BASEL, Oct 9 — Global securities regulators have agreed to focus more on the risks products and markets pose to the broader financial system as they reassess their role in light of the credit crunch.
“We are setting out a standard telling regulators that you should be looking and trying to assess emerging risks in market conduct,” Jane Diplock, chair of the International Organisation of Securities Commissions’ (IOSCO) executive committee, told Reuters.
IOSCO has 109 member countries which collectively represent 95 percent of the world’s capital markets. Membership includes a requirement to apply IOSCO’s principles.
Diplock said the new standard on systemic risk will be adopted by January.
Failure by all regulators and central banks to spot system-wide risks from products, markets and banks is widely accepted as a core lesson from the worst financial crisis in 70 years.
The European Union and United States are setting up structures to monitor systemic risk better so they can spot asset bubbles earlier in the hope of averting taxpayer bailouts.
Diplock said the standard will spark further debate on the roles of securities regulators such as whether the “perimeter” of supervision should be widened.
Products such as sub-prime mortgages that lay at the heart of the crisis were lightly regulated or not at all. Regulators are already planning new rules for over-the-counter derivatives markets and hedge funds that were lightly regulated.
PRODUCT REGULATION
Regulators are wrestling with the issue of whether direct product regulation is needed to ensure they are suitable for consumers.
More regulators are requiring sellers to provide a short, clear statement to consumers on the risks of products but they are also looking at whether actual product vetting is needed.
“These questions have arisen but I would suggest they have not be been resolved,” Kathleen Casey, a commissioner at the US Securities and Exchange Commission, told reporters.
The Bank for International Settlements earlier this year called for financial products to be authorised like medicines, reflecting the level of “danger” to consumers.
The EU’s executive European Commission is studying the issue, as is Britain’s Financial Services Authority, which has suggested product vetting is not needed at the wholesale level. Hong Kong is thrashing out a code on structured products.
But regulators are unsure how it would work in practice.
“There is a big debate to be had about where suitability begins and ends,” said Diplock who is also chairman of the New Zealand Securities Commission. Daniel Zuberbuehler, vice-chairman of Swiss FINMA regulator said consumers should not have too high expectations that product control would have prevented a crisis.
He also cautioned about worrying over too much regulation, saying the public should not take “banks crying too seriously”.
“It’s like the advice ‘be nice to your grandmother but when she starts talking about the good old times, don’t believe her’,” Zuberbuehler told reporters.
Diplock said she wants the G20 group of countries, which is spearheading the credit crunch global regulatory push, to agree that every country should publish reviews of its regulatory system as a matter of course. — Reuters
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