Corporate Corruption, Integrity and Governance Symposium

IOSCO - Global Standard Setter

Jane Diplock AOChairman

New Zealand Securities Commission

IOSCO Executive Committee

IOSCO Background• IOSCO’s 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

IOSCO Standards• IOSCO standards include principles,

codes & benchmarks

• Designed to be implemented in developed & emerging markets

• Non-binding, but have substantial authority from IOSCO’s membership & standing

• Members give effect to the principles in local context

IOSCO’s Strengths• Depth & breadth of membership

• Members from more than 100 countries

• Members regulate more than 90% of the world’s securities markets

IOSCO Organisation• 3 standing committees

– Executive Committee– Technical Committee– Emerging Markets Committee

• 4 regional committees– Asia Pacific– Inter-American– Africa-Middle East– Europe

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

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

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

Other Standards & CodesIOSCO 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

Corporate Governance• Good corporate governance critically

important

• IOSCO endorses OECD’s 2004 Principles of Corporate Governance

• Good corporate governance must apply to all issuers of securities not just listed companies

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

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

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

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

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

Gender Benefits• Corporate governance may be enhanced

when more women are appointed as directors

• Studies in UK & Canada confirm this

• Research indicates that women’s problem-solving capabilities & inclination to openness & integrity make them effective at corporate governance

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 Zealand’s top 100 listed companies

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

IOSCO & Auditor Issues• IOSCO encourages

– independent oversight bodies

– standards for selection & monitoring external auditors

– adoption of IAASB auditor-related standards

Cross-border Cooperation

• Growing cross-border investments & complex corporate structures

• IOSCO’s 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

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

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

Conclusion• Corruption & fraud undermine capital market

integrity• Financial scandals have given impetus to

IOSCO’s 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”

www.iosco.org

Jane Diplock AO