Senior securities regulators have stressed the need for more work at the international level to foster regulatory cooperation and convergence between jurisdictions. Speaking after a meeting of the International Organisation of Securities Commissions (IOSCO) in Australia, the regulators said participants at the recent meeting had agreed to push ahead with the convergence agenda. 

Howard Wetston, chair of the Ontario Securities Commission, said that cross-border regulatory issues had dominated the recent closed-door IOSCO meetings in Australia. "The things that we are talking about at IOSCO are primarily cross-border issues — the tools that we have used and are needing to develop. Conduct and disclosure are critical," Wetston said. Wetston said that one of IOSCO's primary goals was to "restore trust in the financial system", which was still lacking following the global financial crisis. He said the members of IOSCO understood that this would be an ongoing process. 

"We need to think long-term not short term," he said. "It's about setting the rules of the game; it's about registration; it's about enforcement; it's about compliance; it's about trading; it's about infrastructure oversight. These are as important as ever to foster the important capital raising and investor protection functions."

Ranjit Singh, executive chairman of the Securities Commission of Malaysia, said it was also incumbent upon the financial services sector to support this work. He said many in the industry had complained about the surge in regulation in the wake of the financial crisis. Singh said this was inevitable given the industry's failure at so many levels to effectively self-regulate in the lead-up to the crisis.

"If the industry wants the regulatory pendulum to swing back it must rise to the challenge to regain the trust and confidence of not just the regulators but more importantly the broader marketplace and the public at large. [It needs to show] that it can act responsibly and be able to provide the self-governance needed to prevent the excesses and misalignment in incentivised behaviour that led to the recklessness that characterised the financial system," Singh said.

David Wright, secretary general of IOSCO, said financial institution resolution issues had also been a focus area at the international regulatory level. He said this was a critical lesson to emerge from the financial crisis, including the interconnectedness of the larger financial institutions. Wright said this was invariably an issue that required greater levels of global cooperation and consensus.

"We have to have a policy — a global one — that works on resolution. That is, failing complex large financial institutions have got to be able to be wound up and disposed in the corporate graveyard like we would concrete truck. That is a tremendous challenge when you have multiple branches and subsidiaries all over the world. Who's in charge of that?" he said.

New year's resolution 

Wright said that while regulators around the world had made a lot of progress intellectually on the key aspects of resolution, the implementation would be "extraordinarily complex".

"Globalisation requires us to act in consistent ways. If we don't do that we have fragmentation, we have regulatory arbitrage and in the worst cases a race to the bottom," he said. "We have just agreed to an important mandate ... to look much more deeply at how we can coordinate our regulatory efforts on a global level."

Wright also said that technology was becoming a hot topic in regulatory circles. "We have to be ahead of the curve, not behind it, as a regulatory community," he said.

Singh said over-regulation was an ongoing topic of discussion. The public dissatisfaction with the financial sector following the crisis had triggered a substantial tightening of regulation. This was ostensibly a way to bolster the resilience of the global financial system. This had also, however, led to complaints from across the industry about ill-informed, unnecessary or rushed regulatory changes.

"Financial institutions across the globe are facing an unprecedented number of new laws, regulations and requirements. Greater intrusiveness in regulation appears strongly as a feature of the regulatory approach taken in many jurisdictions. Businesses, when asked what are some of the top risks they face, point to regulation as one of the main areas of concern," Singh acknowledged.

He said the degree of regulatory reform and extent of new regulations ran the risk of undermining the purpose of the markets that they seek to regulate. "We are already observing the impact in some parts of the world on capital formation, investment and trading patterns and risk-taking that are atypical in capital markets. Instead of more regulation as the panacea there must be equally greater emphasis placed on higher governance and conduct standards at the level of the firms and institutions," Singh said.

The key, he argued, was to push at the international level for greater cooperation, stronger governance standards, more accountability and greater transparency.

Multiple voices 

Singh also said it was essential for the credibility of the post-crisis reform agenda that it be developed from beyond the major G8 jurisdictions. He said to get the buy-in of the global financial community there needed to be involvement from a much broader range of stakeholders.

"The global discussions on regulatory reforms are still dominated by a few jurisdictions. Such a situation risks marginalising the needs of other financial markets, regional or emerging, and could inadvertently result in regulatory fragmentation," Singh said.

Wetston said he agreed with Singh and warned that the push for a globally consistent regulatory framework was still far from being a fait accompli. "There is no reason at this stage for us to be over-confident. The regulatory reform movement that we're all engaged in must be completed," Wetston said.

Looking ahead, Singh said the growth of technology and complexity had made the task of financial regulators increasingly difficult. He predicted that regulators would need to hire individuals with high levels of expertise in niche areas to keep up with changes in the financial sector. He said this could require a new approach to resourcing and would need strong support from national governments to succeed.

"One of the tools regulators need to develop is a much stronger capacity to be able to understand these complex products that are coming out. They need to be able to go out there and actually put the resources in to be able to bring in experts in this area and pay for those experts. There needs to be a greater recognition that, as the regulatory environment becomes more complex, you need specialists in that area to be able to have the right conversations with the financial engineers that are developing these products," Singh said.

This post was also published on the Thomson Reuters' Compliance Complete service (http://accelus.thomsonreuters.com) and is re-produced here with permission