies usually have to file public disclosures but like the idea on overseeing financial institutions i don't think providing consultations for investors is necessary there are ways already to get educated and some financial companies have this service

Although some institutions may be required to file public information, we want to make sure that those that aren't are also being responsible. And in terms of consultations, those are less of a requirement for the BIFM and investors, and more of an offering that can be used if desired, but is entirely optional. That way, anyone who wants to use those services has access to them, but those that go elsewhere for the services aren't penalized.

“On a formatting note, putting line breaks between your clauses makes them easier to read, and I see no reason to make them lists; just put numbers st the beginning without indenting. On a mechanical note, how would the BIFM be separate from the WA? As an organisation created by a GA proposal, it seems quite World Assembly based to me. With regards to actual content though, this is very good, and looks as though it would make a fine resolution in the future.”

Formatting has been adjusted. I'd agree, its much better to read that way. In terms of the BIFM being separate, I just want it to be clear that the World Assembly cannot try and manipulate the entity to its own benefits. The BIFM should be there to help stabilize the economy, and not help enrich certain groups. I edited Clause 3 so that it doesn't read as outright separate from the WA, and thus its "integrity" is entirely encompassed in Clause 10.

[Bears Armed]

OOC
Regulation is one of the categories that doesn't have 'Strengths' such as 'Mild', but has 'Areas of Effect' instead: The choices available are Consumer Protection, Safety, Transportation, Labor Rights, Energy, Legal Reform.

[Doing it Rightland]

OOC
Regulation is one of the categories that doesn't have 'Strengths' such as 'Mild', but has 'Areas of Effect' instead: The choices available are Consumer Protection, Safety, Transportation, Labor Rights, Energy, Legal Reform.

Good to know. I'll list it as "Consumer Protection" for now. Other than that, were there any issues you found?

[Cosmopolitan borovan]

Support

[Imperium Anglorum]

What is the point of a stability mechanism that is unable to do deficit spending?

[Doing it Rightland]

What is the point of a stability mechanism that is unable to do deficit spending?

Good question. When the economy is stable, it is unable to deficit spend, as you noted of clause 5. However, that only applies for "normal economic circumstances" which in this case is not a recession or anything similar. In those cases, clause 7 applies:

7. Allows the BIFM to, in an international recession, enact emergency policies to promote investment. These policies may include, but are not limited to, emergency spending and loaning procedures, and temporarily waiving self-imposed restrictions on deficit spending in order to return the international economy to normal operation.

This clause is in there so that the BIFM can deficit spend and take other emergency actions that it may otherwise not need. If it doesn't read clearly, please let me know, and I can reword it.

[Doing it Rightland]

*Bump*

[Capercom]

Financial transparency is all the rave these days. My boss will love I attached my input to this thread if he actually ever performs quality control like he claims.

4. Mandates that Financial Institutions provide the BIFM access to information regarding all unclassified Investments made by said institutions, in order to ensure that High Risk investments are identified. Personal information, including but not limited to names, addresses, and identity numbers, is not to be included. The BIFM must purge from their records any information they are given unless the information regards High Risk or illegal investments. Information regarding illegal activity will be turned over to the respective member nation(s), while High Risk investments will be made public to Financial Institutions and their respective member nation(s).
9. Permits Financial Institutions to, with the expressed permission of the member nation which they are based in, to apply for exemption from some or all of BIFM legislation. The application must have a justification, including but not limited to national security, market interests, or other economic factors. Applications will be reviewed by the BIFM on a case-by-case basis, where the BIFM may grant some, all, or none of the requests.

What of nations who shield financial institution's internal workings or finances from any public record? Would an entire nation be able to apply for exemption of the financial institutions? What of nations whose financial institutions are all state-owned, and thus, depending on the nation, may all be confidential?

I feel the wording of this legislation will cause a backlog and headache of legal questioning between nations who have policies as stated above and BIFM. I don't agree with a "request exemption clause" for everyone to be able to be exempt, as it would render this entire piece of work useless, but this Proposal may be stepping over its member's hundreds of years of legislation if the exemption decision process is too stringent.

5. Requires the BIFM maintains a pool of funds for use in funding their operations and for spending in international recessions, and in normal economic circumstances, prohibits the BIFM from deficit spending.
7. Allows the BIFM to, in an international recession, enact emergency policies to promote investment. These policies may include, but are not limited to, emergency spending and loaning procedures, and temporarily waiving self-imposed restrictions on deficit spending in order to return the international economy to normal operation.

How is this process decided? Is this a W.A. mandated corporate stimulus package to benefit the wealthy? Are those funds going directly to the affected citizens of each nation? As a liberal nation, we're not a fan of money in a recession going toward the large wallets of corporate executives. What safeguards are in place to prevent such a thing from happening like it has in the other nations?

8. Prohibits BIFM personnel from using their influence to shield High Risk or illegal activity from the World Assembly and member states. As such, all instances of and actions against High Risk or illegal activity will be available to the public.

At what time frame is it made available to the public? I fear an immediate press release upon sending the evidence to the member nation would be a hindrance to any potential undercover investigation taking place within said nation. Will BIFM work with said nation to coordinate a release instead of taking a public stand first?

I'm surprised there hasn't been a body like this created within the World Assembly yet, after numerous national financial market crashes started over a decade ago. It seems like an obvious extension of what the W.A. stands for in protecting humanity from extreme devastation via poverty and fraudulent activity to put them in said extreme poverty. Pending how the questions I raised are addressed, you will have Capercom's full support!

[Doing it Rightland]

Thank you for posting your concerns. After reviewing them, I believe I have some answers:

What of nations who shield financial institution's internal workings or finances from any public record? Would an entire nation be able to apply for exemption of the financial institutions? What of nations whose financial institutions are all state-owned, and thus, depending on the nation, may all be confidential?

I feel the wording of this legislation will cause a backlog and headache of legal questioning between nations who have policies as stated above and BIFM. I don't agree with a "request exemption clause" for everyone to be able to be exempt, as it would render this entire piece of work useless, but this Proposal may be stepping over its member's hundreds of years of legislation if the exemption decision process is too stringent.

First, the BIFM does not retain any information regarding safe investments, and must purge it from its records. As such, the only information that could be turned over to public record by the BIFM would be the illegal (which nations should take care of) and the high-risk (which we want to avoid). The main purpose of the exemption is to protect national security interests (say a loan to a defense contractor) or to allow certain developing nations more flexibility in their economy to perhaps grow their economies quicker. The exemption isn't supposed to be a blanket policy; it would only be used in those instances given prior (and a small group of others as needed), and would be at the discretion of the BIFM. In addition, without an argument as to why exemption should be granted, the notion wouldn't even move forward, which I believe would address a lot of the backlog you are concerned with. I feel it is best to leave the deciding of who is exempted to the BIFM on case-by-case arbitration. That way, the BIFM can evaluate each case, working on prior precedents if needed to speed up the process, and can make decisions in the best interests of nations provided it doesn't harm the stability of the world economy.

How is this process decided? Is this a W.A. mandated corporate stimulus package to benefit the wealthy? Are those funds going directly to the affected citizens of each nation? As a liberal nation, we're not a fan of money in a recession going toward the large wallets of corporate executives. What safeguards are in place to prevent such a thing from happening like it has in the other nations?

I agree that we have seen recent situations where the citizens are neglected to benefit larger corporations in times of crisis. My goal here is for the BIFM to be able to act as an institution of its own in a recession, providing money to corporations, other institutions, as well as individuals if needed. The main goal of this resolution is to address instability in business investment, so it is likely more inclined to institutions and less towards the individual. Again, the BIFM is strictly set up as an independent group, and is to act solely in the best interests of the economy. Where those interests fall and who should be supported may vary depending on the circumstances, and as such, we don't want to prevent the BIFM from taking actions it might need to.

At what time frame is it made available to the public? I fear an immediate press release upon sending the evidence to the member nation would be a hindrance to any potential undercover investigation taking place within said nation. Will BIFM work with said nation to coordinate a release instead of taking a public stand first?

The BIFM is inherently supposed to work with nations to help curb irresponsible investing, and as such, I believe this lends itself to a release coordinated between the nation and the BIFM rather than an immediate one, and I have changed the wording in the draft to reflect that.

Hopefully this addresses your concerns, and I thank you for your (tentative) support! If you have any more, please let me know.

[Kenmoria]

“What does this proposal actually do that directly affects member states? This seems to be a lot of things to do with the creation and uses of the BIFM but not very much that has a definitive effect on a government.”

[Doing it Rightland]

“What does this proposal actually do that directly affects member states? This seems to be a lot of things to do with the creation and uses of the BIFM but not very much that has a definitive effect on a government.”

That's a good point. This proposal really doesn't do much to affect governments because it doesn't really have to. I don't know if that makes a lot of sense, but the BIFM doing its job simply requires member nations to cooperate with it. I hadn't added that in the proposal, but if you think its something I should do, please let me know.

[Bears Armed]

“What does this proposal actually do that directly affects member states? This seems to be a lot of things to do with the creation and uses of the BIFM but not very much that has a definitive effect on a government.”

That's a good point. This proposal really doesn't do much to affect governments because it doesn't really have to. I don't know if that makes a lot of sense, but the BIFM doing its job simply requires member nations to cooperate with it. I hadn't added that in the proposal, but if you think its something I should do, please let me know.

OOC
A proposal doesn't that tell -- or, at least, urge -- member nations to do something would be illegal: For a proposal that is mainly about a committee, member states' cooperation with that committee must have to extend beyond just filing papers.
(This is because the OOC stat changes need an IC justification.)

[Doing it Rightland]

A proposal doesn't that tell -- or, at least, urge -- member nations to do something would be illegal: For a proposal that is mainly about a committee, member states' cooperation with that committee must have to extend beyond just filing papers.
(This is because the OOC stat changes need an IC justification.)

Thank you for informing me of this. I have altered the wording in some clauses, as well as adding another that require nations to make their own laws to curb high-risk investments, and prevents them from not enforcing those laws. Hopefully this is acceptable. If not, please let me know.

[Yohannes]

high-risk investments

Out of character: Gosh... 2 financial supervision [edit: very well drafted] proposal threads front page. The World Assembly finally catching up with this kind of RP shenanigans I see! Where's the UNOG and old Natsovs when you need 'em!

[Kenmoria]

(OOC: This is less than a hundred characters under the current character limit of 5000, which is something to bear in mind if you do any significant future edits. Based on the current draft, I support this proposal OOC and IC.)

[Doing it Rightland]

(OOC: This is less than a hundred characters under the current character limit of 5000, which is something to bear in mind if you do any significant future edits. Based on the current draft, I support this proposal OOC and IC.)

Good to know. Thanks for your support!

[Naboompu]

5. Demands that member nations pass laws that prohibit High Risk Investments, except in cases that the BIFM has deemed acceptable, and further prohibits member nations from refusing to enforce said laws.

This is perhaps the most objectionable provision in the resolution. As written, this bill would effectively prohibit all derivatives contracts. These so-called high risk investments play an important role in reducing transaction costs, lowering bid-ask spreads and increasing market liquidity. It would be quite foolhardy to impose such Draconian measures that on balance would probably be harmful to consumers.

[Doing it Rightland]

This is perhaps the most objectionable provision in the resolution. As written, this bill would effectively prohibit all derivatives contracts. These so-called high risk investments play an important role in reducing transaction costs, lowering bid-ask spreads and increasing market liquidity. It would be quite foolhardy to impose such Draconian measures that on balance would probably be harmful to consumers.

I understand your concerns, however, if you read the clause fully, it prohibits "high risk investments" except in cases that the BIFM has deemed acceptable (High risk being defined by the BIFM and not including stocks). If the BIFM declares that certain high risk investments should be legal, then nations are under no obligation to prohibit them. In addition, because derivatives contracts are inherently dependent on their underlying assets, any of said contracts whose underlying assets are considered a "safe risk" will be completely unaffected by this clause.

[Naboompu]

This is perhaps the most objectionable provision in the resolution. As written, this bill would effectively prohibit all derivatives contracts. These so-called high risk investments play an important role in reducing transaction costs, lowering bid-ask spreads and increasing market liquidity. It would be quite foolhardy to impose such Draconian measures that on balance would probably be harmful to consumers.

I understand your concerns, however, if you read the clause fully, it prohibits "high risk investments" except in cases that the BIFM has deemed acceptable (High risk being defined by the BIFM and not including stocks). If the BIFM declares that certain high risk investments should be legal, then nations are under no obligation to prohibit them. In addition, because derivatives contracts are inherently dependent on their underlying assets, any of said contracts whose underlying assets are considered a "safe risk" will be completely unaffected by this clause.

I understand what you're getting at, but I'd at the very least clarify which types of securities are "stable risk" and which ones are "high risk", i.e. if the underlying is safe, then the corresponding derivatives contracts shall be classified as stable. And then what happens if the underlying is a stock? Are options in this resolution considered high-risk? If it were me, I'd also specifically mention that bonds with a BBB rating (not sure if you can use such a rating system in Nation States?) or higher are considered stable or something similar. By narrowing in on a more specific definition for what constitutes a high-risk investment, I'd have more confidence with the Bureau arbitrating on which ones are acceptable.

FYI, I'm also in the throes of writing a finance-related resolution. In so doing, someone brought to my attention the International Securities and Exchange Commission (ISEC). Could ISEC not be tasked with these responsibilities instead of creating a new commission?

Otherwise, the resolution seems more than reasonable.

[Bears Armed]

I'd also specifically mention that bonds with a BBB rating (not sure if you can use such a rating system in Nation States?)

OOC
If it's referring to the RL system then that's illegal as a 'RL Reference.
If a system is created in one resolution (which isn't the case so far) then using it in a future proposal would fall foul of the 'House of Cards' rule.
Assigning the job of making ratings to a committee is probably the only way to do this.

[Doing it Rightland]

Thank you for the questions, I'll try to address them all here.

I understand what you're getting at, but I'd at the very least clarify which types of securities are "stable risk" and which ones are "high risk"

I left that part up to the BIFM so that they can adapt to various circumstances. Different types of securities won't inherently be either stable or high risk; rather, it would be something like the bond rating system you mention later on, just expanded for different types of securities.

i.e. if the underlying is safe, then the corresponding derivatives contracts shall be classified as stable.

Yes, that's how it works. Since the contract is (not exactly, but to a strong degree) just a different manifestation of said underlying asset, then it should have the same rating as the underlying.

And then what happens if the underlying is a stock?

How I've written it, the BIFM doesn't deal with stocks. As such, stocks are kept out of the stable/high system, and aren't directly monitored or restricted.

If it were me, I'd also specifically mention that bonds with a BBB rating (not sure if you can use such a rating system in Nation States?) or higher are considered stable or something similar.

Unfortunately, that would be a RL reference, which we cannot do. As I said before, however, the BIFM would design the high/stable risk system in a similar way.

By narrowing in on a more specific definition for what constitutes a high-risk investment, I'd have more confidence with the Bureau arbitrating on which ones are acceptable.

Since each investment is inherently different, and depending on the current international conditions, that can change. I felt it best to leave that decision process up to the bureau.

FYI, I'm also in the throes of writing a finance-related resolution. In so doing, someone brought to my attention the International Securities and Exchange Commission (ISEC). Could ISEC not be tasked with these responsibilities instead of creating a new commission?

First, I'll do my best to take a look at yours as well; it's pretty interesting to see a trifecta of economic regulations (you, me, and IA). I think expanding the role of the ISEC could be a definite possibility. In fact, if we wanted to maybe reach out to IA (with the credit liquidity assistance proposal) on all expanding the ISEC to promote economic security, it could be quite interesting.

[Naboompu]

Thank you for the questions, I'll try to address them all here.

I understand what you're getting at, but I'd at the very least clarify which types of securities are "stable risk" and which ones are "high risk"

I left that part up to the BIFM so that they can adapt to various circumstances. Different types of securities won't inherently be either stable or high risk; rather, it would be something like the bond rating system you mention later on, just expanded for different types of securities.

i.e. if the underlying is safe, then the corresponding derivatives contracts shall be classified as stable.

Yes, that's how it works. Since the contract is (not exactly, but to a strong degree) just a different manifestation of said underlying asset, then it should have the same rating as the underlying.

And then what happens if the underlying is a stock?

How I've written it, the BIFM doesn't deal with stocks. As such, stocks are kept out of the stable/high system, and aren't directly monitored or restricted.

If it were me, I'd also specifically mention that bonds with a BBB rating (not sure if you can use such a rating system in Nation States?) or higher are considered stable or something similar.

Unfortunately, that would be a RL reference, which we cannot do. As I said before, however, the BIFM would design the high/stable risk system in a similar way.

By narrowing in on a more specific definition for what constitutes a high-risk investment, I'd have more confidence with the Bureau arbitrating on which ones are acceptable.

Since each investment is inherently different, and depending on the current international conditions, that can change. I felt it best to leave that decision process up to the bureau.

FYI, I'm also in the throes of writing a finance-related resolution. In so doing, someone brought to my attention the International Securities and Exchange Commission (ISEC). Could ISEC not be tasked with these responsibilities instead of creating a new commission?

First, I'll do my best to take a look at yours as well; it's pretty interesting to see a trifecta of economic regulations (you, me, and IA). I think expanding the role of the ISEC could be a definite possibility. In fact, if we wanted to maybe reach out to IA (with the credit liquidity assistance proposal) on all expanding the ISEC to promote economic security, it could be quite interesting.

OK, I'm happy with how the ratings shall work as they do in real-life. Agreed it is probably better to leave it up to the Bureau.

But I'm still confused about one point. You specifically distinguish stocks but not the derivatives contracts they underlie. Shall, for example, a stock option contract be considered a "high-risk" investment or shall it not be covered by this resolution? How would these be directly monitored and not the stock price at the same time? Either way I'd at least specify whether "high-risk" investments include/may include/exclude derivatives contracts underwritten by stocks. If there's one change I'd make, it would be to clarify this.

I'd be interested in reaching out to IA and perhaps coordinating our proposals. Any feedback on my resolution (On Investment Equity) would also be appreciated; input seems to be lacking.