Corporate Corruption, Integrity and Governance Symposium IOSCO - Global Standard Setter

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Corporate Corruption, Integrity and Governance
Symposium IOSCO - Global Standard Setter

• Jane Diplock AO
• Chairman
• New Zealand Securities Commission
• IOSCO Executive Committee

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IOSCO Background

• IOSCOs role has evolved in response to
• growth globalisation of capital markets
• awareness of need to manage risks that arise from
  that growth
• IOSCO is recognised as the international standard
  setter for securities regulation

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IOSCO Standards

• IOSCO standards include principles, codes
  benchmarks
• Designed to be implemented in developed
  emerging markets
• Non-binding, but have substantial authority from
  IOSCOs membership standing
• Members give effect to the principles in local
  context

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IOSCOs Strengths

• Depth breadth of membership
• Members from more than 100 countries
• Members regulate more than 90 of the worlds
  securities markets

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IOSCO Organisation

• 3 standing committees
• Executive Committee
• Technical Committee
• Emerging Markets Committee
• 4 regional committees
• Asia Pacific
• Inter-American
• Africa-Middle East
• Europe

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International Recognition

• IOSCO is recognised supported by
• Basel Committee on Banking Supervision
• International Association of Insurance
  Supervisors
• Financial Stability Forum
• World Bank
• IMF
• OECD
• International Accounting Standards Board
• and others

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IOSCO Objectives

• Objectives and Principles of Securities
  Regulation
• Adopted in 1998
• Core objectives
• protection of investors
• efficiency, fairness transparency of securities
  markets
• reduced systemic risk

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IOSCO Principles

• Objectives are supported by 30 broad Principles
  covering
• regulators responsibilities powers
• cooperation between regulators
• requirements of issuers intermediaries
• responsibilities and oversight of SROs
• collective investment schemes
• functioning of secondary markets
• IMF World Bank use the Principles for their
  FSAP

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Other Standards Codes

• IOSCO standards on other key areas
• oversight independence of auditors
• disclosure reporting practices of listed
  entities
• securities analysts their potential conflicts
  of interest
• credit rating agencies

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Corporate Governance

• Good corporate governance critically important
• IOSCO endorses OECDs 2004 Principles of
  Corporate Governance
• Good corporate governance must apply to all
  issuers of securities not just listed companies

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OECD Corporate Governance Principles

• Widely recognised internationally
• Used by World Bank IMF
• Compatible with IOSCO standards
• Underpin codes rules for good governance
• Provide a tool for policy-makers regulators

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Financial Fraud

• Financial scandals like Pamalat Enron reveal
  major failings in corporate governance
• Fraud of this type threatens market stability
  integrity
• IOSCO task force examined the issues from
  securities regulation perspective

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Task Force Report

• Highlighted 7 areas of concern
• independence of directors
• independence of auditors
• effectiveness of disclosures
• transparency regulation of bond markets
• role obligations of market intermediaries
• use of complex corporate structures
• role of private sector information analysts

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Task Force Recommendations

• Greater effort to implement standards
  especially in the 7 areas
• Greater urgency to implement the IOSCO Principles
  
• Greater cooperation between securities regulatory
  agencies to exchange information across borders

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Board Issues

• Independence of directors, related party
  transactions minority shareholder protection
• IOSCO recognises OECD as the global standard
  setter on these issues
• OECD principles address these issues at high
  level
• Greater clarity needed on independent directors
  directors responsibilities

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Gender Benefits

• Corporate governance may be enhanced when more
  women are appointed as directors
• Studies in UK Canada confirm this
• Research indicates that womens problem-solving
  capabilities inclination to openness
  integrity make them effective at corporate
  governance

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Gender Gap

• Gender gaps in boardrooms worldwide
• Survey of Fortune 500 companies in US
• women hold only 14.7 of directorships
• women make up 25 or more of directors in only
  64 companies
• Women are only 7 of the directors of New
  Zealands top 100 listed companies

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Auditor Issues

• Task Force report highlights audit failure due to
• outright fraud by corporate managers who deceive
  the auditors
• fraud by the audit firm staff, working in
  conjunction with corporate managers
• malpractice or negligence on the part of the
  auditors
• deficiencies in audit standards

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IOSCO Auditor Issues

• IOSCO encourages
• independent oversight bodies
• standards for selection monitoring external
  auditors
• adoption of IAASB auditor-related standards

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Cross-border Cooperation

• Growing cross-border investments complex
  corporate structures
• IOSCOs response is the Multilateral Memorandum
  of Understanding
• Adopted in 2002 open for all members to join
• Creates a platform for cooperation between all
  securities regulators to exchange information on
  enforcement matters

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IOSCO MOU A Priority

• 30 members full signatories
• 9 on appendix B
• all members have agreed to commit to the MOU by
  January 2010
• HKSFC NZSC are signatories

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Progress on the IOSCO MOU

• Some jurisdictions have legal capability
  hurdles to overcome to comply with MOU
• IOSCO assists members to enable them to comply
• Benefits for cross-border enforcement
• NZSC has successfully used the IOSCO MOU in an
  insider trading case

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Conclusion

• Corruption fraud undermine capital market
  integrity
• Financial scandals have given impetus to IOSCOs
  work
• IOSCO works closely with other standard setters
  international financial authorities
• We aim to deter detect corruption fraud
  through cooperation
• To get through the hardest journey, we need to
  only take one step at a time ... but we must
  keep on stepping

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www.iosco.org

• Jane Diplock AO