Global regulators aim to identify and manage systemic ris

Date: Friday, June 11, 2010
Author: Investment Executive

The global umbrella group of securities regulators is bolstering its membership, and its mission.

The International Organization of Securities Commissions said Thursday that it is introducing eight new principles for securities regulators to adopt in their own jurisdictions.

In her remarks as part of the opening ceremonies at IOSCO's annual conference in Montreal, Jane Diplock, chair of IOSCO's executive committee, said that in meetings in the run up to the conference, the group agreed on the new principles, which are to be implemented globally.

The new principles, which brings the total number of principles IOSCO has adopted to 38, includes two new principles addressing systemic risk in markets.

“This is a clear message that markets matter for the identification and management of systemic risk,” she explained, noting that systemic risk has traditionally been viewed as a concern for prudential regulators, not market conduct regulators -- a belief that proved unfounded in the global financial crisis.

“The [crisis] has shown us quite powerfully that financial stability depends on both of the virtuous twins of effective market regulation and effective prudential regulation. The new IOSCO principles concerning systemic risks in markets recognize the vital importance of this concept and recognizes the need to look over the perimeter of regulation,” she said.

Also, Diplock said that the new principles address conflicts of interest and other market practices highlighted during the crisis, as well as credit rating agencies, hedge funds, auditor oversight, auditor independence and research analysis.

“These principles represent a significant milestone in the ongoing development of the principles of market regulation,” she said.

Additionally, Diplock said that IOSCO has reformulated its strategic mission and goals for the next five years. “We have been able to agree this week a revised mission statement and a set of operational goals and priorities to guide IOSCO’s activities in the next few years,” she said, adding that these include: maintaining and improving the international regulatory framework for securities markets by setting international standards; identifying and addressing systemic risks; and strengthening its role in the international financial community.

That community is growing, too, as IOSCO added the securities market regulators from Iceland, the Maldives, Saudi Arabia and Syria as its newest members. And it reported that 96% of its 115 members now either meet, or have committed themselves to legislative changes that will allow them to meet, the requirements needed to become signatories to its multilateral memorandum of understanding.

In 2005, IOSCO resolved that all jurisdictions should apply to become signatories to the MOU by January 1 of this year, a target that has now largely been met.