As the top, global policy forum for securities regulators, the International Organization of Securities Commissions (IOSCO) is intimately linked with a host of trading activities and financial products that fall within the remit of corporate treasurers. With a membership extending to the securities regulators of Hong Kong, China, the United Arab Emirates, the US and the UK, IOSCO has a powerful, moderating influence over the world’s capital markets – acting as a sage counsel for regulatory development and a force for investor protection. This year, to boost its effectiveness, IOSCO has published its first-ever annual work programme. The document sets out a series of priority areas in which the organisation is planning to be particularly active in 2019 – such as:
Here are some highlights from the programme of particular interest to corporates…
IOSCO stresses that concerns have emerged among its stakeholders about the trading, custody, settlement, accounting, valuation and intermediation of cryptoassets – plus the extent to which investment funds are exposed to them. “These concerns,” it notes, “have implications for investor protection.” As such, the body will create a special, online portal through which members can access and share data on enforcement actions related to cryptoassets. In parallel, it will enhance its scrutiny of the development of the ICOs market. As we noted in our February ‘Five minutes on…’ piece, ICOs are not just the preserve of retail investors, but often involve ecosystems of interdependent companies. Drawing on the resources of its ICO Consultation Network, IOSCO will continue to develop a dedicated ICO Support Framework. This will help members consider how best to address any domestic and cross-border issues that arise from ICOs, with the aim of ensuring that investor safeguards are not undermined.
Financial services providers are increasingly taking advantage of AIML systems, IOSCO points out. Typically, these technologies are being used to optimise order-execution strategies, portfolio management and research. This year, the organisation will examine the supervision of market intermediaries – including asset managers – that work with AIML tools and explore ethical challenges that may stem from their use of AIML in securities markets. Data gathered in that exercise will be presented in a consultation report. In addition, IOSCO plans to team up with Canadian regulator AMF Quebec to hold a conference on AIML technologies applied specifically to the enforcement of securities market rules.
National – and international – efforts to draw up alternative reference rates designed to replace certain, major interbank offered rates (IBORs) have gained in pace and intensity, IOSCO notes. “While considerable progress has been achieved so far,” it says, “[we have] launched a new project to communicate the potential impact of the discontinuation of USD Libor by informing stakeholders about the main transition steps. “This will entail explaining how they could use alternative rates and highlighting the need to include fallbacks in existing contracts.” Material produced in that project will be aimed at jurisdictions that depend upon USD Libor.
IOSCO has observed that regulators and participants alike are seeking to understand how sustainability issues may relate to the securities markets in which they operate. To that end, the organisation has recently established a Sustainable Finance Network as a means of encouraging information sharing among members on their experiences of relevant initiatives and regulatory approaches. In 2019, the Network will conduct a survey and stocktake of national initiatives undertaken by securities regulators and other international bodies. Alongside the Network’s survey, IOSCO’s Growth and Emerging Markets Committee (GEMC) will look at factors that may be hindering the development of sustainable finance within emerging economies’ capital markets – and the role that securities regulators could play in resolving those challenges. The Network and GEMC will both produce reports on their findings this year.
Market fragmentation has become a pressing concern for industry bodies linked to the global financial markets. For example, in January, the International Swaps and Derivatives Association published a report on the subject, noting: “It has been 10 years since policymakers came together through the G20 to agree a globally consistent regulatory agenda for derivatives. Since then, substantial progress has been made at the national level to implement rules on clearing, margin, trading [and] capital in line with the G20 standards. Derivatives markets are safer, more transparent and more resilient as a result. “But while this progress is unmistakable, these regulatory reform efforts often differ in substance, scope and timing across jurisdictions. This has led to inefficiencies and higher costs for derivatives users, and ultimately results in increased risk.” For those reasons, market fragmentation has been earmarked as a high-priority issue for the Japanese G20 Presidency of 2019. Mindful of the issue’s growing importance, IOSCO will analyse how cross-border regulatory efforts are spawning potentially harmful cases of market fragmentation. It will also take stock of members’ progress in evaluating, and/or deferring to, foreign regulatory regimes since the publication of its own 2015 Task Force on Cross-Border Regulation Final Report, and weigh up any further policy implications.
National regulators’ efforts to implement OTC derivatives reforms have led to structural changes in the OTC market. Those changes may have introduced inefficiencies that are affecting market participants. IOSCO will therefore investigate those potential inefficiencies and analyse the broader effects of OTC reforms on market structure – together with the practical effects of different trade-reporting schemes. To gather first-hand information on how the structural changes are playing out, it will hold roundtables with participants throughout the year.
According to IOSCO estimates, as of 2017, passive asset management strategies comprised $8 trillion globally, representing 20% of all assets under management. It points out: “Questions have been raised about whether the growth of passive investment affects the price-discovery process, the allocation of capital and corporate governance.” As such, the organisation will initiate a comprehensive review of the impact of passive investing on the capital markets.
Read the full IOSCO work programme here.
Matt Packer is a freelance business, finance and leadership journalist