The International Organization of Securities Commissions (IOSCO) was born 33 years ago, when 11 regulators from North and South America got together as markets were beginning to look global. Today, there are 126 securities regulators from across all continents, who are members of IOSCO. IOSCO’s raison d’etre is to set global standards for securities regulation. It meets every year to review priorities; however, the annual AGM in Lima, Peru, earlier this month, was a bit different.
Ex-US FINRA Paul Andrews had just succeeded long standing EU Commission servant David Wright as Secretary General, Hong Kong SFC Ashley Alder was elected as new chair of the IOSCO Board, replacing Australia’s ASSIC’s chair Greg Medcraft, and JP Servais provided the dose of Europe in the new IOSCO leadership, coming in as Vice-Chair.
While much of the focus was on market liquidity and the opportunities and threats of FinTech on securities markets, there were also some new items on the agenda:
- New powers granted to IOSCO members to more effectively deter cross-border misconduct and fraud in markets;
- New mandates relating to retail investors: to review industry practices on investor vulnerability; to apply insights from behavioral economics to investor initiatives; and to run a pilot world investor week in 2017;
- New working group on infrastructure finance;
- New mechanisms for securities regulators to gather and share information on cyber risk/security issues; and
- New ways for the financing of SMEs
New Challenges & Opportunities
- Award-winning costume designer Ed Stevenson once said: “Standards only move in one direction. At the beginning of the world, standards were established and they’ve been slipping ever since.”By contrast , IOSCO’s standards have got better and better over the years. Witness the recent EU negotiations on Benchmarks regulation, where the majority of public and private sector actors involved praised IOSCO’s work in that space (i.e its Principles for Financial Benchmarks and for Price Reporting Agencies). Will this be the new “benchmark” by which IOSCO standards are judged going forward?
- Not only does the EU Benchmarks legislation, adopted last month, reproduce (word for word at times) most of the IOSCO principles, it also places, for the first time in EU Regulation history, compliance with such principles at the heart of the Third-Country regime (i.e the ability for non-EU benchmarks to be used in the EU). Will IOSCO seek to promote this precedent in other areas? And could the fact that IOSCO standards increasingly gain the force of law through national/regional copy and pasting impact the dynamics within IOSCO?
- Certain provisions of the Benchmarks legislation were markedly influenced by central banks, given the potential financial stability implications of a benchmark (in particular a critical one) ceasing to exist. Central banks are also driving the global initiative to improve conduct in FX trading, which one might have expected to be classic securities regulators’ territory. It is of course, but it is also seen as a source of systemic risk. And so is market liquidity, the rise of electronic and algorithmic trading, bond funds redemptions, and many other traditional securities regulators’ topics. This year’s motto for the IOSCO AGM in Lima was “Strengthening global bridges for financial development”. Could next year’s be “Strengthening global bridges with central bankers?”.
- One final new challenge, coming from Europe at least, is the growing call for “democratic accountability”. Recall French ALDE MEP Sylvie Goulard’s recent own-initiative report on the EU in international fora, calling all global standard setters to be more transparent and establish a transparency register similar to what Brussels has, but also now taken on by Paris and Dublin. If Europe’s flexibility to develop its own rules is diminished as a result of an increased recognition of global standards agreed “upstairs”, is this a sacrifice worth making for international standard setters, and might this impact the future quality of their standards?
Ed Stevenson’s numerous film and television credits included Citizen Kane (1942), which is often cited as being among the greatest films of all time. FleihmanHillard is honoured to host Citizen Andrews, new IOSCO Secretary General, at a Roundtable in Brussels on 31st May, where we will hear Paul’s thoughts on some of the issues and questions listed above, as well as his priorities and broader vision for IOSCO going forward.