Global market watchdogs to focus on systemic risk

October 9, 2009

iosco    By Huw Jones
   BASEL, Switzerland, Oct 9 (Reuters) – 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 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.
   The Bank of 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. Hong Kong is thrashing out a products 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.
   Each IOSCO member undergoes a review known as a financial sector assessment programme by the International Monetary Fund and the World Bank to see if it is applying globally agreed banking, insurance and securities rules properly.
   It is up to each country whether to publish the outcome but 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 as a matter of course. (Reporting by Huw Jones, editing by Chris Pizzey) ((Reuters messaging:; + 44 207 542 3326;
Friday, 09 October 2009 08:54:42RTRS [nL9490058 ] {C}ENDS

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