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Securities Regulation

In 1998, the International Organization of Securities Commissions (IOSCO) adopted a comprehensive set of Objectives and Principles of Securities Regulation (IOSCO Principles) and further updated them in May 2003. The Principles are recognized by the international financial community as benchmarks for all markets and have been identified by the Financial Stability Forum as one of the "12 Key Standards for a Sound Financial System."

As the principles are intended to be applicable to countries in various stages of development and with different regulatory backgrounds, IOSCO identified three key objectives as a basis for an effective system of securities regulation instead of presenting a single, unified regulatory framework. Those objectives are: (a) protecting investors; (b) ensuring that markets are fair, efficient, and transparent; and (c) reducing systemic risk. The 30 IOSCO Principles are intended to give "practical effect" to these three objectives.

Securities regulation entails the regulation of public issuers of securities, secondary markets, asset management products, and market intermediaries. The 30 IOSCO Principles echo this broad scope of responsibilities of most securities regulators. The core principles thus cover a large range of issues. Principles 1-5 relate to the regulator and its powers, resources, independence, and accountability. Principles 6-7 relate to self-regulatory organizations and their supervision. Principles 8-10 relate to enforcement and Principles 11-13 relate to cooperation, including international cooperation for enforcement and regulatory purposes. Principles 14-16 relate to issuers and the disclosure of information. Principles 17-20 relate to collective investment schemes and their operation. Principles 21-24 relate to the supervision of market intermediaries and Principles 25-30 relate to how a jurisdiction's overall regulatory structure ensures the integrity of secondary markets, including through robust clearance and settlement function that is addressed in Principle 30.

Applicability of the IOSCO Principles

The IOSCO principles initially did not have a methodology to assess their implementation. To fill this gap, IOSCO approved the Methodology for Assessing Implementation of the IOSCO Objectives and Principles of Securities Regulation (IOSCO Methodology) in 2003. The methodology provides a comprehensive framework for analyzing the implementation of the IOSCO Principles and has formed the basis of an IOSCO-directed, comprehensive self assessment exercise and have been used by the World Bank and the International Monetary Fund in their Financial Sector Assessment Program (FSAP). Between 1999 and 2007, 74 countries were assessed, however not all were published on the IMF website.

An analysis of these completed IMF assessments of countries' compliance with the IOSCO principles was carried out by IMF economists in 2007. It showed significant weaknesses in many countries' regulatory systems. The study identified a lack of independence by the regulator from both the government and the political process as the main concern, followed by insufficient legal authority and resources. Also, even if the powers and resources of the regulator are adequate, actual enforcement was often found to be lacking. Lastly, the increasing complexity of securities markets, collective investment schemes, and financial products poses a significant challenge for effective supervision.

In 2002, IOSCO adopted a multilateral memorandum of understanding (IOSCO MoU) designed to facilitate cross-border enforcement and exchange of information among the international community of securities regulators. It is based on the 30 IOSCO Principles and the experience gathered by securities regulators in using bilateral Memoranda of Understanding. In 2005, IOSCO endorsed the IOSCO MoU as the benchmark for international cooperation among securities regulators and set-out clear strategic objectives. The MoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the MoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the agreement.

Standard Setting Body

International Organization of Securities Commissions

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International Organization of Securities Commissions, "Objectives and Principles of Securities Regulation," May 2003.

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International Organization of Securities Commissions, "Methodology for Assessing Implementation of the IOSCO Objectives and Principles of Securities Regulation," October 2003.

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