For the first time in history, a crisis triggered by US housing finance problems is having global ramifications. Individual companies have drawn lessons from the crisis but common efforts to reform the financial system are the order of the day. The challenge is to extend individual reforms across the financial services industry.

One step towards this goal is the wide dissemination of the final report of the Institute of International Finance's committee on market best practices (CMBP). This report is the product of intensive efforts during the past nine months involving more than 100 senior executives from more than 65 financial services companies. It contains clear principles of conduct and recommendations for best practice in those areas where serious weaknesses in approaches by many banks were exposed in the market turbulence of the past year - areas such as risk management, compensation policies, liquidity risk, conduit and securitisation issues, valuation, credit underwriting, ratings, transparency and disclosure.

Feedback has been positive. Nevertheless, questions have arisen about the emphasis in parts of the report on long-standing best practices, which should be prevalent as a matter of course. The fact is, however, that in an environment of abundant liquidity and rising markets some companies gradually stopped meeting these standards. Standards fell further as a range of innovative structured products were launched, whose complexity and risks were not always well understood in all parts of the industry.

The CMBP highlighted these developments and reaffirmed the merits of old practices and long-established standards that may well seem familiar. The report stresses their central importance for the sound management of financial institutions. In risk management, for example, the committee underscored the need for companies to establish a resilient risk culture; to empower the chief risk officer to ensure that business activities across the company are consistent with its overall risk appetite; and to highlight the lead account­ability of the chief executive under the scrutiny of the board of directors.

At the same time, many of the principles of conduct and recommendations for best practice relate to new products and new market dynamics. In risk management, for instance, the report provides detailed recommendations on methodologies and procedures, ranging from risk-identification issues for structured products to concentration risks and stress testing. The report is a blueprint for better management of financial services companies. Given the lax performance in some areas in recent years, this blueprint by the IIF, representing more than 380 financial institutions around the world, is of great significance. The crucial question is: to what extent will the report's recommendations be implemented?

The turmoil has left its mark and there are compelling reasons for companies to act and to carry out reforms. First, companies need to present a distinct long-term profile to investors, rather than emphasising short-term results. Second, managing complex financial institutions requires raising the bar on risk management, underwriting and disclosure if companies are to prosper in the very competitive global marketplace. Third, the involvement of more than 65 companies in developing the report represents a level of support and leadership that will have a powerful influence on many others across our industry.

Full implementation will not come overnight, but it will occur over time even in some of the most complicated areas. For example, compensation policies at some companies contributed to excessive risk-taking. Reform in this area will not be easy. For the first time, though, global financial leaders, recognising that change is necessary, came together to develop compensation principles. The proposed approaches to pay (including severance pay) - namely that it should be based on performance aligned with shareholder interests and long-term company-wide profitability and take into account overall risk and the cost of capital - seem obvious but are not standard practice so far. However, there is already evidence that some companies are now adopting these approaches.

Leaders of the IIF have discussed the report's proposals and prospects for implementation with financial sector officials, including the question of a dialogue on certain aspects of pro-cyclicality and on differences between accounting systems. We have stressed that this is not an attempt at self-regulationor an alternative to sound regulation and supervision. Rather, it is a critical exercise in industry self-discipline to complement any changes in regulatory structures that the officials develop. The industry recognises that strengthening practices in many areas is now essential to rebuild confidence in the global banking system and make markets more efficient.

The writer is chairman of the board of directors of the Institute of International Finance, and chairman of the management board and group executive committee of Deutsche Bank