Speakers of the session
Member of the Executive Board, Authority for the Financial Markets (AFM), the Netherlands
Paul P. Andrews
Secretary General, International Organization of Securities Commissions (IOSCO)
Director General, Finanstilsynet – Financial Supervision Authority, Denmark
Executive Director, European Securities and Markets Authority (ESMA)
Michael C. Bodson
President and Chief Executive Officer, The Depository Trust & Clearing Corporation (DTCC)
Commissioner, U.S. Commodity Futures Trading Commission (CFTC)
Global Head of Regulatory, Industry and Government Affairs, State Street Corporation
Objectives of the sessionThis roundtable discussed the need for further regulatory coordination at the global level in the capital markets area and the possible solutions for improving the global coordination and cross-border implementation of capital markets regulations. The progress made at the international level in the standardisation and sharing of data needed for financial stability monitoring was also examined as well as the remaining issues.
Points of discussion
How to further improve regulatory coordination at the global level for capital markets regulation and the cross-border implementation of rules?
- Which areas of capital market regulation still require improved regulatory coordination at the global level? Will technological innovations increase the need for global regulatory cooperation in the future?
How far should regulatory coordination go and what is feasible? Which solutions may help to ensure a better global coordination of rule-making for activities or markets that have a global dimension?
What are the potential benefits and downsides of these different solutions and their feasibility? How to ensure that the specificities of the main jurisdictions (and notably Europe) are well taken into account in regulatory approaches at the global level?
- How to improve coordination and interaction between market and prudential regulators at the international level?
How to ensure an appropriate cross-border implementation of rules defined at the global level and that similar outcomes are achieved? Are recognition processes (e.g. equivalence, substituted compliance) the right way forward and what are their success factors? Should other solutions be considered?
What can be achieved through supervisory cooperation e.g. through MOUs? Should there be a specific focus on market entrance from third-country parties and what is required to improve trust in foreign regulatory and supervisory frameworks?
Is sufficient progress being made to complete the data needed for financial stability monitoring and to facilitate its sharing at the global level?
- What are the key issues to be addressed and the main priorities for improving the market data needed for financial stability monitoring?
- Is sufficient progress being made in terms of standardization i.e. developing and implementing identifiers and standards and what are the key remaining priorities?
- How can information sharing across jurisdictions be improved while ensuring sufficient confidentiality and security? What are the prospects of different options proposed e.g. developing a set of best practices, creating a global hub to share data, improving supervisory cooperation…?
Background of the sessionMuch progress has been made in the definition of global standards following the G20 commitments. In the capital markets area coherent rules have been defined regarding OTC derivatives and benchmarks in particular. The implementation of OTC derivatives reforms derived from these global standards is “well-underway” at the international level, according to the FSB, although it continues to be uneven and behind schedule particularly in the less developed derivative markets. Most jurisdictions have now implemented trade reporting requirements (about 90% of derivative trades are now subject to reporting) and there is a growing global usage of CCPs particularly for interest rate derivatives. The remaining rules relating to the mandatory trading of standardized OTC derivatives and margining rules for uncleared derivatives still remain to be fully implemented in many jurisdictions.
Major challenges however remain regarding the consistent implementation of these rules across jurisdictions in a context where the financial system is increasingly interconnected and financial institutions are subject to a wider set of international rules.
This is the case in particular of data requirements - Trade Repository (TR) and reporting rules – which have not been implemented in a sufficiently global perspective according to many industry observers. Moreover there are persistent data gaps in many areas. This is impacting the quality and completeness of the data reported to TRs and the authorities’ ability to use this data to monitor threats to financial stability and to develop mitigants for them. The FSB is addressing these issues through steps to harmonise transaction reporting and to develop a framework for global unique transaction and product identifiers (UTIs and UPIs) in addition to Legal Entity Identifiers. FSB member jurisdictions have also agreed to remove any legal barriers to the reporting of OTC derivatives to TRs, to have legal frameworks in place to permit the access of authorities to TR held data and thus to work together with TRs and market participants to improve TR data quality. The mechanisms that could allow the improvement of the sharing of information and expertise on data management at the international level are another source of investigation.
Moreover further regulatory and supervisory cooperation is needed for markets that have a strong international dimension in order to avoid in the future any issues with the cross-border implementation of rules such as those that have been experienced over the last few years with the OTC derivative rules. The differing national implementation of these standards and the unevenness in the pace of implementation of reforms has created market fragmentation, potentially leading to duplicative or differing requirements and creating opportunities for regulatory arbitrage. The G20’s leaders’ St Petersburg declaration called for as much deference as possible in the cross-border application of derivative regulations but much remains to be done to facilitate such an approach.
Progress is being made since an agreement has recently been found between the EU and US regarding clearing houses for example, but the approach to cross-border regulation still needs to improve.
Proposals are also being elaborated at the IOSCO level for developing a toolkit dealing with national treatment, recognition and passporting concepts to facilitate the implementation of regulations on a cross-border basis with an outcome-focused approach.
Other areas of improvement frequently discussed include the level of granularity that should be achieved in the definition of international standards and the sequence in which rules should be defined for markets with a global dimension i.e. defining international standards before national rules are established. Some observers also suggest that domestic regulators should have a clearer mandate to consider the international impact of their rules and to take the international context and the presence of foreign players into account in primary domestic legislation.