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The International Organization of Securities Commissions (IOSCO) today published the final report on the Thematic Review on the Implementation of Principles 6 and 7 of the IOSCO Objectives and Principles of Securities Regulation (the Review).
IOSCO included Principles 6 and 7 in the IOSCO Principles in 2010 as part of its response to the global financial crisis. The new Principles were intended to address particular concerns that regulatory requirements and frameworks did not adequately address risks posed to securities markets and the need for securities regulators to play a role in addressing systemic risks and maintaining financial stability.
- IOSCO Principle 6 requires regulators to have or contribute to a process to monitor, mitigate and manage systemic risk, appropriate to their mandate.
- IOSCO Principle 7 requires regulators to have or contribute to a process to review the perimeter of regulation regularly.
The IOSCO Principles are an agreed set of high-level global standards that outline the basis of effective and robust securities regulation.
The Thematic Review of IOSCO Principles 6 and 7 is the first review conducted by IOSCO’s Assessment Committee, which was established in 2012 to promote full, effective and consistent implementation of IOSCO Principles and standards across IOSCO membership.
The objective of the Review was to provide a snapshot of implementation of these Principles in IOSCO member jurisdictions and to identify and share good practices. It was also intended to be a call to action for all IOSCO Members about the importance of implementing these Principles.
The Review was undertaken by a Review team led by Gert Luiting of the Netherlands AFM and consisted of representatives from the securities commissions of Australia, France, India, Japan, Luxembourg, the United Kingdom, the United States, , and the IOSCO General Secretariat.
Key Findings:
The Review found that the 31 jurisdictions participating in the Review had made significant efforts to implement these Principles.
The Review found good progress in developing processes and procedures to identify systemic risks.
The Review pointed to the need for further work to develop processes to manage and mitigate systemic risks.
The Review also found many jurisdictions had developed processes to review the regulatory perimeter – with many of those processes being informal – rather than formal. The Review saw scope for members to better articulate their responsibilities, powers and objectives to achieve the outcomes sought by this Principle.
Recommendations:
The Report makes 10 recommendations to assist IOSCO members in developing and embedding systemic risk and regulatory perimeter review processes.
- These recommendations cover the following areas:The structure within which processes are conducted – including integration into existing risk management frameworks, clear definitions of systemic risk and clear responsibilities in jurisdictions in relation to systemic risk and reviewing the regulatory perimeter.
- Aspects of the processes regulators should develop – including the need for systematic and robust analysis of accessible, reliable and good quality data, engagement with market participants in understanding risks and processes to review developments in securities markets.
- Intra-jurisdictional and cross border cooperation and coordination under established procedures and arrangements.
- Culture and resourcing – to ensure processes are effective and meaningful.
IOSCO Board Chair Greg Medcraft welcomed the Report.
“This Report will help members in designing and refining the processes they have about systemic risk and keeping the regulatory perimeter under review. It will give the granularity our standards need to be useful, relevant and implemented”, he said.
“The recommendations about culture and resourcing are particularly important. They highlight the importance of raising awareness of arrangements relating to systemic risk and regulatory perimeter review. We need to encourage the professional skepticism needed to ensure those arrangements are used in a meaningful and constructive way,” he added.
