18 May, 2012

Xinhua Insight: Global Regulators Seek Solution to Regulatory, Financial Challenges

Xinhua

BEIJING, May 16 (Xinhua) — As the world’s equity markets jitter over the fallout of JP Morgan Chase & Co.’s two-billion-U.S.-dollar trading loss and fret about a likely Greek default, global securities regulators are trying to find a solution to minimize the impact.

More than 500 representatives from securities regulatory agencies from 203 countries and regions convened in Beijing on Wednesday to discuss a new financial architecture for the post-crisis era.

The annual public conference of the International Organization of Securities Commissions (IOSCO), which sets international standards for regulating securities markets, comes at a time when renewed uncertainty about Europe and JP Morgan have spooked investors worldwide

“It’s too early to say something definite about the problem of JP Morgan or any other institution that may be at large losses,” said Masamichi Kono, chairman of the IOSCO Technical Committee, while answering a question at a press conference on the sidelines of the meeting.

“These cases have occurred several times in the last few years. it will continue [to happen],” Kono said, trying to downplay the severity of the incident.

“But the objective of global financial regulators, including the IOSCO, is to make sure that such unfortunate incidents do not threaten global financial stability, as well as ensure that the financial system is resilient enough to absorb losses without causing major destruction to the global economy and [hampering] economic growth,” he said.

Kono said the IOSCO will provide policy recommendations and develop standards for systemically important non-banking institutions, along with assistance given to banks by the Basel Committee.

The IOSCO conference’s attendees are focusing on establishing a new financial architecture for the post-crisis era, financial market infrastructure and market integrity, capital market development in emerging markets and the regulation of commodity futures and financial derivatives.

In private meetings held before the public conference, the IOSCO vowed to continue leading the development of regulatory standards for capital markets, identify emerging securities markets risks and prepare to respond to requests for work by the G20 and the Financial Stability Board.

“This annual conference is taking place in Beijing at a pivotal moment. We are seeing an important change — a move toward an increase in financing for the world economy by securities markets,” said David Wright, IOSCO secretary-general.

As the global economic crisis continues, securities markets are expected to step in and fill in the funding gap left by cash-strapped governments and financial institutions that can no longer finance economic growth.

Pressure is growing for regulators to ensure that robust and transparent markets are prepared to meet the rising demand for capital.

On Wednesday, securities regulators from Malaysia, Peru, Egypt and Mauritius, all IOSCO members, signed the Multinational Memorandum of Understanding (MMoU), an instrument established in May 2002 and subsequently used by securities regulators to help ensure effective global regulation and strengthen securities markets around the globe.

The new membership brought the total number of MMoU signatories to 86 countries, covering more than 94 percent of the world’s securities markets.

In a press release, the IOSCO hailed the MMoU as the “preemptive standard” for international enforcement cooperation and information sharing, as it provides securities regulators with the tools for combating cross-border fraud and misconduct that can weaken global markets and undermine investor confidence.

“The MMoU has created a groundswell change in what securities regulators are able to do,” said Mark Steward, executive director of enforcement at the Hong Kong Securities and Futures Commission.

“Cross-border cases that could not have been investigated 10 years ago can now be investigated and brought before relevant courts and tribunals,” Steward said. “This would not have been conceivable before the MMoU.”

Steward’s sentiment was echoed by Ethiopis Tafara, director of the Office of International Affairs of the U.S. Securities and Exchange Commission.

“The ability to turn to an increasing number of information-sharing partners through the MMoU has been critical to the success of many of our investigations and proceedings,” said Tafara. “Now with more than 80 signatories, the MMoU’s breadth spans the globe many times over, telling fraudsters there is nowhere to hide.”

The MMoU provides a mechanism through which securities regulators share essential investigative material, such as beneficial ownership information and transaction records, including bank and brokerage records.

It sets specific requirements for the exchange of information, ensuring that no domestic banking secrecy, blocking laws or regulations prevent the provision of enforcement information among securities regulators.

“The MMoU has made a real difference in the world of international enforcement, raising the standards of enforcement action, encouraging cooperation among international regulators and making it more difficult to conduct market misconduct in an increasingly cross-border environment,” said Georgina Philippou, co-chair of the MMoU Screening Group.

The increase in the number of signatories over the last decade has led to a sharp upsurge in cross-border cooperation, enabling regulators to investigate a growing number of inside traders, fraudsters and other criminal offenders.

In 2006, a total of 520 requests for assistance were made pursuant to the MMoU, with the figure exceeding 2,000 last year, according to the IOSCO.

The IOSCO said it is committed to eradicating any potential safe havens for wrongdoers by ensuring that its members who have yet to become signatories to the MMoU will do so as quickly as possible.

To further expand its network for cross-border cooperation, the IOSCO on Wednesday approved a resolution that allows it to take tougher measures to encourage compliance by IOSCO members who have not yet signed the MMoU.

The new resolution is designed to assist non-signatories in overcoming the obstacles they often encounter in securing support from the government and legislative bodies for implementing the legal and regulatory changes required for compliance with the MMoU.

Under the resolution, IOSCO will publish on its website a list of members who have not become MMoU signatories and consider further measures to persuade non-signatory members to sign the MMoU, such as limiting their ability to influence IOSCO decision-making, starting from Jan. 1, 2013.

Before the MMoU existed, IOSCO members relied on bilateral agreements to obtain cross-border information and technical assistance. Those accords were limited in scope and hampered by legal impediments to the free flow of information between jurisdictions.