In a previous opinion piece on the CLMR portal Justin O’Brien discussed how well regarded the Australian Securities and Investment Commission (ASIC) is internationally and also flagged the fact that ASIC’s chairman Mr Greg Medcraft will assume the chairmanship of the International Organization of Securities Organizations (IOSCO) in September 2013.  Mr Medcraft will replace Mr Masamichi Kono, Vice Commissioner for International Affairs at The Financial Services Agency of Japan, who previously also had served as Chairman of IOSCO’s Technical Committee since 2011.  This paper examines the history and governance structures of IOSCO to date.  A second piece will analyse some of the likely key regulatory agendas for IOSCO up to, and including, Mr Medcraft’s eighteen month tenure, and some of the possible obstacles to IOSCO succeeding in achieving these agendas

IOSCO was established in April 1983 in Quito, Ecuador at a meeting of the inter-American regional association comprising eleven securities regulators drawn from North and South America.  This move from a regional basis to an organisation that would offer participation to securities regulators from around the globe was recognition of the market realities of the evolving financial sector.  In particular due to the effects of changes in currency controls, rapid technological development and innovation in financial products and services, the capacity of national regulators to effect control of their national markets was being reduced by the increasing internationalisation and inter-connectedness of those national markets themselves. This ongoing (because IOSCO is continuing to grow in its constituent membership), move from an American group to a truly international focus was far-sighted.  It was far-sighted not only in terms of its acknowledgement of the changing character of international finance markets, but also in terms of seeking to protect the national self-interest of those jurisdictions involved, both in relation to their capacity to attract investment capital and trading and also to respond to issues of systemic risk.  Securities regulators in 1983 were acutely aware, (as indeed they are nearly three decades later), of their responsibilities not only to help to provide conditions to promote relative stable and liquid environments for both their domestic and foreign investors, but also to stimulate growth of their finance centres in a rapidly growing and increasingly competitive international market place.  These core political economy goals which are discussed in more detail in a subsequent opinion piece continue to drive the strategic agendas of national securities regulators in today’s globalised financial markets.

One of the substantive implications of globalisation is that information, knowledge and normative behaviours, in particular, business norms and protocols and their attendant regulatory standards may be transmitted and dispersed across national, sectoral and cultural boundaries.  IOSCO is one of the many multi-lateral actors along with examples such as: the Basel Committee on Banking Supervision (BCBS); the International Association of Insurance Supervisors (IAIS); the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD), the World Bank and the World Trade Organisation (WTO) which act as conduits for national-based actors to influence multi-lateral trading environments, especially their regulatory character.  These normative transmissions and dispersals can become constituent factors in the game between jurisdictions as they seek to attract and/or retain capital investment.  These processes of regulatory competition are more pronounced in this current era of globalisation, when economic and political ties between many jurisdictions are deepening and jurisdictions increasingly are playing a mediating role regarding the interests of much business that may be conducted within, and around, their spheres of influence.  It is within such pragmatic parameters that securities regulators must function both in the good economic times and in times of crisis.

This realpolitik of international securities regulation should always be borne in mind when considering how an organisation such as IOSCO seeks to function and grow, and grow IOSCO has.  In 1984 France, Indonesia, South Korea and the UK became the first securities regulators from outside the Americas to join IOSCO.  IOSCO is incorporated under a private act in Canada and is sanctioned by the Quebec National Assembly.  It now has 199 members who are responsible for regulating more than 95% of global securities markets and IOSCO is acknowledged as the most significant standard setter in those markets.  Of its 199 members, 114 are ordinary members, 11 are associate members and 74 are affiliate members.  Each ordinary member has one vote and must be the primary regulator of securities and/or futures markets in the jurisdiction that they represent.  Associate members do not have a vote and are the additional securities or futures markets regulator in an individual jurisdiction, for example the Commodities Futures Trading Commission (CFTC) in the US, (the Securities Exchange Commission [SEC] is the ordinary member of IOSCO for the US).  Affiliate members have no vote and include various stock market industry associations, stock exchanges and self-regulatory organizations (SROs).

There has been significant organizational structural change announced for IOSCO in May 2012 which is discussed below.  Up until this year the key committees within IOSCO have been: the Presidents’ Committee, effectively a General Assembly comprising Presidents, Chairmen or the most senior representatives of all the securities commissions in IOSCO; the Executive Committee, effectively the executive decision-making component of IOSCO, composed of 19 ordinary members whose power has been delegated from the Presidents’ Committee; the Technical Committee has 15 ordinary and associate members and it has been the major regulatory policy engine of IOSCO; and the Emerging Markets Committee constituting 80 ordinary and associate members with as its name implies a focus on emerging markets.  Filtering down from these major committees are a number of sub-committees, (some permanent), and task forces to address specific areas and issues of securities regulation.  In addition IOSCO operates a number of Regional Committees: the Africa/Middle East Regional Committee; the Asia-Pacific Regional Committee; the European Regional Committee; and the Inter-American Regional Committee, plus the Self-Regulatory Consultative Committee.  The administrative mechanism for IOSCO has been its General Secretariat which is based in Madrid.  The Secretariat usually comprises ten or less people, so its salaries and employee benefits costs are relatively low, for example, just over €1.5 million in 2010.  Secretariat activities are augmented by secondments from a number of member organisations each year.

In the context of the vast scale of global securities markets, IOSCO’s General Secretariat might be viewed as tiny and this allied with the substantial complexity of IOSCO’s activities via its labyrinth of committees, sub-committees and task forces has built up pressure for organisational streamlining.  Consequently, the 37^th IOSCO Annual Conference held in Beijing in May 2012 saw a significant development in IOSCO’s governance structures and processes.  A new IOSCO Board was established through the three-way merger of IOSCO’s Technical Committee, its Executive Committee and its Emerging Markets Advisory Board.  It is too early to say just how significant this change will be in how IOSCO functions.  For example, whether this de facto streamlining of IOSCO’s various committee structures will see IOSCO evolve as an organisation that operates more independently, (at least in its research and policy formulation processes), from the respective influences of the various national securities regulators, (expressed through IOSCO’s various committees), that have driven IOSCO’s development and activities to date. 

IOSCO’s outputs to date have been extensive.  It has produced literally hundreds of substantive public documents, (23 in 2011 alone), covering a wide spectrum of market and policy issues that affect and shape securities markets.  These have been augmented by a large body of Annual Reports, Briefing Notes, Comment Letters, Newsletters, Press Releases, Speeches and Statements.  There have a number of significant IOSCO corporate documents and four of the most significant are described briefly below.  First, Objectives and Principles of Securities Regulation (1998), in which IOSCO set out what it sees as the 30 Key Principles and 3 Core Objectives of securities regulation.  The latter were, and still remain: the protection of investors; ensuring that markets are fair, efficient and transparent; and the reduction of systemic risk.  These were re-issued in 2003 and combined with the IOSCO Principles Assessment Methodology in order to enable an objective assessment of the extent to which these principles have been implemented in individual jurisdictions and what practical steps can be taken to achieve implementation.  In 2002 the Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (MMoU) provided a framework for facilitating exchange of information and cross-border enforcement between international securities regulators.  In 2011, in a considered response to what IOSCO sees as the structural systemic flaws exposed by the Global Financial Crisis (GFC), the Discussion Paper Mitigating Systemic Risk – A Role for Securities Regulators added eight new Principles including two that concentrate on systemic risk.

These publications are testimony to how IOSCO has established itself as the pre-eminent standard setter in international securities markets.  However in 2012, in a period of intense difficulty in international financial markets, characterised in some jurisdictions especially in the Eurozone by a sense of ongoing crisis, as discussed earlier IOSCO is setting out on a path of significant structural change.  Part II of this series will consider not only some of the agendas that IOSCO may seek to set, but also some of potential obstacles that it may encounter as it begins that journey.