It is my great pleasure to welcome you all to the third IOSCO Technical Committee conference. This conference has already established itself as a key event in which the most influential players in the securities markets and regulators from developed and emerging markets can come together to exchange insights and to influence each others' agendas.
Such a dialogue has never been more important. We live in a world in which financial flows are growing rapidly and in an increasingly disintermediated form. Over the past five years, global equity issuance had risen by 60% and corporate equity issuance by 30%; the stock of outstanding OTC derivatives has tripled. At the same time, traditional bank lending has tended to take second place to securities issuance both in Europe and the US.
Notwithstanding the radical changes seen in recent years, I count myself among those who believe that, with the potential for growth of capital markets in India and China, we ain't seen nothing yet. A few figures tell the story eloquently. Total capital raised through equity issuance in China amounted to around $25bn last year, while total bond issuance was approximately $200bn. The stock of savings in that country meanwhile currently stands at over $4tn. It is clear that the development of Asian capital markets to anything like their full potential will transform the landscape for global capital flows.
The changes in capital markets that I have outlined do not of course have value as ends in themselves. They matter because the more scope there is for issuers to access ready pools of liquidity and for investors to achieve their preferences for risk and return, the greater will be the contribution of financial markets to global prosperity. But such changes inevitably raise issues for regulators. These are often complex and of concern simultaneously to regulators around the world. This is why IOSCO – in bringing together securities regulators to focus on a common agenda – is so important.
IOSCO has risen to this challenge in recent years. Let me first of all congratulate the Technical Committee under Michel Prada's distinguished chairmanship on the progress it has made in managing its own workload. The range of issues with which IOSCO could legitimately concern itself is very wide. Its capacity however is strictly limited. That implies a need for effective prioritisation and the Technical Committee has recently introduced a number of changes in its working practices designed to allow it to focus its efforts more effectively.
IOSCO's record in addressing issues of common concern has been impressive in recent years. At the risk of making invidious choices, let me mention just three important initiatives. The code of conduct developed for credit rating agencies underpinned much of the subsequent work in this area undertaken in the European Union. The trading book review undertaken in conjunction with the Basel Committee established a harmonised, risk based capital regime for banks' and securities firms’ trading activities. And the multilateral MoU has been a landmark development in providing for information exchange among members on an equal basis among countries with very different regulatory and legal structures. These and other examples show just what a difference IOSCO is making.
The value of this conference lies in the opportunity it provides for an in-depth dialogue between regulators and the industry. In a complex world regulators should – and will – look increasingly to industry for assistance. Firms and other market participants will usually be the first to observe and feel the effects of market failures. I hope they will often provide the solution without the need for any regulatory intervention. That is by far the best outcome. But where market solutions are elusive there may be a case for regulatory intervention. In these instances industry can offer insights into the form of intervention that will be most cost effective. Often this should involve measures other than writing new rules. There are many, and better, means of solving problems than new regulations. Regulators have available to them a range of flexible tools for dealing with specific issues. And to the extent that industry has collaborated with regulators in identifying problems and suggesting tools for dealing with these, the solutions are likely to be more practicable, and easier to implement, than if the regulator had imposed these from above.
Some of the industry representatives among you may be wondering why you would want to make suggestions for more regulation. But it is in no-one's interests for market failures to persist when these are a source of risk or detriment to firms or their investors. In contrast, it is in everyone's interests that regulators come up with measured and workable solutions for dealing with such failures. The recent, much needed and broadly successful progress on reducing the backlog of credit risk derivatives is a prime example of this. The problem was systemic, and therefore not capable of being solved by any one broker dealer acting on its own. It was susceptible to joint action, in this case by the New York Fed, the SEC and the FSA. And far from imposing additional net burdens on the firms concerned there is widespread industry satisfaction that the world is a better and safer place as a result of the regulators' efforts in effecting a solution.
I would like to see much more of this kind of collaboration. In my experience the financial industry can be unfortunately reluctant to draw regulators' attention to legitimate causes of concern – perhaps as a result of misguided concerns about making rods for your own backs. But I would ask you to reflect on the real value of the kind of collaboration I have outlined and to remain mindful over the next couple of days of the role that you are being invited to play in shaping the regulatory agenda. This is an opportunity for you to guide regulators on what is – and is not – needed. Please use this opportunity to the full.
It is the work of the IOSCO committees which ultimately impacts regulated firms. We have based the five panel discussions of the next day and a half around the IOSCO committee structure - asset management, markets and exchanges, financial intermediaries, cooperation and enforcement, and auditing and accounting - with a concluding panel in which senior figures from IOSCO will discuss key issues of concern to the industry. This is your opportunity to influence IOSCO. As I say, please use it.
I am delighted to be joined in opening this conference by the UK Economic Secretary, Ed Balls, and the Chairman of the SEC, Christopher Cox. Let me hand over to the Economic Secretary to add his welcoming comments.
