It is trite to say that capital markets know no borders. Increasingly, this reality is prompting capital markets regulators and enforcers around the world to continue to cooperate, collaborate, and, to some degree, integrate their activities. This has put additional pressures on executives and board members responsible for risk management and regulatory compliance, as well as their professional advisors. It is necessary, now more than ever, to keep abreast of evolving regulatory requirements in all countries that affect the business and capital raising activities of their firms and clients.
On March 31, the International Organization of Securities Commissions (“IOSCO”) – the global association of the world’s securities regulators – approved [PDF] the Enhanced Multilateral Memorandum of Understanding Concerning Consultation and Cooperation in the Exchange of Information (the “EMMoU”), which provides securities regulators around the world with new enforcement powers to respond to challenges emerging as a result of global capital markets trends.
IOSCO’s Original MMoU
IOSCO’s original Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (the “MMoU”) was launched in 2002. Since its launch, MMoU has provided securities regulators with an array of tools to combat international capital markets fraud and wrongdoing. The MMoU has been used by regulators to obtain documents in multi-jurisdictional investigations, reduce obstacles to international cooperation, and strengthen global capital markets and investor confidence.
The MMoU signifies a mutual understanding among the signatories in terms of how they should consult, cooperate, and exchange information with one another for securities enforcement purposes. The MMoU provides requirements for:
- What information can be exchanged, and how that information is to be exchanged;
- The legal capacity to compel information and the types of information that can be compelled; and
- The legal capacity for and permissible use of sharing information.
In order for securities regulators to become IOSCO members, they are currently required to sign the MMoU. At present, 112 of IOSCO’s members who are securities regulators are MMoU signatories. Signatories made 3,203 requests for information in 2015, representing a consistent year-after-year increase from only 56 requests in 2003. The Alberta, British Columbia, Ontario, and Québec securities regulators are signatories to the MMoU.
IOSCO responds to new developments, approves the EMMoU
Capital markets have witnessed significant changes in recent years, owing to technological developments and new regulation. In response, IOSCO developed the EMMoU, which provides new enforcement powers that the international organization believes are needed to address these changes and to continue safeguarding capital markets.
The EMMoU’s powers will enable signatories to:
- Obtain and share audit work papers, communications, and other information in relation to the audit or review of financial statements;
- Compel physical attendance for testimony by allowing sanctions for non-compliance;
- Freeze assets, or (if it is not possible to freeze assets) advise and provide information on how to freeze assets, at the request of another signatory;
- Obtain and share existing Internet service provider records (not including the content of communications), including with the assistance of a prosecutor, court, or other authority, and to obtain the content of such communications from authorized entities; and
- Obtain and share existing telephone records (not including the content of communications), including with the assistance of a court, prosecutor, or other authority, and to obtain the content of such communications from authorized entities.
Jean-François Fortin, the Executive Director, Enforcement for Québec’s Autorité des marchés financiers, and the Chair of the IOSCO Committee on Enforcement and the Exchange of Information, said:
The [new] powers will foster greater cross-border enforcement cooperation and assistance among securities regulators, enabling them to respond to the risks and challenges posed by globalisation and advances in technology since 2002. In particular, access to the [internet and telephone] powers is important, because so many market abuse investigations rely on subscriber records and traffic data to show the passage of information.
While the MMoU will remain in effect for as long as any of its signatories wish to continue using it, IOSCO’s goal is for all signatories to eventually move to the EMMoU. The existence and expansion of arrangements of this kind reflects the interconnectedness of capital markets around the world, and the reality that enforcement is increasingly becoming a coordinated international activity.