David Wright, secretary general at the International Organisation of Securities Commissions (IOSCO), has issued a rallying call for greater global cooperation on financial standards, to help investors trade anywhere in the world with greater confidence.
“There’s a need for transatlantic cooperation,” he said during a keynote speech at the International Derivatives Expo held in London on Wednesday. “We shouldn’t have unnecessary overlapping and conflicting rules from Congress and the European Parliament. That adds cost for investors.”
Following the commitment of the G-20 nations to reduce systemic risk in OTC derivatives markets through centralised clearing and trading, regulators across the globe have sought to understand questions such as how much capital should be required for non-cleared derivatives, what kind of organisations the new rules should apply to, and where the rules should apply. Often, the answers to those questions have varied between jurisdictions, creating a web of complexity for buy- and sell-side firms and adding time and cost for end-investors.
Global complication
Referring to reforms on OTC derivatives and the reporting of trades to central securities depositories, Wright added that the situation for large international companies was being complicated by a conflation of rules between the US, the European Union, and various Asian regulators.
“The answer is for IOSCO to be involved at an early stage, before it’s too late,” he said. “It’s no good trying to come up with a solution, if the US and Europe have already separately decided on their own rules. That’s too late.”
Created as a federation of regulators dedicated to oversee global securities regulation, IOSCO currently has around 200 securities regulator members from around the world. The organisation has already collaborated with the Committee on Payment and Settlement Systems to release international standards for central securities depositories (CSDs), central counterparty clearing houses (CCPs), securities settlement systems, payment systems and trade repositories. The discussions encompassed what kind of data should be reported and what format it should take, among other issues.
But Wright insisted that there is a need for mutual recognition, particularly over enforcement and monitoring, that goes beyond the adoption of common principles.
“We still need more cooperation,” he said. “The US regulators must trust the UK’s Financial Services Authority to do the job, and vice versa. There can’t be ring-fencing of businesses and standards around the world – that would make business near-impossible.”
A common standard
IOSCO standards are not legally binding – so the organisation cannot force individual states to comply in full with its standards. But the body has set up an assessment and enforcement division, which is tasked with examining whether its standards have been applied. In extreme cases, it could expel a member country for not complying – although that would be a last resort.
“It is unlikely we will see a single regulator with the legal power in every country in the world to enforce standards,” said Wright. “But no country wants to see its name last on a list of countries adopting high-quality practices. Our role is to encourage compliance as far as humanly possible.”
The organisation is also building the IOSCO Foundation, to provide education, training and practical assistance for the 80% of our members that come from emerging markets. The goal is to help take high-quality financial standards global, creating a more efficient and safe global securities market.
“Imagine in ten years, we’ll have the best set of rules not just in a few countries, but all around the world,” said Wright. “If we can do this job of supporting high quality securities standards around the world, investors can have confidence they will be treated, wherever they trade. That’s a world we should aspire to.”