Morocco's compliance with the International Organization of Securities Commissions (IOSCO) objectives and principles was assessed by the International Monetary Fund (IMF) in 2003. The IMF assessment team concluded that measurable progress had been made in the regulatory and institutional aspects of securities market supervision, but cautioned that the underlying legal framework was somewhat inadequate, and should be substantively improved. The majority of the concerns raised by the IMF assessment related to the capabilities of the Securities Commission (Conseil D'eontologique des Valeurs Mobiliéres, or CDVM). Most of these shortcomings have been addressed, according to a November 2005 Program document by the World Bank. The World Bank attributed these improvements to the adoption of a variety of laws that bring Morocco's legal framework in securities market regulation and supervision close to alignment with international standards. The World Bank program objective is to address the outstanding legal issues and to incorporate all IOSCO principles. The changes that have already been implemented have increased the mandate of the CDVM and have given it more power to regulate the market. In light of the now-broader scope of supervision, the staffing and technology capacities of the CDVM need to be increased, a process that according to the World Bank has already begun.

General Overview

In 2003, Morocco's compliance with the International Organization of Securities Commissions (IOSCO) objectives and principles was evaluated by the International Monetary Fund (IMF) in the context of the Financial System Stability Assessment (FSSA) program. At the time, the IMF assessment team found that measurable progress had been made in the regulatory and institutional aspects of supervision of securities markets, but cautioned that the underlying legal framework was somewhat inadequate, and should be subject to substantive improvement. Nonetheless, the report noted, in the years preceding the assessment, that the regulator, the Securities Commission (Conseil D'eontologique des Valeurs Mobiliéres, or CDVM) had "issued a large number of well-crafted technical regulations, which, notwithstanding their possible lack of legal basis in case of judicial challenge, constitute a solid set of regulatory norms for the market" (p. 53).

The issues raised by the 2003 IMF assessment mainly related to the capabilities of the CDVM. Although the inspection and surveillance capabilities of the CDVM have been upgraded, the IMF claimed in 2003 that the CDVM "lacks certain key inspection and enforcement powers, partially compromising the ultimate impact of its efforts to fully supervise the market" (p. 53). Many of the powers of licensing, supervision, and sanctions lie elsewhere, and the CDVM's supervisory authority over two key market institutes, the Casablanca Stock Exchange (CSE) and the Central Depository for the securities market (Maroclear), are weak. This can be traced back to the fact that, although the applicable laws give the foundation for the supervision of the multiple entities involved in the securities market, the lack of legislative harmonization has led to significant fragmentation of responsibilities. Moreover, from a statutory viewpoint, the CDVM is not an independent agent, because the Ministry of Finance (MoF) serves ex officio as chair of its board of directors; the CDVM's director-general is appointed, and can be removed, by Dahir (royal decree); and the majority of the members of the board of directors of the CDVM are appointed by the government, and their mandate can be revoked at any time. Despite these shortcomings, the 2003 IMF assessment asserts that the CDVM's financial and human resources appear generally appropriate for its tasks.

Most of the shortcomings raised in the 2003 IMF assessment have been addressed, according to a November 2005 Program document by the World Bank, which asserts that "the legal framework in [securities market regulation and supervision] is broadly in line with international standards, especially following the recent adoption of six new laws" (p. 13). The World Bank program objective is therefore to address the outstanding legal issues to incorporate all IOSCO principles. Among the already implemented changes, the World Bank report enumerates the following: (1) the authority of the CDVM has been expanded to include the securities exchange (the CSE) and the central depository with an emphasis on ensuring their compliance with norms and operational rules; (2) the CDVM now oversees the promoters of mutual funds (OPCVM), securitization companies, and private equity companies; (3) the CDVM's surveillance and investigative powers have been reinforced and, in some parts, strengthened by giving the regulator the authority to investigate in any location as well as to be able to subpoena persons suspected of breaching financial regulations; (4) a greater range of penalties and sanctions is now available for violations of regulations; and (5) the CDVM was also given "adequate powers to define detailed norms for the application of regulations through circulars that have legal force" (p. 13). However, given the now broader scope of supervision, the staffing and technology capacities of the CDVM need to be increased, a process which has already begun, according to the World Bank document. Still, the CDVM's institutional status still prevents it from having full autonomy in budget execution, an autonomy which the World Bank report regards as crucial.

Moreover, the 2006 Law Related to the Establishment of Credit Institutions and Affiliated Organizations (Banking Law) has addressed at least some of the concerns of the 2003 IMF assessment. Oxford Analytica, in a 2006 monetary policy assessment of Morocco, notes that the new Banking Law (enacted in 2006) has re-enforced the role of the CDVM, which is now in a position to focus on the quality of data published by listed Moroccan companies. The new Banking Law also establishes a commission for the coordination of institutions in charge of financial sector supervision, the Commission de coordination des organes de supervision du secteur financier - composed of the Central Bank (Bank Al-Maghrib, or BAM), the CDVM, and the administration within the MoF in charge of supervising the insurance sector with the aim of facilitating the exchange of information on their supervision activities and supervised entities. In a 2007 IMF Working Paper, Tahari et al. noted that, in addition to the establishment of this coordination commission, there have also been considerable improvements in financial market transparency through the "continued convergence of Moroccan financial regulation norms with international standards, as defined by the IOSCO" (p. 37).

The CSE was founded in 1929 and re-launched as a private institution in 1993. According to the 2006 Doing Business Guide for Morocco by the U.S. Department of Commerce, the CSE prospered during the early 1990s, but suffered a long, severe bear market with a near collapse in liquidity from late 1998 through 2002, including markedly reduced trading volumes, a decline in listings to approximately 50 companies, and a reduction of market capitalization. Despite this decline however, the CSE is the largest exchange in the Maghreb region and one of the largest in North Africa, with a market capitalization of 72 percent of GDP, according to the 2007 Working paper by Tahara et al.. Among the approximately 50 companies listed in 2005, market concentration remains high (the top five stocks account for over half of capitalization and trading). The 1993 reform, culminating in the launch of the CSE as a private institution, was based on three laws that govern the activities of the CDVM, of the CSE and of the mutual funds. In 1997, a fourth law regulating the Maroclear was introduced. Trading activity is managed and supervised by the Casablanca Stock Exchange Corporation (SBVC), a limited liability company owned entirely by the brokerage firms active on the exchange, which acts as a cooperative body and has been granted an indefinite management concession.

Morocco is a member of IOSCO and participates in the IOSCO Emerging Markets Committee, the IOSCO Presidents' Committee and the Africa / Middle East Regional Committee.

The Principles

1. The responsibilities of the regulator should be clear and objectively stated.

EN

Regulatory responsibility for the securities market lies primarily with MoF and the CDVM. The CDVM was established by Decree-Law 1-93-212 of September 21, 1993 with the objective of protecting investors in securities and proposing the necessary measures for this purpose. The CDVM ensures the application of disclosure laws and regulations for corporations and supervises securities markets. The MoF is responsible for regulating the securities market, and must in particular approve the specifications of the CSE, the statutes of the Maroclear, and the general regulations (Règlement Général) of those two institutions. The MoF is also responsible for licensing securities market intermediaries. According to the 2004 IMF assessment, the CDVM is essentially responsible for supervising securities market intermediaries, such as the Stock Brokerage Companies and the Collective Investment Schemes (OPCVMs) and approving the information disclosed to the public by savings-taking corporations and by OPCVMs. Furthermore, the two central entities of the market, the CSE and the Maroclear, fall under the direct control of the MoF. The CDVM is not responsible for their supervision. However, according to a November 2005 Program document by the World Bank, the authority of the CDVM has been expanded to include the CSE and the Maroclear with an emphasis on ensuring their compliance with norms and operational rules. Also, the OPCVMs are now licensed by the CDVM.

The issues of concern raised by the 2003 IMF assessment of Morocco against the IOSCO principles related to the capabilities of the CDVM. Although the inspection and surveillance capabilities of the CDVM have been upgraded, the IMF claims that the CDVM "lacks certain key inspection and enforcement powers, partially compromising the ultimate impact of its efforts to fully supervise the market" (p. 53). However, the 2006 Banking Law has addressed at least some of the concerns of the 2003 IMF assessment. Oxford Analytica, in a 2006 monetary policy assessment of Morocco, notes that the 2006 Banking Law has reinforced the role of the CDVM, which is now in a position to focus on the quality of data published by listed Moroccan companies. The new Banking Law also establishes a commission for the coordination of institutions in charge of financial sector supervision, the Commission de coordination des organes de supervision du secteur financier - composed of the BAM, the CDVM, and the administration within the MoF in charge of supervising the insurance sector with the aim of facilitating the exchange of information on their supervision activities and supervised entities.

2. The regulator should be operationally independent and accountable in the exercise of its functions and powers.

NC

According to the 2003 IMF assessment, from a statutory viewpoint, the CDVM is not an independent agent, because as the MoF serves ex officio as chair of its board of directors; the CDVM's director-general is appointed and can be removed by Dahir (royal decree); and the majority of the members of the board of directors of the CDVM are appointed by the government, and their mandate can be revoked at any time. Consequently, the assessment recommended that the members of the "CDVM's board of directors, as well as its director-general, should be appointed for fixed terms, and there should be clear and transparent rules for their removal from office. A formal mechanism should be established for the CDVM to report to a higher authority, providing fuller details on its activity than what is contained in its annual report" (p. 54). No information on the implementation of these recommendations is publicly available. According to a November 2005 Program document by the World Bank, despite many improvements over the recent past, the CDVM's institutional status still prevents it from having full autonomy in budget execution, an autonomy which the World Bank report regards as crucial.

3. The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers.

EN

The issues raised by the 2003 IMF assessment mainly related to the capabilities of the CDVM. Although the inspection and surveillance capabilities of the CDVM have been upgraded, the IMF claims that the CDVM "lacks certain key inspection and enforcement powers, partially compromising the ultimate impact of its efforts to fully supervise the market" (p. 53). Many of the powers of licensing, supervision, and sanctions lie elsewhere, mainly with the MoF, and the CDVM's supervisory authority over two key market institutes, the CSE and the Maroclear, are weak. The IMF further stated that the "power to set technical standards for the market, which the CDVM does in practice through its circulars, has no clear legal basis, and could be challenged before the courts" (p. 54). The assessment notes, however, that the CDVM's financial and human resources seem sufficient. The assessment recommended that the "supervisory powers of the regulator should be expanded to cover the Securities Exchange and the central depository, particularly with respect to their systems and procedures and their observance of norms and operational rules" (p. 54).

According to a November 2005 program document by the World Bank, the CDVM's surveillance and investigative powers have been reinforced and, in some parts, strengthened by giving the regulator the authority to investigate in any location as well as be able to subpoena persons suspected of breaching financial regulations. Further, a greater range of penalties and sanctions is now available for violations of regulations; and, importantly, the CDVM was given "adequate powers to define detailed norms for the application of regulations through circulars that have legal force" (p. 13). However, given the now broader scope of supervision, the staffing and technology capacities of the CDVM need to be increased, a process which has already begun according to the World Bank document. Still, the CDVM's institutional status still prevents it from having full autonomy in budget execution, an autonomy which the World Bank report regards as crucial.

4. The regulator should adopt clear and consistent regulatory processes.

II

The 2003 IMF assessment does not address Morocco's compliance with this principle.

5. The staff of the regulator should observe the highest professional standards, including appropriate standards of confidentiality.

II

The 2003 IMF assessment does not address Morocco's compliance with this principle.

6. The regulatory regime should make appropriate use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, to the extent appropriate to the size and complexity of the markets.

II

The 2003 IMF assessment does not address Morocco's compliance with this principle. It does recommend, however, that a "thorough analysis of the possible delegation of the supervisory powers to self-regulatory bodies (Securities Exchange, Central Depository and / or professional associations) should be undertaken. Depending on the conclusion from this analysis, the delegation of powers could well be recommended" (pp. 54-55).

7. SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities.

II

See Principle 6.

8. The regulator should have comprehensive inspection, investigation and surveillance powers.

EN

The issues raised by the 2003 IMF assessment mainly related to the capabilities of the CDVM. Although the inspection and surveillance capabilities of the CDVM have been upgraded, the IMF claims that the CDVM "lacks certain key inspection and enforcement powers, partially compromising the ultimate impact of its efforts to fully supervise the market" (p. 53). Many of the powers of licensing, supervision, and sanctions lie elsewhere, mainly with the MoF, and the CDVM's supervisory authority over two key market institutes, the CSE and the Maroclear, are weak. Moreover, according to the IMF assessment, while the CDVM can share information and coordinate actions with foreign regulators, there is a substantial gap of domestic coordination. However, Oxford Analytica, in a 2006 monetary policy assessment of Morocco, notes that the 2006 Banking Law has established a commission for the coordination of institutions in charge of financial sector supervision, the Commission de coordination des organes de supervision du secteur financier - composed of the BAM, the CDVM, and the administration within the MoF in charge of supervising the insurance sector with the aim of facilitating the exchange of information on their supervision activities and supervised entities.

The 2003 IMF assessment further recommended the reinforcement of the CDVS's surveillance and inspection authority. "In particular, the CDVM should be able to investigate and obtain subpoenas for individuals whose activities have been questioned. The system of sanctions for violations of regulations should also be amended to provide for a greater range and gradualism of penalties" (p. 55). According to a November 2005 program document by the World Bank, the authority of the CDVM has been expanded to include the CSE and the Maroclear, with an emphasis on ensuring their compliance with norms and operational rules. Further, the CDVM's surveillance and investigative powers have been reinforced and in some parts strengthened by giving the regulator the authority to investigate in any location as well as to be able to subpoena persons suspected of breaching financial regulations. The regulator has also been given a greater range of penalties and sanctions for violations of regulations.

9. The regulator should have comprehensive enforcement powers.

EN

See Principle 9.

10. The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program.

EN

See Principle 9.

11. The regulator should have authority to share both public and non-public information with domestic and foreign counterparts.

NC

According to the 2003 IMF assessment, while the CDVM can share information and coordinate actions with foreign regulators, there is a substantial gap of domestic coordination. However, Oxford Analytica, in a 2006 monetary policy assessment of Morocco, notes that the 2006 Banking Law has established a commission for the coordination of institutions in charge of financial sector supervision, the Commission de coordination des organes de supervision du secteur financier - composed of the BAM, the CDVM, and the administration within the MoF in charge of supervising the insurance sector with the aim of facilitating the exchange of information on their supervision activities and supervised entities.

12. Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts.

NC

See Principle 11.

13. The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers.

NC

See Principle 11.

14. There should be full, timely and accurate disclosure of financial results and other information that is material to investors’ decisions.

II

Oxford Analytica, in a 2006 assessment, notes that the 2006 Banking Law has re-enforced the role of the CDVM which is now in a position to focus on the quality of data published by listed Moroccan companies. Accounting standards in Morocco are set by the National Accounting Council (Conseil National de la Comptabilité, or CNC). The World Bank notes in the 2002 ROSC that, since the establishment of the CNC, Moroccan accounting standards have improved significantly, but adds that inadequate enforcement and flawed standard-setting processes impede further progress. One of the factors contributing to weak enforcement is the inefficient distribution of resources to the CNC. However, overall, there is insufficient publicly available information regarding Morocco's compliance with this principle.

15. Holders of securities in a company should be treated in a fair and equitable manner.

II

A 2003 paper by the Middle East and North Africa Regional Corporate Governance Workshop states that provisions under the Company Law or the Securities Law in Morocco, as well as in Egypt, Jordan, and Lebanon provide for the protection of Minority shareholders. The CDVM is entrusted with the enforcement of the law. In their 2007 IMF Working Paper, Tahari et al. note that corporate governance in the Maghreb region as a whole, and particularly in Morocco and Tunisia, has improved over the last few years, especially with respect to higher standards for managerial accountability and shareholders' rights. According to a November 2005 program document by the World Bank, the protection of minority shareholders has been strengthened via a new law about public offerings. However, neither paper does sufficiently address Morocco's compliance with this principle.

16. Accounting and auditing standards should be of a high and internationally acceptable quality.

EN

The CDVM, according to the 2002 World Bank report, does not enforce accounting requirements effectively due to the lack of necessary authority to oversee financial information, ineffective system of fines, inadequate information gathering system and human resources. According to the August 2006 Update of Morocco's page on the Deloitte & Touche IAS Plus website, companies listed on the CSE may choose to apply either Moroccan GAAP or IFRSs.

According to the World Bank's 2002 ROSC, auditing standards promulgated by the Certified Public Accountants Association (Ordre des Experts Comptables du Royaume du Maroc, or OEC) in 1998 are "largely consistent" with ISAs existing at the time of issuance of the Moroccan standards. However, they fail to incorporate certain requirements of ISAs, are less detailed, and do not cover all essential auditing topics. Moreover, the World Bank concluded, the majority of chartered accountants do not follow existing Moroccan standards because of "the absence of quality assurance mechanisms, the lack of systematic training in professional standards, and the lack of guidelines to facilitate their implementation" (p. 13).

17. The regulatory system should set standards for the eligibility and the regulation of those who wish to market or operate a collective investment scheme.

II

The 2003 IMF assessment recommended that the mechanism for licensing Collective Investment Schemes (OPCVMs) should be changed so that: "(1) such authorization also includes approval of the company and the individuals who will promote and manage the mutual fund product; (2) licenses will not require approval buy the MoF; and (3) mutual fund management companies can handle both types of OPCVMs, i.e. SICAVs (an open-ended mutual fund) and FCPs (a closed-ended mutual fund)" (p. 55). Apart from this recommendation however, the assessment does not address Morocco's compliance with this principle.

18. The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets.

II

See Principle 17.

19. Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investor’s interest in the scheme.

II

See Principle 17.

20. Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme.

II

The 2003 IMF assessment recommended improving the valuation of certain assets held by OPCVMs. This is especially true for non-liquid securities as well as those for which recent market values cannot be established. Furthermore, a more frequent calculation of the net asset value of OPCVMs preferably every trading necessary was urged by the assessment. The assessment did not explicitly address Morocco's compliance with this principle however.

21. Regulation should provide for minimum entry standards for market intermediaries.

II

The 2003 IMF assessment recommended improving the licensing of market intermediaries via establishing entry conditions with clearer and more comprehensive eligibility criteria. In addition, the IMF recommended that "individuals employed by brokerage firms as traders, those who have contact with the public or significant responsibilities in corporate operations, should be certified professionally. A standard test could be used to determine their eligibility; and... portfolio managers and those who accept and transmit orders for third parties should be licensed" (pp. 55-56). The assessment did not explicitly address Morocco's compliance with this principle however.

22. There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake.

II

See Principle 22.

23. Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts primary responsibility for these matters.

II

See Principle 22.

24. There should be procedures for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk.

II

For this principle, the 2003 IMF assessment recommended to turn over the management of the guarantee fund for default of intermediaries from the CDVM to the CSE or the market intermediaries themselves. The assessment did not directly address Morocco's compliance with this principle however.

25. The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight.

II

The 2003 IMF assessment recommended that the CDVM be empowered to supervise the Securities Exchange's compliance with legal and regulatory provisions, especially those contained in its General Regulations. The assessment did not directly address Morocco's compliance with this principle however. According to a November 2005 program document by the World Bank, the authority of the CDVM has been expanded to include the CSE and the Maroclear with an emphasis on ensuring their compliance with norms and operational rules

26. There should be ongoing regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants.

II

The 2003 IMF assessment recommended that the CDVM have the power to ensure that transactions are conducted in accordance with transparent and ethical rules and that the systems and technical means used in the secondary market are consistent with standards of security and fairness. The assessment did not directly address Morocco's compliance with this principle however.

27. Regulation should promote transparency of trading.

II

See Principle 26.

28. Regulation should be designed to detect and deter manipulation and other unfair trading practices.

II

The 2003 IMF assessment did not address Morocco's compliance with this principle.

29. Regulation should aim to ensure the proper management of large exposures, default risk and market disruption.

II

The 2003 IMF assessment did not address Morocco's compliance with this principle.

30. Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk.

II

Regarding clearing, delivery, and settlement systems, the 2003 IMF assessment noted that the secondary market should now be in compliance with IOSCO principles with the introduction of a system for simultaneous delivery and payment of securities and a system to guarantee completion of transactions. The key factor still outstanding is the CDVM's lack of supervisory power over institutions responsible for clearing and settlement. Finally, the 2003 IMF report stated that "CDVM should also be able to verify the central depository's compliance with legal and regulatory provisions, particularly those contained in its General Regulations" (p. 56). The assessment did not directly address Morocco's compliance with this principle however.