IOSCO Secretary General calls for new global regulatory framework

  • IOSCO (International Organization of Securities Commissions) (dark gray) Image

13 Dec 2012

In a speech to The Atlantic Council, Mr David Wright, Secretary General of International Organization of Securities Commissions (IOSCO) has given a frank assessment of the issues surrounding the future of global financial regulation. Mr Wright proffered the option of a "global institutional framework, probably established by International Treaty" and chastised "isolationists" in the United States for "19th century logic" in denying the impacts of globalisation, including indirectly in relation to International Financial Reporting Standards.

In the speech, given in his personal capacity, Mr Wright explores the future structure of the global economy, outlining the likelihood of a "major global expansion of market based financing and securities markets" because "they are needed for economic development which is powering ahead in Asia, parts of Latin America and beginning also in Africa".  He cited as examples Brazil, India, China, Indonesia, Singapore, Hong Kong, Russia, Turkey and Mexico, all of which which are expected to have substantially bigger markets in the near future than today.

Noting that whereas in the current global environment there may "only a few big capital markets, with varying levels of compliance and interpretations of global rules", Mr Wright continued that "[adding] in another 10 big capital markets, or more, in the near future so that the matrix of big markets and interpretations is 15 by 15, or more" means a serious need to "change our global regulatory institutions".

Mr Wright suggests three alternatives on how to handle these challenges:

  • "law of the jungle and survival of the fittest"
  • the "status quo" of today which involves "loose forms of cooperation, hope for the best, best efforts and of course prayer"
  • global institutional framework, probably established by International Treaty, that has some enforcement authority, binding disputes settlement and sanctioning possibilities

In the context of these options, Mr Wright perhaps unsurprisingly suggests a global institutional framework is the best solution.  He explained the role of such an arrangement "would not be to try to enforce a one-size-fits-all harmonized set of rules – but rather to ensure and, if necessary legally require, that the basic globally agreed policy principles are properly implemented by all jurisdictions who are signatories to the Treaty arrangements".

In implementing such a change in global regulatory arrangements, Mr Wright pointed out the importance of involving emerging economies before focusing on the special ability of the United States to "lead a movement" in a window of 5-10 years before "the U.S.’ relative share of global financial markets is set to decline significantly, and naturally its influence as well".

Explaining this concept further, Mr Wright alluded to IFRS in explaining:

I believe most of the world would be prepared to consider work on such a project – and I believe, with or without the U.S – it will eventually happen like with the International Financial Reporting Standards or IFRS. Isolationists will no doubt plead what they always plead. They will argue, with their 19th century logic, that the U.S. will be better off alone, not sharing any sovereignty. Perhaps they will continue to believe that in 15-20 years’ time the world will be composed of disconnected, independent islands – the biggest of which can project its views on others. But surely that is the past and a denial of globalization. To repeat the new emerging world will have very soon many big, interconnected capital markets. There will be many more sharks in the pond with far more influence.

Mr Wrights comments have also been echoed by other regulators and observers.  For instance, Steven Maijoor (Chair, European Securities and Markets Authority, ESMA) has recently commented on need for consistent application of IFRS around the globe.  Mr Maijoor noted in a more recent speech (link to ESMA website) that "IOSCO will play an increasing role in... global co-ordination and convergence".

Click for full text of Mr Wright's speech (link to IOSCO website).

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