The International Organization of Securities Commissions (IOSCO) has published a consultation report entitled Impact on and Responses of Emerging Markets to the financial crisis.

The report provides a broad reflection of the experiences of the members of IOSCO's Emerging Markets Committee (EMC) in dealing with the current financial crisis. It also aims to establish the key regulatory and supervisory challenges identified by securities regulators.

While the impact of the current crisis on emerging markets has manifested itself in many different ways, the trends that have been identified show that these markets have become much more integrated within the global financial system and therefore share its vulnerabilities.

Therefore there is a need for greater inclusion and involvement of emerging market authorities in the setting of global standards, regulation and supervisory activities. There needs to be more sharing of information among regulators.

The report’s findings also show that regulatory and investor protection frameworks need to be strengthened. For more effective prevention and management of systemic risks and instabilities in emerging markets, there must be more scope for these markets to cooperate with established jurisdictions. This includes giving them a greater voice in decision-making on regulatory issues and in identifying relevant responses to a crisis. The report suggests that in these respects there is an enhanced role for IOSCO in facilitating technical assistance and training programmes in the areas of market surveillance, intermediary supervision and systemic risk assessment.

The report points out that the complexity of regulatory frameworks must keep pace with the continuing development and complexity of domestic financial systems. It specifies the main areas of responsibility for emerging markets regulators and supervisors: protection of consumers and investors, support of market discipline, avoidance of adverse impacts on other jurisdictions, reduction of scope for regulatory arbitrage, support for competition and dynamism and keeping pace with innovation in the marketplace.

The report ends by saying that the current greater connectivity of macroeconomic conditions and financial markets requires more care to be taken by governments in developing capital markets, particularly with regard to the increased liberalisation that facilitates growth.

The report's recommendations are in summary:

  • Ensure regulatory frameworks conform to international principles.
  • Enhance capacity and review approach to regulation.
  • Promote greater inclusion of emerging market authorities on regulatory matters.
  • Ensure proper sequencing between local market development and international financial integration and liberalization.
  • Improve prudential regulation and supervision.
  • Work closely with industry groups concerning corporate governance and risk management.

The report also identifies areas in which IOSCO can enhance its role with regard to assisting EMC members:

  • Assist members to enhance their regulatory capacity.
  • Form specific task forces to undertake thematic work.
  • Facilitate greater information sharing among regulators.

The deadline for responses to the consultation report is 21 July 2009.

View Impact on and Responses of Emerging Markets to the financial crisis, 24 June 2009