WFE Focus Team , London , World Federation of Exchanges | May 2017


We hear from Paul Andrews following the 42nd IOSCO Annual Conference, which took place earlier in May.

Could you please outline the priority areas for IOSCO for the coming year?

Earlier this year, the Board made some very important decisions about what our priorities are for this year and next. Let me lay out the five priority areas for you:

  1. Strengthening the structural resilience of capital markets;
  2. Addressing data gaps and information sharing issues;
  3. Thinking about new approaches with respect to investor protection and investor education, one of the core missions of IOSCO;
  4. Market development, particularly around issues dealing with capital raising and sustainability;
  5. Financial innovation, including fintech, regtech, and the new term that seems to be in vogue - suptech - which is supervisory technology.

Each of these areas presents different challenges and opportunities. I will give some examples under each area:

1. Strengthening the structural resilience of capital markets

In the first area, the work we are doing in asset management is of course critical. In the very near future, within a month or so, we will issue a consultation paper making some recommendations related to liquidity issues, particularly liquidity risk management with respect to asset management and funds. I say it’s a critical area for us, because it’s part and parcel of what many capital market regulators do, which is oversee the asset management industry.

Other issues include dealing with market volatility, and how market regulators are addressing market volatility. Is there more we can be doing? Are there lessons to be learned from what others have done? We are embarking on a project that will look at the different tools market regulators have, and the lessons to be learned from those experiences, and our goal is to issue at least some guidance in this area.

Finally, we have all seen tremendous growth in ETFs, as well as a great deal of leverage in this sector. IOSCO is going to look at this topic in some detail, and then decide whether there is more we should be doing.

2. Addressing data gaps and information sharing issues

This is an area we need to focus on more and more. There is a lot that we know, but there is a lot that we don’t know in areas like the repo market, how bond markets will react in stressed conditions, or around collateral transformation – issues that IOSCO and its members should learn even more about. What is the information we need? And once we identify what we need, how do we get it? That’s the snapshot of the data gap issue.

There are important aspects about data privacy and information sharing, because in Europe, for example, there is a renewed and more focused push to protect data and information. For us, it raises a key question of how this interplays with the IOSCO Multilateral Memorandum of Understanding (MMoU) and the exchange information for enforcement matters? The MMoU has been a cornerstone of IOSCO for many years, and is critical for combating and overseeing cross-border activity, and prosecuting fraud and market misconduct. We have to be very mindful of these important privacy issues, but also think of creative ways of addressing privacy while not inhibiting the exchange of information when it is absolutely necessary.

3. Investor protection and investor education

Here we are thinking about how behavioural economic concepts can be applied to regulators, if at all. Today, a lot of this work has been focused on investors, and how investors make decisions, how they use data, how they are influenced, and how they are nudged. The key question for IOSCO is: are some of these concepts useful on the regulatory side? How do we fashion regulation, how do we fashion supervision, and how do we take advantage of these approaches in a way that will be useful not only for the regulatory side but for the investor as well? We are going to investigate to see if there is anything useful for IOSCO and its members.

4. Market development, particularly around issues dealing with capital raising and sustainability

This is an interesting issue, as IOSCO itself does not have a market development mandate, but many of its members do. What can IOSCO be thinking about, therefore, that addresses some of the needs of those members?

Let me give you two examples: we hear a lot from many developing markets that they are trying to deepen the liquidity of their equity markets. One way to do that is by having what I call a more complete market, including options markets, futures markets, currency markets, as they lay the foundation to attract other investors, such as institutional investors. What these other markets do is provide an opportunity to hedge, which is something that institutional investors are looking for. Having other markets raises the possibility that the equity markets will become more liquid, more robust. IOSCO is looking into whether it can help facilitate the development of those markets.

The issues around sustainability, climate change, integrated reporting, are also important to all markets. As I think about it, I ask myself whether there is any special focus or approach that developing (or advanced) markets can or should take in these areas? Our Growth and Emerging Markets Committee is looking at the whole issue of market development, particularly from the point of view of sustainability and capital formation, to see whether there are commonalities, and if we can put together an approach that might be useful.

5. Financial innovation

This is a very broad topic, but one aspect of this that we are thinking about is how regulators can use technology in a way that helps them supervise, regulate and oversee markets and intermediaries in an effective and efficient way.

It also raises the question about the use of big data - how regulators use it, how we analyse it, how it helps us be more nimble, smarter and more effective in how we conduct supervision and regulation of the markets and market participants.

What’s your long-term vison for IOSCO?

I see three key things in terms of vision, where I would like to see IOSCO continue to grow and prosper. IOSCO is a global standard setter, so in many respects that has to remain front and center, along with our three core missions of investor protection, maintaining fair, efficient and transparent markets, and reducing systemic risk.

The first part of my vision, therefore, is to reaffirm, reinvigorate and strengthen IOSCO's role as a standard setter. Where we have opportunities, and where we can make a difference, we should be more focused on issuing guidance, standards, recommendations, and principles, because that is the hallmark of what a standard setter does. Not everything we do has to follow that mould, but we need to identify where IOSCO would make a difference and help fill the gap.

As I mentioned, we will be publishing a consultation paper on asset management, and then we are going to make recommendations on what asset managers should do with respect to liquidity risk management.

The second part of my vision is that we need to work even more closely with our colleagues at the other standard-setting bodies – the Basel Committee, the Financial Stability Board, the Committee on Payments and Market Infrastructures. There are areas of commonality with these standards setters such as addressing issues related to cybersecurity and how we can collectively address this threat. There is no competitive advantage for different regulators – be they capital markets, banking or infrastructure. We are all facing the same problem. So, can we combine forces and work together holistically?

The third part of my vision is more robust interaction with industry. Industry brings a wealth of experience and knowledge, and can inform a lot of what IOSCO does. We can learn a lot from one another. Of course, we have to keep the appropriate boundaries, but there is some commonality that we should leverage.

We have to be open to new approaches and new ideas. For example, in one of our core areas - capacity building - we are running a supervision pilot for decision makers within our member organization. It something we have never done before. I realize that we can't be everything to everyone at the same time, but we are going to try to broaden our scope where we can.

IOSCO and the WFE are strongly aligned, both in terms of stakeholders and priorities. What’s your message to WFE members on how we can work even more closely in the future?

WFE members bring a wealth of experience and knowledge, and that is something I’d like to tap into, particularly in relation to the five IOSCO priorities for this year.

For example, there is a lot of commonality around the issue of data gaps that we could work together on.

Or market volatility - the work we are going to embark on from a regulatory point of view, I believe could be informed by the experiences of WFE members.

Look at financial innovation: a lot of that is happening at the exchange level. What are the regulatory implications of that? How are your members using technology, particularly from a regulatory viewpoint? What is proven to be useful?

On our capacity building efforts, our members could benefit from some of the expertise that is housed within WFE members, and in the area of market development: where and how can WFE members contribute to that workstream? There may be things in your collective experience that have worked in developed and emerging markets that we should be thinking about.

I think there is a great deal of overlap between what your members are doing and what we are focused on, and although we may come at this from slightly different angles, that doesn't really matter. There is an opportunity to learn and understand from each other.

Indeed, there is a substantial amount of overlap or interplay with respect to how IOSCO and the WFE members can potentially work together, and I look forward to further collaboration in the future.

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