The 86 emerging markets members of the world’s securities markets regulator, International Organization of Securities Commissions (IOSCO) (www.iosco.org), form 80% of IOSCO membership and are increasingly important in the global economy. They have backed the setting up of IOSCO Foundation, to boost funding so IOSCO can scale up research, education and training and technical assistance. IOSCO, the leading international policy forum for securities regulators, is recognized as the global standard setter. The organization’s membership regulates more than 95% of the world’s securities markets in 115 jurisdictions and it continues to expand.
IOSCO’s Emerging Markets Committee (EMC) met on 19-21 Nov in Santiago, Chile, and was reported in this IOSCO news release. It includes the world’s fastest growing economies and 10 members of the important G-20 group of countries. New members are still joining, boosting its role in IOSCO. The Chairman of EMC has a seat on IOSCO’s influential Financial Stability Board.
EMC Chairman Vedat Akgiray of the Capital Markets Board, Turkey said: “Since the distribution of global economic wealth is continuously changing in favour of today’s rapidly growing emerging markets, as the future candidates for being developed economies, ‘proper’ securities regulation in today’s emerging markets is tantamount to ‘proper’ regulation of tomorrow’s developed markets. Therefore, emerging markets within IOSCO and the global financial system are much more important than they were in the past.”
A task force is working on ensuring emerging markets have a stronger voice in IOSCO. According to Akgiray: “A stronger role for the EMC in the future is supported by its members, given its growing importance in the global financial markets and international bodies. The new structure and the functions of the EMC in IOSCO after 2014 will be designed in the coming months, with more importance given to market development and capacity building activities.”
EMC members also debated their perceptions of major emerging risks in their jurisdictions, as part of an IOSCO effort to anticipate systemic risks before they disrupt markets. They warned of spill-over effects from developed economies’ crises, the unintended consequences of some global regulatory reforms as they are applied to emerging markets, sudden capital withdrawals and their impact on liquidity, and the expanding regulatory perimeter. Members highlighted the following as major concerns and challenges, among others:
• Capacity-building, investor education, financial inclusion and literacy to rebuild trust in capital markets;
• Strengthening corporate governance, developing SME financing and corporate bond markets;
• Predominance of bank financing;
• Complex financial products and institutions;
• Risk management and risk-based supervision,
• Development of corporate bond markets
IOSCO secretary-general David Wright who started in March (see IOSCO press release) said one of his core priorities was boosting IOSCO’s funding to help aid its work in assisting emerging market regulators with technical advice. He was reported on eFinancial News as saying: “Helping develop emerging markets’ securities markets and ensuring that they are fully on board at a decision-making level is fundamentally important to the global economy.
“As banks become ever more constrained in terms of leverage, and the public sector is starved of cash for years, if not decades, then the securities markets will have to play a much greater role in capital allocation. For that reason, we must have a vision for a truly global securities market, based on the application of rigorous standards.”
The Foundation is to be proposed at the IOSCO Board meeting in March 2013 in Sydney. Paul Muthaura, Acting CEO of the Capital Markets Authority Kenya, said: “The Capital Markets Authority Kenya and indeed the whole East African Securities Regulatory Community warmly welcome the launch of the IOSCO Foundation. This initiative is central to mobilizing the critical resources necessary for capacity building, training exposure and research support that are at the core of supporting emerging markets to converge with international standards of the Foundation.”
A key tool of IOSCO is the framework for the Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information which enables regulators to exchange information in the case of an investigation, boosting international enforcement and effective global regulation of securities markets. IOSCO members who have not yet signed are encouraged to do so by January 2013. So far 89 IOSCO members have signed and another 30 are invited to be listed in Appendix B, members who are committed to becoming signatories but lack legal authority to comply. Two members of EMC have not applied to sign the MMoU. South Africa, Nigeria and most recently Tanzania are Appendix A signatories in Africa, as reported on this blog in May.
Ranjit Ajit Singh, the Vice Chair of the EMC and Chairman, Securities Commission Malaysia, said: “Our role as securities regulators in emerging markets has become undeniably more challenging as capital markets in emerging economies grow in size and take on a more significant role in financing global economic growth. The Emerging Markets Committee will therefore need to play an increasingly more significant role within IOSCO and the wider regulatory policy framework to contribute to international efforts in regulatory reform and market stability.”
NOTE: Vedat Akgiray, Chairman of IOSCO’s Emerging Markets Committee, Vice Chairman of IOSCO’s board and Chairman of the Capital Markets Board in Turkey will be a speaker on the panel “Capital Market Reforms: Impact of Global Regulations on Emerging Market Economie” next Monday (3 Dec) at the African Stock Exchanges Association conference (ASEA 2012) in Cairo, Egypt. Other speakers are Dr Ashraf El Sharkawy, Chairman of the Egyptian Financial Supervisory Authority (EFSA) and Bob Singletary, PFS Senior Capital Markets Advisor and Principal, Lenzie Fisher Hendry LLC (and I will be moderator). For more details of the conference, look here: http://www.aseaegypt2012.org.