January 21, 2016/IOSCO

Global emerging capital market regulators met this week in Bali, Indonesia, at the IOSCO Growth and Emerging Markets (GEM) Committee annual meeting hosted by the Indonesian Financial Services Authority to further work on strengthening systemic resilience while remaining alert to market risks.

Risks in emerging capital markets

At the roundtable discussion with leading global market analysts, the GEM Committee discussed current global financial risks including the implications of declining economic growth and divergent monetary policies including uncertainties in the US Fed’s interest rate path, slowdown of the Chinese economy, decline in commodity prices, enhanced market volatility and their effects on emerging markets. Discussions also focused on the factors underlying some tight liquidity conditions and pressures on emerging markets corporate debt exposure, particularly given rising US dollar and interest rates.

The GEM Committee underlined the importance for emerging markets to continue to demonstrate an ability to withstand heightened volatility surrounding the global economy. In this current sentiment-driven environment, it is critical that emerging market regulators continue to enhance structural resiliency and focus on building strong fundamentals and robust governance. Other important imperatives include policy and regulatory certainty, having in place sound market microstructure and strengthening domestic institutional capabilities. The GEM Committee is committed to continuing its regular engagements with market participants to effectively identify and address key risks.

The Chairman of the GEM Committee, Ranjit Ajit Singh said “Ongoing structural shifts in an increasingly interconnected global financial landscape and synchronised cycles require deep and resilient capital markets that are able to withstand global volatility whilst allowing markets to operate in an orderly manner”.

Regulatory policy priorities

During the meeting, the GEM Committee discussed its on-going work on digitalisation and the regulatory impact of financial technology (FinTech) on regulation, supervision, market surveillance, as well as the implications on market risks, incentives and behaviour.  Members also discussed its current work on strengthening corporate governance and conduct in markets, noting the importance of high standards of corporate governance in ensuring robust capital markets and building international investor confidence.

Strengthening cyber resilience in emerging markets

The GEM Committee also held a regulatory exercise featuring a world first cyber-attack simulation involving participants across more than 40 jurisdictions, and focused specifically on the role of securities regulators when dealing with cyber-attacks on regulated entities. The simulation provided a critical platform to raise awareness of the consequences of the evolving cyber-threat and to discuss effective responses.

The GEM Committee identified the over-arching themes during the simulation as “(1) the need to have a clear, well-defined and institutionalised crisis management plan in place; (2) to balance a proactive and reactive regulatory approach to respond and facilitate recovery in the event of a major cyber breach affecting regulated entities;(3) importance of cross-border cooperation and information sharing; and (4) importance of effective and clear communication with the general public, investors, affected entity, other market participants, law enforcement and other agencies and bodies”.

Conference on innovation and governance in emerging markets

The GEM Committee will hold a public Conference on Optimising Innovation and Strengthening Governance in Emerging Markets on 22 January 2016, which will be officiated by Darmin Nasution, the Indonesian Coordinating Minister for Economic Affairs. Discussions will focus on innovative initiatives to support market based financing for SMEs in emerging markets, the opportunities and regulatory responses arising from FinTech and the importance of corporate governance in promoting investor protection in emerging markets.

The post Emerging market regulators reinforce commitment to strengthen resilience while ensuring fair and orderly markets appeared first on Investadvocate.

Lagos (INVESTADVOCATE)-The International Organization of Securities Commissions (IOSCO) Wednesday said financial return crowd-funding will bridge credit gaps left by banks.

This is contained in an IOSCO’s staff working paper entitled ‘’Crowd-funding: An Infant Industry Growing Fast’’

Other main benefits of FR crowd-funding include providing a boost to economic growth through flows of credit to small and medium-sized enterprises (SMEs) and other users in the real economy, offering lower cost of capital/high returns, leveraging off a lower cost basis and providing a new product for portfolio diversification.

On the risks aspect, IOSCO said there would be risk of default, fraud, illiquidity and risk of investors’ inexperience.

In terms of risk, IOSCO says the FR crowd-funding poses many risks and raises an array of investor protection issues. ‘’The challenge facing regulators and governments around the globe is to strike a balance between encouraging crowd-funding and mitigating the risks associated with its growth, while protecting investor interests,’’ IOSCO said.

According to global securities market regulator, crowd-funding is an umbrella term describing the use of small amounts of money, obtained from a large number of individuals or organisations, to fund a project, a business or personal loan, and other needs through an online web-based platform.

IOSCO says financial return crowd-funding (FR crowd-funding), could also be referred to as peer-to-peer lending and equity crowd-funding.

It said FR crowd-funding is a type of market-based finance that could help stimulate economic recovery by channelling capital to SMEs.

The report affirmed that the FR crowd-funding market has doubled year on year for the last five years to an estimated $6.4 billion in 2013, driven by annual growth of 90% in peer-to-peer lending. ‘’Peer-to-peer lending has spread across the globe, making FR crowd-funding a global phenomenon. The equity crowd-funding market is more modest in size and has grown at a slower pace,’’ the report said.

Also, it concludes that the FR crowd-funding market does not present a systemic risk to the global financial sector at present. However, it indicates that various factors could modify this outlook in the future.

‘’With the next evolution of this industry being in the global nature of funding sources, the challenges ahead will include cross-jurisdictional contractual and legal harmonisation, dispute settlement and resolution issues. IOSCO as a global standard setter for securities market regulators can have a role to play here in aiding regulators in monitoring the development of the industry,’’ the global securities market regulator said.

This is coming on the heels of the outbreak of the current financial crisis, which IOSCO adopted a new strategic direction that emphasised the need for securities regulators to identify, monitor and manage systemic risks. 

The post Financial Return Crowd-Funding will Bridge Banks Credit Gap-IOSCO appeared first on Investadvocate.

Lagos (INVESTADVOCATE)-The International Organization of Securities Commissions (IOSCO) Wednesday unveiled eight (8) principles on the protection of client assets.

IOSCO in a Statement made available to InvestAdvocate says the final report on recommendations regarding the protection of client assets seeks to help regulators improve the supervision of intermediaries holding client assets.
 
According to IOSCO, events such as the Lehman Brothers and MF Global insolvencies have placed client asset protection regimes in the spotlight.  ‘’This is the result of investors trying to better understand the potential implications of placing their assets with particular intermediaries and in certain jurisdictions,’’ IOSCO said.

Similarly, world’s securities commission said regulators also have been seeking to address risks to client assets and how to transfer or return client assets in default, resolution or insolvency scenarios.

IOSCO affirmed that the eight (8) principles published today provides guidance to regulators on how to enhance their supervision of intermediaries holding client assets by clarifying the roles of the intermediary and the regulator in protecting those assets.

It further affirmed that many jurisdictions have rules and regulations governing client assets, although their protection regimes may vary across these jurisdictions. ‘’The report outlines the intermediary’s responsibility to ensure compliance with these rules, including through the development of risk management systems and internal controls to monitor compliance,’’ IOSCO said.

The world’s securities commission said where the intermediary places client assets with third parties, the intermediary should reconcile the client´s accounts and records with those of the third party.  ‘’While the intermediary must comply with the client asset protection regimes, the regulator has a role in supervising the intermediary’s compliance with the applicable domestic rules and maintaining a regime that promotes effective safeguarding of client assets, according to the report,’’ it said.

The global securities regulator said it received 21 public responses to the consultation report on protection of client assets which was published in February 2013. ‘’A Feedback Statement summarizing the major issues in the comment letters and the collated responses to the most recent survey on client asset protection were also published today with the final report,’’ IOSCO said.

The post IOSCO Unveils Eight Principles on Protection of Client Assets appeared first on Investadvocate.