Annual Report 2008 - Iosco.org...Annual Report 2008. Annual Report 2008. INTERNATIONAL ORGANIZATION OF SECURITIES COMMISSIONS. to cooperate together to promote high standards of regulation

Annual Report 2008INTERNATIONAL ORGANIZATION OF SECURITIES COMMISSIONS

to cooperate together to promote high standards of regulation in order to maintain just,efficient and sound markets;

to exchange information on their respective experiences in order to promote the develop-ment of domestic markets;

to unite their efforts to establish standards and an effective surveillance of internationalsecurities transactions;

to provide mutual assistance to promote the integrity of the markets by a rigorous appli-cation of the standards and by effective enforcement against offenses.

IOSCO´SOBJECTIVES

IOSCO ANNUAL REPORT 2008 5

TABLE OFCONTENTS06 Report from the Chairman of the Executive Committee

10 Report from the Chairman of the Technical Committee

14 Report from the Chairman of the Emerging Markets Committee

16 Report from the Chairman of the Self-Regulatory Organizations Consultative Committee

18 Report from the Secretary General

20 The Work of IOSCO’s Committees in 2008

24 General Information on IOSCO

28 Financial Statements

6 IOSCO ANNUAL REPORT 2008

Together with the Chairmen of the Technical andEmerging Markets Committees, and much support fromthe Secretary General and his team, we haveemphasised IOSCO’s role and strengthened ourengagement with stakeholders.

Critical to resolving the crisis are co-operation andcoordination between financial regulators andpolicymakers, supported by the will to make necessaryregulatory or legislative changes. With its global reachand technical expertise, IOSCO is assisting policymakersto develop and implement common global regulatorysolutions in response to the crisis.

As Chairman of the Executive Committee, I accepted aninvitation to join the Financial Crisis Advisory Group(FCAG) jointly set up by the International AccountingStandards Board (IASB) and the US FinancialAccounting Standards Board (FASB). IOSCO is the onlyinternational standards setter included in this high-levelglobal advisory group which was established to examinefinancial reporting issues arising from the financialcrisis. Its purpose is to advise the two boards aboutstandards-setting implications of the crisis and potentialchanges to the global regulatory environment. The FCAGhas held five meetings since January 2009 and a greatdeal of its deliberations are public. The FCAG is due toreport in July 2009. Its members will reconvene inDecember 2009 to review the two boards’ progress onapplying its recommendations.

As our FCAG discussions have highlighted, thegovernance of standards setters and their independencefrom political interference in their operation areparticularly important. To ensure independent publicoversight of the work of the International AccountingStandards Committee Foundation and the IASB, IOSCOalong with the European Commission, the Financial

Services Agency of Japan and the US Securities andExchange Commission established a Monitoring Body, whichheld its inaugural meeting on 1 April 2009 in London.

In recent months IOSCO has undertaken projects insupport of the G-20 Leaders’ stated aims ofstrengthening transparency and accountability, andpromoting integrity in financial markets.

In an open letter I signed on 12 November 2008, IOSCOwelcomed the efforts of the G-20 and reinforced itswillingness to assist in developing regulatory solutions. Inthe days following the November 2008 meeting of theG-20 Leaders, the Technical Committee launched threenew taskforces to support the aims identified by theSummit. As of October 2008, the Emerging MarketsCommittee had also launched a taskforce examining theimpact on and responses of emerging markets to thefinancial crisis based on a survey of its memberregulators. This recent work is outlined in the reports ofthe Technical and Emerging Markets Committees.

In a 3 April 2009 press release, IOSCO welcomed theG-20 Leaders’ statement of the previous day as anendorsement of our recent work to close the regulatorygaps in financial securities markets. On behalf of theOrganization, I stressed our strong support for the workof the G-20 in developing effective responses to theglobal financial crisis, and welcomed the endorsementof recent actions taken by IOSCO aimed at enhancingmarket transparency and underpinning market integrity.

Where possible, IOSCO coordinates work with otherinternational bodies. As a member of the re-establishedFinancial Stability Board (FSB), IOSCO is committed toproviding the necessary sectoral technical expertise toassist the FSB in its enhanced role. IOSCO also countsthe International Monetary Fund (IMF), World Bank,

The global crisis has created an unprecedented momentum for reviewing financial regulatoryissues and the international financial architecture. IOSCO’s global reach and technicalexpertise enables the Organization to contribute to solving issues arising from the crisis andaffecting capital markets.

Report from the Chairmanof the Executive Committee

Jane Diplock AO> Chairman of the Executive Committee


OECD and Asian Development Bank among its affiliatemembers.

Particularly welcome is the commitment of G-20Leaders to the Financial Sector Assessment Program(FSAP) conducted jointly by the IMF and the WorldBank, which uses IOSCO’s Objectives and Principlesof Securities Regulation (IOSCO Principles) andrelated Assessment Methodology when assessing thesecurities sector. IOSCO is committed to successfuldelivery of the FSAP in cooperation with the IMF andWorld Bank, and looks forward to achieving theoutcomes the G-20 seeks.

Together with the Basel Committee on BankingSupervision and the International Association of

Insurance Supervisors (IAIS), IOSCO is a co-founder ofthe Joint Forum set up to examine regulatory issuescommon to the banking, securities and insurancesectors.

Additionally, as an independent standard setter, IOSCOwill continue to formulate standards aimed ataddressing gaps it identifies in securities marketsregulation and ensuring appropriate standards are inplace to resolve the global financial crisis.

While the Organization has already laid the solidfoundation for a strong securities framework, there isstill much to be done in relation to unregulated financialproducts and under-regulated market segments at theglobal level.


The IOSCO Principles are recognised as the benchmarksfor all securities markets and IOSCO’s MultilateralMemorandum of Understanding Concerning Con-sultation and Cooperation and the Exchange ofInformation (IOSCO MMoU) has been instrumental instrengthening cross-border enforcement cooperation andenabling regulators to exchange information.

Cooperation and coordination amongst financialregulators and policymakers are critical to resolve thecrisis. The ensuing G-20 program has generated themomentum for the regulatory or legislative changesnecessary for implementing IOSCO’s high standards ofsecurities regulation and cross-border exchange ofinformation and cooperation.

IOSCO has also forged ahead in facilitating easier andimproved enforcement information exchange throughthe IOSCO MMoU and in our continued efforts togenerate improvements in cross-border cooperation with“non-cooperative jurisdictions”. These are yieldingsignificant results.

Widening the network of signatories to the IOSCO MMoUis one of the cornerstones of the strategic direction theOrganization endorsed in 2005. Significant progresswas made throughout the year and, as at the end of May2009, 52 jurisdictions were signatories and a further21 had committed to addressing issues preventing themfrom becoming signatories. Several other applicationsto join the IOSCO MMoU will be considered at ourAnnual Conference in Tel Aviv in June 2009. To helpmembers fulfill the requirements for signing the IOSCOMMoU, the Organization offers technical assistance asrequired.

IOSCO’s member regulators represent 109 jurisdictionsand regulate 95% of global capital markets. Each year,the Organization continues to receive numerousapplications for membership which the ExecutiveCommittee considers for recommendation to andendorsement by the Presidents Committee. Since 2005,applicant regulators have been required as a conditionof membership to meet the very high internationalstandards for international exchange of information andcooperation embodied in the IOSCO MMoU. Over the

past year, the Executive Committee considered severalapplications for ordinary and affiliate membership andit will make related recommendations to the PresidentsCommittee at the Annual Conference.

The IOSCO Principles and Assessment Methodology areorganic documents. The Executive Committee hastherefore launched a review and mandated its task forceon implementation of the Principles to take into accountin this review current regulatory thinking and lessonslearnt from the global financial crisis. The ExecutiveCommittee decided to adopt a staged approach andconsider in the first instance recommendations inrespect of those principles pertaining to enforcementand cooperation.

The ongoing global crisis highlights the crucialimportance of addressing stability concerns andreducing systemic risk, while protecting investors andpromoting the fairness, efficiency and transparency ofmarkets. In light of this, and the encouraging progressmade by IOSCO during the year, it is timely to reviewthe Organization’s strategic direction beyond 2010.

The Executive Committee has set up a Task Forcecharged with reviewing IOSCO’s strategic direction andmaking related recommendations for consideration byIOSCO’s membership next year. The Task Forcecomprises the Chairmen and Vice-chairmen of theExecutive, Emerging Markets and TechnicalCommittees. The Task Force’s approach is to start byexamining IOSCO’s role and key functions going forward.This will then assist in determining any structural oroperational adjustments required to best fulfil thesefunctions.

In the coming months, and until the Annual Conferenceof 2010, the Task Force will take the opportunity ofvarious IOSCO committee meetings to update memberson work progress and invite feedback from its variousconstituencies on this important task.

Our overarching aim is to position IOSCO for therequirements of regulating global capital markets in this21st century, while taking into account lessons from theglobal financial crisis.



Responding to theSubprime CrisisIn May 2008, at the time of IOSCO’s last AnnualConference, the Technical Committee published a reportof the Subprime Task Force. The mandate of theSubprime Task Force was to conduct an analysis of theunderlying causes of the subprime crisis, examine theimplications for international capital markets and issuerecommendations that address the issues facingsecurities regulators. The Subprime Report identifiedfour main areas of concerns and offeredrecommendations to the Technical Committeeregarding: issuer transparency and investor duediligence; firm risk management and prudentialsupervision; valuation and accounting issues; and creditrating agencies. The Technical Committee, through itsStanding Committees and Task Forces, has workedindustriously on those areas identified by the SubprimeReport and to follow through with implementation of theresulting recommendations.

The first area identified by the Subprime Task Forcerelates to issuer transparency and investor duediligence. Having consulted with market participantsregarding typical structures and disclosure practices forprivate placements of asset backed securities, andanalyzed information from market participants toexamine the possible factors leading to the currentcredit crisis, the Standing Committee on MultinationalDisclosure and Accounting (Standing Committee 1) isdrafting principles regarding disclosure requirements forasset-backed securities in order to provide guidance tosecurities regulators who are developing or reviewingtheir regulatory disclosure regimes for public offeringsand listings of asset-backed securities. These principleswill be presented to the Technical Committee during theJune 2009 meeting for consideration.

The Technical Committee is also, together with thefinancial services industry, examining the viability of asecondary market reporting system for different types ofstructured finance products. In addition the StandingCommittee on Investment Management (StandingCommittee 5) is reviewing the degree to which

Over the past year, the Technical Committee has been extremely active in addressingregulatory issues raised by the subprime crisis and the ensuing financial market turmoil.These difficult times present formidable challenges as policymakers and regulators aroundthe globe have sought to respond to the market disruptions and the causes, contributorsand drivers of this crisis. Securities regulators have rallied together through IOSCO to addressthese challenges and develop international and coordinated responses to this crisis.

I want to take this opportunity to thank Christopher Cox for his contribution to IOSCO’sTechnical Committee as Chair during the most tumultuous days of the crisis, and I would alsolike to thank the chairs and members of the Standing Committees and Task Forces for theirhard work and dedication to the Technical Committee. I would also like to specially recognizeHubert Reynier of the French Autorité des Marchés Financiers and Ethiopis Tafara of the USSecurities and Exchange Commission for their leadership as Chairs of the StandingCommittee on Investment Management and the Credit Rating Agencies Task Force,respectively.

Report from the Chairmanof the Technical Committee

Kathleen Casey> Chairman of the Technical Committee


investment managers who offer collective investmentschemes to retail investors have invested in structuredproducts; the type of due diligence typically conductedwhen making these investments; how these investmentmanagers have been affected by the current marketturmoil; and if and how investment managers may haveshielded retail investors from the effects of theirexposure to losses from structured finance products andany broader market implications. Standing Committee5 will present the Technical Committee with duediligence good practices for approval at the June 2009meeting.

The Subprime Task Force concluded that manyinstitutional investors and investment banking firms:

> had inadequate risk modeling and internalcontrols in place;

> relied heavily on external credit ratings for theirrisk analysis; and

> maintained inadequate balance sheet liquidity.

In response to these findings the Technical Committeeis surveying members’ experience on liquidity riskmanagement and liquidity standards to assist andsupplement work being undertaken jointly with theBasel Committee on Banking Supervision. TheTechnical Committee is closely monitoring the work ofthe Senior Supervisors Group on firm risk managementto determine if further work is warranted by IOSCO inthis area. Further, Standing Committee 1 isconsidering the guidance and disclosure relating to off-balance sheet entities that would prove valuable inmeeting the needs of investors and providing suchinput to the International Accounting Standards Board(IASB) in conjunction with its accelerated work in thisarea. Finally, the Technical Committee decided toundertake a study of internal control systems offinancial firms and asset managers and consideringdeveloping principles to address any concernsidentified that compliments work done by the SeniorSupervisors Group.

The Subprime Task Force also raised concerns aboutvaluation practices and the role that fair valueaccounting principles have played in providinginvestors and regulators with adequate informationabout the strength of financial firms facing illiquidmarket conditions. It is also noted that some financialfirms appear to have inadequate human andtechnological resources to model their financialpositions using fair value accounting principles underilliquid market conditions. Given these concerns,Standing Committee 1 is considering the guidance anddisclosure relating to measurement at fair value interms of what would be valuable in meeting the needsof investors, and providing such input to the IASB in

conjunction with its accelerated work in this area. TheTechnical Committee is also exploring whether, as amatter of internal control, registered intermediaries andinvestment advisers avail themselves of practitionerswho are sufficiently skilled or trained to model fairvaluation adequately in illiquid market conditions.

The Technical Committee actively monitorsdevelopments with regard to accounting and auditing.In the area of accounting, the Technical Committee,along with the Emerging Markets Committee, is amember of the Monitoring Board, a body established tostrengthen the institutional governance of the IASB. TheInternational Accounting Standards CommitteeFoundation (IASCF), in turn, is the public interestoverseer of the IASB, which promulgates InternationalFinancial Reporting Standards (IFRS). The role of theMonitoring Board is to provide a mechanism throughwhich the IASCF can be held accountable to regulatoryauthorities that oversee investor protection. In particular,the Monitoring Board approves appointments of new


IASCF Trustees, and interacts regularly with the Trusteesto ensure that they are carrying out their duties in thepublic interest. The IOSCO Technical Committee ViceChair, Hans Hoogervorst, is the current chair of theMonitoring Board.

In the area of auditing, IOSCO is among themembership of regulatory and international financialinstitutions that comprise the Monitoring Group, whichmonitors the international Public Interest OversightBoard (PIOB). The PIOB oversees, from a public interestperspective, the standard-setting boards of theInternational Federation of Accountants (IFAC), whichdevelop International Standards on Auditing (ISA) aswell as international ethics and education standards forauditors. IOSCO also is a member of the NominatingCommittee for the PIOB, with the right to nominate fourmembers of the Board. The IOSCO Technical CommitteeVice Chair, Hans Hoogervorst, is the current chair of theMonitoring Group.

Credit Rating Agencies

The subprime crisis and the current market turmoilrevealed the importance of external credit ratings to theglobal securities market, as well as the necessity ofindependent credit rating agencies (CRAs) withprocedures and practices in place that reduce conflictsof interest in the credit rating agency model. The IOSCOCode of Conduct Fundamentals for Credit RatingAgencies (IOSCO Code of Conduct) – revised in May2008 in the wake of the subprime crisis – focuses ontransparency and disclosure relating to credit ratingagencies’ methodologies, conflicts of interest, use ofinformation, performance and duties to issuer and thepublic. The IOSCO Code of Conduct forms the basis ofproposed legislation for several jurisdictions, and iscited in the G-20 Leaders Communiqué of 2 April 2009as a common starting point for credit rating agencyregulation around the world.

The Technical Committee conducted a review ofadoption of the May 2008 revisions to the IOSCO Codeof Conduct by credit rating agencies, which found thatall of the largest, and many smaller, credit ratingagencies had indeed adopted the revised IOSCO Code ofConduct or were planning to do so within the immediatefuture. The Technical Committee has also transformedthe Task Force on Credit Rating Agencies into apermanent Standing Committee that will review andupdate the international regulatory consensus regardingCRA oversight and serve as a forum for regularinteraction between regulators and credit ratingagencies.

Response to the G-20 Communiqués

On 15 November 2008, the Leaders of the Group ofTwenty (G-20) issued a communiqué on the financialmarkets and the world economy. The communiqué setforth several common principles for reform of thefinancial markets to be undertaken by the countries ofthe G-20. In response to this communiqué the TechnicalCommittee held an extraordinary teleconference on 24November in order to develop a detailed work planfocused on strengthening the financial markets andinvestor protections in response to the financial marketturmoil. To further these aims, the Technical Committeeestablished three new task forces.

The Task Force on Short Selling was established toexplore issues associated with potentially abusive shortselling during the financial crisis, as well as how tominimize adverse impacts of short selling regulation onlegitimate securities lending, hedging and other types oftransactions that are critical to capital formation andreducing market volatility. The Technical Committee haspublished a report by the task force that discusses issuesrelated to naked short selling, the role of settlementdiscipline in limiting the potential adverse effects of shortselling, and the merits of reporting on short salestransactions and short positions. The paper also proposesfour principles for the effective regulation of short sellingfor public consultation. Once all public comments aretaken into account, the Technical Committee plans topublish a final paper on short selling in June 2009.

The Task Force on Unregulated Financial Entities wasmandated to develop recommended regulatoryapproaches to mitigate risks associated with thetrading and traditional lack of transparency of hedgefunds. A consultation report by the task force, whichexamines the role of hedge funds in markets, theregulation of hedge funds and their advisers around theglobe, and the risks and benefits of participation byhedge funds in markets, has been published. Theconsultation report also contains recommendationsregarding suggested regulatory approaches to hedgefunds. The Technical Committee plans to publish afinal report in June 2009.


The Task Force on Unregulated Financial Products andMarkets was established to report on regulatorymeasures to improve confidence and transparency in theOTC market, with a particular focus on securitizedproducts and credit default swaps (CDS). The task forcereport explores whether and how to extend to securitizedproducts and CDS certain key regulatory principles thatapply to regulated products and markets, in the areas oftransparency, market conduct, and marketinfrastructure. The Technical Committee plans topublish a final report in summer 2009.

In order to more fully represent the changing andexpanding global financial marketplace, the TechnicalCommittee has extended new memberships to theCommissão de Valores Mobiliáros of Brazil (CVM), theChina Securities Regulatory Commission (CSRC) andthe Securities and Exchange Board of India (SEBI), whoare currently members of the Emerging MarketsCommittee of IOSCO. These new members were chosenon the basis of the size of their capital markets; theinternational nature of their markets including theircommitment to IOSCO; and the development of theirregulatory system and authority. I believe by expandingthe membership, the Technical Committee will be betterable to represent the views of securities regulators fromall corners of the globe.

Among other recent work by the Technical Committeethat warrants attention, is a report developed by the TaskForce on Commodities Futures Trading that examinesgovernmental and International Monetary Fund reviewsof the issue of speculation in commodity markets, andcontains recommendations to improve the supervisionof commodity futures markets and global regulatorycooperation. In addition, the Task Force on CorporateGovernance is close to finalizing a report on how eachTask Force jurisdiction addresses the OECD CorporateGovernance Principles regarding how corporate boards“should be able to exercise objective independentjudgment on corporate affairs.”

Finally, 52 IOSCO members have become signatoriesto the IOSCO Multilateral Memorandum ofUnderstanding Concerning Consultation andCooperation and the Exchange of Information (IOSCOMMoU), which contains specific commitmentsregarding the exchange of information for securitiesenforcement purposes, including information protectedin many jurisdictions by banking secrecy laws. Anadditional 21 jurisdictions have been through the fullverification process and have committed to removingthe impediments to becoming a full signatory to theIOSCO MMoU. Currently, two-thirds of IOSCO membersmeet or have committed to taking the necessary stepsto meet the IOSCO MMoU’s requirements and another25 members have already submitted their applicationsto the IOSCO MMoU. The few remaining IOSCOmembers that have not yet applied to the IOSCO MMoU

are expected to do so soon as the deadline for all IOSCOmembers to apply, by January 2010, is fastapproaching.

The Future Work of the Technical Committee

Since the full force of the financial crisis has beenrevealed, IOSCO has accelerated its work in all areas inorder to present a united front to promote integrity inthe financial markets, reinforce internationalcooperation, enhance financial regulation and reduceregulatory inefficiencies. The Technical Committeeplans to publish final reports soon on important issuescurrently affecting the financial markets: short selling;unregulated financial entities, especially hedge funds;and unregulated financial markets and products. Indeveloping these reports, the task forces held ongoingdialogues with financial market stakeholders in order toensure that the work of the Technical Committeereflects the views and concerns of stakeholders. TheTechnical Committee regularly meets with financialmarket stakeholders to provide updates on IOSCO’swork and to seek the stakeholders’ views and input. TheTechnical Committee’s ongoing dialogue with financialmarket stakeholders is integral to IOSCO’s role ofpromoting high standards for securities regulation andfor harmonization of market supervision. In this regard,the Swiss Financial Market Supervisory Authority(FINMA) will host the next Technical CommitteeConference this coming October 2009 in Basel,Switzerland.

The Technical Committee will also participate in thenew Financial Stability Board (FSB), which was createdout of the Financial Stability Forum in the lead up tothe G-20 Summit in April 2009. As an independentstandard setting body of securities regulators, theTechnical Committee will be an important resource forthe FSB and will be able to provide expertise to the FSBin order to promote financial stability, maintain theopenness and transparency of the financial sector andimplement international financial standards, includingIOSCO’s Objectives and Principles of SecuritiesRegulation.

In these tumultuous times, the Technical Committeeis evolving to reflect the changing financialmarketplace, as well as striving to issue guidance andnew principles for securities regulators in areas ofongoing concern. The unfolding financial crisis hasagain placed the emphasis on enhanced cooperationamong regulators to present a global front againstregulatory arbitrage and to strengthen coordinationamong regulators to share information across borders.The Technical Committee is committed to providingsecurities regulators with a forum to discuss emergingissues and develop international efforts to protect andpromote financial stability within the global securitiesmarketplace.


The members of the Emerging Markets Committee (EMC)come from a broad range of emerging markets rangingfrom some of the world’s smallest to its largest countries,and span the entire range of development in financialservices terms from nascent to highly sophisticated.However, despite the global crisis and attendant downturn,members of the EMC aspire to continue to develop theirfinancial markets as venues for efficient capital-raisingboth nationally and internationally. IOSCO provides anessential framework that enables these members to meetand share information about their experiences, to discusstechnical issues particular to emerging markets, and tobenefit from training courses that draw on both emergingmarket and developed market experience.

With the goal of developing impartial and credibleperspectives on the impact of the financial crisis on thejurisdictions and regulatory systems of the members of theEMC, it was agreed at our meeting in Marrakech lastOctober 2008 to establish an EMC Chairman’s Task Forceto analyze the implications of the current crisis forsecurities regulators from emerging markets. Specifically,the Task Force was mandated to assess the impact of thecrisis on emerging market economies and their securitiesmarkets, and in particular to identify the relevantregulatory issues.

In pursuing this mandate, the Task Force prepared asurvey that was circulated to all EMC members aimed atidentifying the key regulatory and supervisory issues thataffected emerging market regulators and possiblestructural changes they may face as a result of the crisis.A consultation report on the survey results and the impactof the financial crisis on emerging markets is to bepresented during the Annual Conference in Tel Aviv.

In conjunction with the above, the EMC has for some timenow been working to promote the effective capture andincorporation of emerging markets perspectives into thedevelopment of securities markets policy and any actionplans to combat the crisis. This sentiment was recentlyechoed by the G-20 in its call for major standard settingbodies to include more emerging economies within theirmembership in order to ensure that they more adequatelyreflect the realities of the world economy. In this context,I am happy to say that our own organization’s TechnicalCommittee was one of the first such bodies to respond,with its invitation to Brazil, China and India to join itsmembership.

I have actively promoted the view that emerging marketsregulators have valuable experiences from past crises toshare with the authorities and market participants indeveloped markets. In support of this, I have written tothe Financial Stability Forum (now Board) to underscorethe necessity of incorporating emerging market viewswithin the supervisory colleges which regulate largecomplex financial institutions. A similar view wasexpressed in a letter sent to the G-20 heads of governmentmeeting in April 2009 which highlighted the impact ofthe crisis on emerging markets and underlined theimportance of closer cooperation and coordinationbetween advanced and developing markets.

The EMC held two plenary meetings in 2008, the firsttook place during the 2008 Annual Conference in Pariswhile the second was hosted by the CDVM of Morocco inMarrakech in October 2008. On the other hand, the EMCAdvisory Board met twice during the last 12 months,during the EMC Conference in Marrakech and inWashington in February 2009. The issues discussed at

It gives me great pleasure to address the entire IOSCO membership for the first time in myrole as Chairman of the Emerging Markets Committee. As we are all aware this has been anextremely active period for many members from emerging markets jurisdictions as thefinancial crisis has continued to spread, from its initial roots in the complex structuredfinancial products market, to affect all areas of the global financial markets and underlyingnational economies.

Report from the Chairmanof the Emerging Markets Committee

Guillermo Larrain> Chairman of the Emerging Markets Committee


these meetings included key strategic matters, the workaccomplished by the EMC Working Groups, the formationof the EMC Task Force on the Crisis as well as the ongoingtraining and assistance programs for EMC members. Inconjunction with the meetings in Marrakech, a one daypublic conference was held composed of publicdiscussion panels which focused on areas of particularinterest to EMC members and market participantsincluding: IPO Challenges in Emerging Markets, Accessof SME’s to Emerging Markets, Investor Protection inEmerging Markets and Managing Globalisation ofEmerging Markets.

Progress in meeting the IOSCO MMoU requirements

In pursuit of IOSCO’s 2005 Strategic Direction onIOSCO’s Multilateral Memorandum of UnderstandingConcerning Consultation and Cooperation and theExchange of Information (IOSCO MMoU), in the past year,many EMC members have undergone the applicationprocess for the IOSCO MMoU with identifiable results. Inthe case of the members from Bahrain, Kenya, Jordan,Montenegro and Thailand, following verification andscreening, their legal regimes were deemed to meet theinformation exchange requirements in full and they weresubsequently admitted as signatories to Appendix A of theIOSCO MMoU. The members from Argentina, Egypt, ElSalvador, the Former Yugoslav Republic of Macedonia,Russia and Uruguay have, in signing Appendix B,expressed their commitment to seeking changes in theirnational legislation as soon as possible to allow them tomeet the requirements of Appendix A.

The total number of signatories to Appendix A of theIOSCO MMoU is currently at 52 of which 24 are fromEMC jurisdictions. In addition 19 members, mostly fromthe EMC, expressed their formal commitment under theterms of Appendix B of the IOSCO MMoU.

Increasing members’ capacity

As part of its commitment to support the development ofEMC members’ capacity, IOSCO organized a number ofimportant educational seminars. The annual IOSCOSeminar Training Program was held in Madrid from 18-21 November 2008 on the subject of PracticalApproaches to Market Oversight, and consisted of anumber of plenary sessions and breakout groups dealingwith case studies. The seminar was aimed at providingmembers with an overview of the issues faced andapproaches taken in relation to market oversight.

IOSCO’s SRO Consultative Committee held a three-dayseminar in Washington, D.C. in December 2008, toaddress topics of importance for emerging marketsregulators. The seminar covered selected IOSCOPrinciples and issues and discussed their implementationin various jurisdictions, including: standards for marketintermediaries, firm inspections, models of self-regulatory

organizations, accreditation of salespersons and marketregulation.

An Assessors’ Workshop run by the Implementation TaskForce, with the support of the General Secretariat, wasorganized by the Securities and Exchange Board of Indiain Mumbai in February 2009. The workshop proved to bean excellent forum to exchange ideas and experiencesbetween experienced and potential assessors on theassessment process of the IOSCO Principles, when usingthe IOSCO Methodology to conduct a Financial SectorAssessment Program (FSAP) or an IOSCO Assessment.The Workshop also provided an opportunity to identifypotential assessors to support the roll out of the PrinciplesAssessment Program.

Additionally, the General Secretariat continued to assistEMC members in the organization of regional trainingseminars, which are primarily focused on IOSCO’soperational priorities. In 2008, regional seminars tookplace in Santiago in October on the IOSCO Principles andIOSCO MMoU, while another IOSCO MMoU workshop washeld in Miami in March 2009.

The Year Ahead

The recent decision to admit Brazil, China and India tothe Technical Committee is a vindication of the progressmade by developing markets in recent years and a timelyrecognition of the realities of today’s global economy. I amhappy to say that these members have however indicateda willingness to remain closely involved with the work, andmembers, of the EMC. The EMC has also invited Mexicoto share its expertise in developing its work agenda.

Emerging markets have learnt from past episodes ofmacroeconomic collapse and market disruption. As aresult, several emerging markets today can contributeeffectively to the discussions on building a more stableand sound international financial system and these mustbe taken into account in the new emerging globalregulatory framework. I look forward to continuing torepresent the views of EMC members in all matters ofsecurities regulation that have implications for them.

Summary of SROCC’sactivities over thepast yearIn the past year, the SROCC held its annual meetingduring the IOSCO Annual Conference in Paris in May2008, its mid-year meeting and a training seminar inWashington, D.C. in December 2008.

Meetings held during IOSCO Annual Conference

During the conference, the SROCC held its workinggroup meetings and plenary meeting.

The Ahead of the Curve Working Group, whose primaryobjective is to share information on emerging issues,exchanged information about responses by SelfRegulatory Organizations (SRO) to the financial turmoil.The working group discussed a range of issues includingrogue trader notice, innovative trading strategies,new/structured products, cross market surveillance andprotection for aged investors, and agreed to continue tostudy these issues.

The Regulatory Staff Training Working Group iscommitted to assisting the staff of SROCC members inunderstanding a number of regulatory requirements andrelated inspection practices. The working groupdiscussed the program for a face-to-face trainingseminar targeting the regulatory staff of SROCC and

Emerging Markets Committee member organizationsand decided to hold the seminar in Washington, D.C. inDecember 2008.

At its meeting, the Working Group on Self-regulationheard a report on the results of a survey covering morethan 40 SROs across the globe. The members agreed toproduce a report to show different types of self-regulation distinguished by the level of binding authorityof self-regulatory rules, governance structures andmechanisms to manage conflicts of interest.

In the SROCC Plenary Meeting, members receivedreports from the chairpersons of the ExecutiveCommittee and the Technical Committee, as well as theSecretary General. The meeting, which was alsoattended by the chairs of the Technical Committee’sStanding Committees, discussed the work recentlyaccomplished by these committees, their planned workprograms, and how to strengthen practical cooperationon relevant issues with the SROCC.

The Committee also received reports from the WorldFederation of Exchanges on its ongoing activities andstudies and from the International Forum for InvestorEducation (IFIE) on its recent activities.

Training Seminar

The SROCC, in cooperation with the Emerging MarketsCommittee, held a face-to-face training seminar inWashington, D.C. from 8-10 December 2008 for themembers of both committees. The seminar was

Established in 1989, the SRO Consultative Committee (SROCC) contributes to regulatorypolicy development through the expertise and input provided by its members and relatedparties as a body of self-regulatory organizations. The SROCC comprises a total of 63 IOSCOaffiliate members, representing developed and emerging securities and derivatives marketsfrom around the world.

Mr. Yoshio Okubo, Senior Managing Director of Japan Securities Dealers Association servesas the SROCC Chairman.

Report from the Chairmanof the SRO Consultative Committee

Yoshio Okubo> Chairman of the SRO Consultative Committee

Senior Managing Director,Japan Securities Dealers Association

IOSCO ANNUAL REPORT 200816

attended by 58 participants from 25 jurisdictionsrepresenting all regions of the world. The event featuredspeakers from both regulatory authorities, including theUS Securities and Exchange Commission and the UKFinancial Services Authority, and SROs, including theInvestment Industry Regulatory Organization of Canada,the Japan Securities Dealers Association, the FinancialIndustry Regulatory Authority and the National FundsAssociation from the United States. They delivered aselection of interesting presentations during sessionswhich focused on basic regulatory policies, prudentialrequirements, compliance assessment, supervision andinspection policies, SRO models, accreditation andregistration requirements for market professionals andmarket surveillance. All of the sessions were conductedwith reference to the relevant articles of IOSCO’sObjectives and Principles of Securities Regulation. Theseminar produced some very interesting exchanges ofviews and informative discussions, between thepresenters and participants, regarding the regulatorychallenges facing securities markets.

Mid-Year Meeting

The SROCC held its mid-year meeting in Washington,D.C. on December 11, 2008, where members reportedon and discussed a number of on-going initiatives.

Mr. Jaime Caruana, International Monetary Fund (IMF),was a guest speaker at the meeting. He provided theIMF’s views on the background, contributing factors andcurrent development of the financial crisis, as well asthe challenges to be faced in revamping the structureand regulation of financial markets. This presentationwas followed by a general discussion with the memberson a variety of issues including appropriate risk modelsfor complex structured products and measures to betaken in markets that have lost liquidity.

The Working Group on Self-regulation discussed thecontents of its study on SROs and agreed that it wouldpresent some examples of existing SRO models, as wellas the diversity of approaches arising from the structureand historical background of each market.

The Regulatory Staff Training Working Group, havingappraised the face-to-face training seminar involving

SROCC and Emerging Markets Committee membersreached a consensus on continuing this type of activity.The members also discussed the structure and topicsfor the next seminar.

The Ahead of the Curve Working Group, was briefed byseveral members on the challenges that they were facingbecause of the financial crisis and their current andplanned responses. The members also discussed theimportance of enhancing the transparency of structuredproducts, the need to strengthen market surveillanceand concerns about ambiguity in asset evaluationcaused by relaxed accounting standards.

The members received reports from the chairs of theTechnical Committee’s Standing Committee onMultinational Disclosure and Accounting and the TaskForce on Credit Rating Agencies. In addition, themeeting was briefed by the IFIE on their recent activitiesand by the International Council of SecuritiesAssociations on their studies on international standardsfor accreditation of market professionals.

SROCC’s Future Work Program

In light of the recent market turmoil, the SROCC isplanning to exchange information regarding initiativesand measures taken or being considered by memberorganizations which will focus on the role to be playedby SROs in strengthening market infrastructure. At theSROCC’s next meeting in Tel Aviv in June 2009, and onother occasions in the next 12 months, it is expectedthat members will review and discuss the issues that theSROCC should tackle, with a view to increasingtransparency and enhancing the risk managementprocess in markets under pressure from the financialcrisis.

Through the Working Group on Self-regulation, theSROCC will complete its study on different models ofSROs and provide input to the ongoing reconsiderationof IOSCO’s Objectives and Principles of SecuritiesRegulation. Additionally, the Regulatory Staff TrainingWorking Group will begin planning the next trainingseminar for regulatory staff, which is likely to be held inearly 2010.


IOSCO’sStrategic PositioningThe demand for IOSCO’s policy and technical input,from outside bodies, has risen markedly in the past 12months. As a result this has seen IOSCO, as a memberof the Financial Stability Forum (FSF) and of the newlyconstituted Financial Stability Board, participate in theFSF’s Working Group on Market and InstitutionalResilience and its sub-committees on pro-cyclicality andvaluation, and compensation practices.

The General Secretariat also provided input to the G-20Working Groups on Enhancing Sound Regulation andStrengthening Transparency, and on Financial MarketIntegrity and International Cooperation on its crisisrelated work program in the lead up to the April 2009G-20 Leaders Summit.

The FSF and subsequently the G-20 endorsed IOSCO’srevisions to the Credit Rating Agency Code of Conduct,

and much of IOSCO’s crisis related work was recognizedin the G-20 Leaders’ November 2008 and April 2009Declarations.

The General Secretariat has also strengthened or re-established links with other international standard-setters and regulatory bodies1, the internationalfinancial institutions2 and with financial marketstakeholders.

All of this increased external activity has helped raisethe organization’s profile tremendously, but it alsomeans that there is a high level of expectation that wewill continue to produce work that is timely, relevant andof high quality.

Supporting the IOSCO Strategic Direction

IOSCO has made substantial progress towards meetingits strategic objective of having all its members becomea full signatory or have committed to becoming a fullsignatory to Appendix A of the IOSCO MMoU by 1January 2010. From the 114 IOSCO members eligible

The last year has been a challenging one for IOSCO and the General Secretariat as a resultof the increased demands produced by the global financial crisis. Simultaneously, we areapproaching a critical stage in the implementation of IOSCO’s Multilateral Memorandum ofUnderstanding Concerning Consultation and Cooperation and the Exchange of Information(IOSCO MMoU), and have also embarked on a major review of IOSCO’s Objectives andPrinciples of Securities Regulation (IOSCO Principles).

A large part of the past year’s achievements at the General Secretariat level can be attributedto the secretariat staff who have responded to the increased workload with admirableprofessionalism by providing invaluable technical, strategic and administrative support to theworking committees and task forces.

Report from the Secretary General

Greg Tanzer> Secretary General

[1] These bodies include the Basel Committee on Banking Supervision (BCBS), the International Federation of Independent Audit Regulators(IFIAR), the Public Interest Oversight Board (PIOB), the International Accounting Standards Board (IASB), the International Association ofInsurance Supervisors (IAIS); the Committee of European Securities Regulators (CESR) and the European Commission.

[2] The International Monetary Fund (IMF), World Bank and various regional development banks.


to become signatories, by mid May 2009 there were lessthan 20 members that had not yet submitted anapplication. In pursuit of this aim we held specializedworkshops on the MMoU, with the support of ourRegional Committee and Screening Group chairs, inPoland, Chile and the United States for members fromthose regions. We have also augmented our resourcesdevoted to helping non-applicants with theirapplications through the secondment of two membersof the Screening Group, from Portugal and BritishColumbia, to work at the General Secretariat for the next12 months. With the willingness and cooperation of theremaining members, and with these extra resources, weare optimistic that we can meet the 2010 deadline.

The global financial crisis has reinforced the importanceof the IOSCO Principles. The G-20 Leaders’ Declarationexplicitly recognizes the value of undertaking anindependent review of the regulatory framework, ofwhich the IOSCO Principles form an integral part. Wehave trained more assessors through an AssessorsWorkshop in February 2009, and our review of theIOSCO Principles to maintain their relevance is wellunder way. However, while we were able to complete oneassisted IOSCO assessment during 2008, we continueto have many outstanding requests for assistance dueto a combination of a lack of funding and of expertassessors. This needs to be addressed in 2009 andbeyond.

To improve IOSCO’s ability to serve the needs of itsEmerging Markets Committee (EMC) members andenhance its training activities, the General Secretariathas taken two staff on secondment from Kenya andSouth Korea as EMC Advisors, and one from the UnitedStates as an Education and Training Consultant. Theyhave been instrumental in supporting the work of theEMC Chairs’ Task Force assessing the impact of thecrisis on emerging markets, and in developing our 2009training programs.

On the issue of training and education we haveconducted a wide ranging Training Needs Analysis andSurvey which will dictate the shape of our trainingactivities in the coming years. During 2008 we held ourannual Seminar Training Program in Madrid, onPractical Approaches to Market Oversight, which wasattended by 62 participants from 31 jurisdictions. TheGeneral Secretariat also hosted a jointly organizedseminar on Market and Liquidity Risk with the FinancialStability Institute which attracted 70 participants from55 jurisdictions, evenly representing securities andbanking regulators. A second joint Investor EducationConference was organized by IOSCO and theInternational Forum for Investor Education (IFIE) inWashington D.C. in March 2009. More than 100investor education practitioners from governmental,quasi-governmental, self-regulatory and tradeassociation bodies from over 30 countries attended the

event, which focused on creating and deliveringsuccessful new investor education programs andstrengthening existing programs.

Staffing

IOSCO’s General Secretariat is staffed by a small groupof highly dedicated and professional staff. Regrettablylater this year we will say farewell to our DeputySecretary General, Jean-Pierre Cristel, who has servedIOSCO for over 20 years. While we face the loss of suchan experienced staff member, we have also seen thearrival of new staff through the successful implemen-tation of the IOSCO Secondment Program. We expectthis to provide excellent opportunities for thoseseconded from their home agencies, and a boost to thehuman resources available to the General Secretariat tocontinue to provide a high standard of service tomembers. We continue to maintain a good geographicalspread amongst our staff, who come from jurisdictionsacross the globe. We currently boast staff from Australia,Canada, France, Ireland, Kenya, the Netherlands,Portugal, South Korea, Spain, Sweden and the UnitedStates of America.

Conclusion

As we look ahead through 2009 and beyond, we lookforward to the emergence of improved economicconditions and the return of activity to capital marketsacross the globe. However on the road to economicrecovery IOSCO must remain committed to supportingthe new financial regulatory system through its work, asthe focus on the role of global financial marketsregulators and standards setters, their ability to improvetheir coordination and develop rigorous regulatorystandards, will continue to be intense.


The Technical Committee

The Technical Committee continuously assesses theglobal financial landscape and anticipates likelydevelopments in securities markets policy. Its objectiveis to review regulatory issues related to internationalsecurities markets and to coordinate practical responsesto these concerns. The Emerging Markets Committeeaims to develop and improve the efficiency of emergingsecurities markets through the introduction of minimumstandards, training programs for members’ regulatorystaff and facilitating the exchange of information,technology and expertise.

Both committees divide their work broadly between fivefunctional areas:

> Disclosure and Accounting;

> Regulation of Secondary Markets;

> Regulation of Market Intermediaries;

> Enforcement and Exchange of Information; and

> Investment Management.

The Technical Committee work is carried out byStanding Committees while the Emerging MarketsCommittee’s remit is met through its Working Groups.The committees may also from time to time establishspecial task forces to examine specific topical issues ordevelopments in the financial markets.

The last 12 months have been eventful and busy timesfor IOSCO’s Standing Committees and Working Groupsas they have been engaged in some major pieces of worklinked to the ongoing financial crisis, as well ascontinuing to pursue mandates in their respective areasof responsibility. The task forces of the two committeescarry out their work to separate mandates but co-operateextensively where those mandates overlap.

The work of the Technical Committee’s Task Forces hasalready been detailed in the report from the Chairman ofthe Technical Committee. Similarly the work of theEmerging Markets Committee Chairman’s Task Force on

the Crisis was dealt with in the report from the Chairmanof the Emerging Markets Committee.

2008 – The Technical Committee’s Work Program

Multinational Disclosure and Accounting

The work program of the Standing Committee onMultinational Disclosure and Accounting continues tofocus on the quality of financial information provided toinvestors by listed companies and financial institutions,and the accounting and auditing standards thatunderpin this information. IOSCO reiterated itscontinued commitment to developing and enforcinghigh quality standards in a statement from the TechnicalCommittee in October 2008.

The last 12 months has seen the Standing Committee’swork focus on those issues raised by the financial crisisparticularly in the areas of improved issuer transparencyand valuation and accounting issues. This has includeddeveloping Disclosure Principles for Public Offerings ofAsset-Backed Securities, which will be concluded in thenear future. The Standing Committee has also beenactively monitoring and participating in the effortsconcerned with examining financial reporting issuesraised by the crisis, which has included liaison with theInternational Accounting Standards Board (IASB), theFinancial Accounting Standards Board (FASB) and theFinancial Stability Forum (FSF).

The Standing Committee continues to be involved inmonitoring and supporting the work of the internationalaccounting standard setting bodies, through providingviews on behalf of the Technical Committee in relationto their work, as a participant in working groups andobservers. These include the projects being undertakenby the International Accounting Standards Board(IASB), the work of IFAC’s International Auditing andAssurance Standards Board (IAASB) on clarifying thedevelopment of International Standards of Audit (ISA)and the activities of other bodies including theInternational Forum of Independent Audit Regulators(IFIAR) and the International Ethical Standards Boardfor Accountants (IESBA). IOSCO believes thatinternational audit standards that contribute to highquality audits are important for securities regulators and

The Work of IOSCO’sCommittees during 2008The work of IOSCO is carried out by two specialized committees, the Technical Committeeand the Emerging Markets Committee.


essential to maintaining investor confidence, so itcontinues to monitor the work by the IAASB onproducing new updated standards.

In tandem with the focus on the clarity of informationavailable to regulators and investors and its crisis relatedwork, the Standing Committee has also been examiningaspects relating to the disclosure of information. It iscurrently engaged in developing Principles for PeriodicDisclosure by Listed Entities for the types of non-financial information which public issuers shouldinclude in their periodic reports. These Principles willbe published in the near future.

Regulation of Secondary Markets

The Standing Committee on the Regulation ofSecondary Markets, in common with the other standingcommittees, has been pursuing issues related to theongoing crisis as well as continuing to work on the issuesraised by developments in the structure of global capitalmarkets and the markets and exchanges infrastructure.

The Standing Committee’s crisis-related work has beentaken up with examining the viability of a secondarymarket reporting system for different types of structuredfinance products. This work is ongoing.

The evolving nature of markets has also seen changes inthe methods used by participants to access tradingvenues, and the committee, along with the StandingCommittee on Regulation of Intermediaries, recentlypublished a consultation report on Direct ElectronicAccess setting out possible principles addressing pre-conditions for Direct Electronic Access, information flowand adequate systems and controls.

The development of new market structures has alsoraised issues around the use of third-party providers tocarry out processes, services and activities on behalf ofmarket infrastructure operators. In response to theseconcerns the Standing Committee issued a consultation

report on possible principles designed to assist marketsand markets authorities when considering outsourcingarrangements.

The recent focus on the growing use of dark pools ofliquidity by financial institutions has resulted in a newmandate to examine the key regulatory issues this raisesfor supervisors. The issues that will be examined includetransparency and price discovery; fragmentation;information leakage; fair access; and the ability toaccess actual trading volume in dark pools. TheStanding Committee will also consider whether it needsto provide guidance to assist regulators in dealing withthese issues.

Regulation of Intermediaries

The role of intermediaries in today’s volatile markets isa critical one. The manner in which they meet their legaland regulatory responsibilities through proper systemsand controls, manage their conflicts of interest andensure that clients’ interests are protected, is a key partof IOSCO’s Objectives and Principles of SecuritiesRegulation and of vital importance to the efficientfunctioning of securities markets.

In pursuit of its role in ensuring that adequate standardsexist in relation to financial intermediaries and marketaccess, the Standing Committee has recently produceda joint consultation report with its counterpart on theRegulation of Secondary Markets on Direct ElectronicAccess. In relation to the protection of client’s interests,the committee continues to examine, together with theStanding Committee on Investment Management, theeffectiveness of disclosure of information on financialproducts - in particular Collective Investment Schemes(CIS) - to investors at the point of sale.

In crisis-related work, the committee is examiningpossible weaknesses in financial institutions controls onthe management of illiquid assets and is alsoconducting a related project on liquidity riskmanagement in securities firms.

Enforcement and Exchange of Information

Enforcement co-operation between regulators continuesto be an area of great importance for IOSCO and theTechnical Committee. The Standing Committee onEnforcement and Exchange of Information has beenheavily involved over the last 12 months, in supportingthe work of the Screening Group and the GeneralSecretariat in assisting members to meet therequirements for becoming signatories to the IOSCOMultilateral Memorandum of Understanding ConcerningConsultation and Cooperation and the Exchange ofInformation (IOSCO MMoU). The deadline for this isJanuary 2010.


The Standing Committee continues to pursue work inrelation to developing practical cross-border cooperativesolutions to the international boiler room problem, thatpersists across many jurisdictions. It also continues itscontact with other international bodies concerned withtackling securities violations.

The IOSCO Contact Initiative, which seeks to engage ona positive basis with under-regulated or uncooperativejurisdictions, has seen good progress made with anumber of jurisdictions. A number of these havecommitted to make the necessary changes to enablethem to apply to join the IOSCO MMoU in the nearfuture. However there are still jurisdictions whichrequire further attention.

The committee continues to work to ensure theimplementation of guidelines and procedures,facilitating better links amongst members in allowingthe exchange of information and greater co-operation inenforcement actions.

Investment Management

The growth in importance of this sector of the world’sfinancial markets, and the effect of the financial crisis,is reflected in the work undertaken by the StandingCommittee on Investment Management during the last12 months, which has again focused on hedge fundsand CIS.

A final report on Funds of Hedge Funds considering theissues arising from the growing involvement of retailinvestors with hedge funds was published during 2008.This report has led to the committee consulting onProposed Elements of International RegulatoryStandards on Funds of Hedge Funds Related IssuesBased on Best Market Practices, aimed at funds ofhedge funds’ managers to address regulatory issues ofinvestor protection in light of the increased involvementof retail investors in hedge funds through funds of hedge

funds. The report focuses on the managers’ approach todealing with liquidity risk and the due diligenceprocesses used by managers prior to and during the lifeof an investment. This will be finalized soon.

In relation to the regulation of investment funds thecommittee also published a paper on the issues relatedto real estate funds in 2008 and continued its jointmandate work with the Standing Committee on theRegulation of Intermediaries on point of sale disclosure.

The committee is also finalizing its work focusing oninvestment managers selection of underlying funds andthe due diligence and on-going monitoring performed bythe fund managers.

2008 – The Emerging Markets Committee’s WorkProgram

Disclosure and Accounting

The Working Group on Disclosure and Accounting hascontinued its work aimed at raising its members’awareness of the issues associated with the convergenceof domestic financial reporting with internationalfinancial reporting standards, and providing them withrelevant guidance. It has pursued this through acombination of high level presentations from seniorrepresentatives of the international standard setters foraccounting and auditing – such as the IASB and IFAC –and its continued close cooperation with the TechnicalCommittee’s Standing Committee on MultinationalDisclosure and Accounting on joint mandates. This hasincluded recent work on the application of ISA’s byIOSCO members.

Regulation of Secondary Markets

In the more challenging environment which hasdeveloped as the global crisis has spread to emergingmarkets, effective market surveillance is now of critical


importance in maintaining a fair and effective tradingenvironment. Increased competition, flow and volatilityof cross-border transactions and the advent of newproducts has meant that market surveillance isbecoming increasingly challenging in emerging marketsjurisdictions. Furthermore, developments in marketinfrastructure have also created new oversightchallenges for emerging markets. This has resulted inthe need for increased vigilance by emerging marketsregulators against potential market abuse and theirmarkets increasing exposure to global market risk.

The Working Group is currently working on a mandateon Approaches to Market Surveillance in EmergingMarkets. The report will examine the current approachesadopted by emerging market regulators and/orexchanges to monitor markets; the regulatoryarrangements in place to conduct internal and cross-border surveillance; surveillance systems used tomonitor markets; an analysis of current methods usedglobally to intervene once market abuse is detected; andinternational cooperation with foreign regulators and/orexchanges on matters involving market surveillance.

During the course of their work on this report, theWorking Group has drawn on the expertise ofsurveillance experts from leading exchanges indeveloped markets, in particular the London StockExchange and Euronext.

Regulation of Financial Intermediaries

The Working Group on Regulation of FinancialIntermediaries is currently developing Guidelines forMinimum Entry Requirements and Continuous Risk BasedSupervision for Market Intermediaries. The objective is tosurvey the nature and scope of the currently applicableminimum entry requirements for intermediaries, as wellas criteria for risk based supervision among EmergingMarket Committee (EMC) members.

In pursuit of this mandate the Working Group isexamining the current regulatory infrastructure/framework applicable to market intermediaries, theapproaches adopted by the exchanges and/or regulatorsto monitor operational, market, credit, financial,compliance, legal and other risks in various EMCjurisdictions. The report will cover the adequacy ofinfrastructure in terms of administration, technology,financial and human resource systems adopted byemerging markets jurisdictions to monitor financialintermediaries.

It is intended that the final report will contain ananalysis of the existing systems used by EMC regulators,the factors affecting risk based supervision andindividual regulators experiences which will contributeto enhancing risk management standards andprocedures in the markets.

Enforcement and Exchange of Information

The Working Group on Enforcement and Exchange ofInformation is currently carrying out further work on itsmandate on the exchange of information in relation to fitand proper assessments, it is also actively involved insupporting the work of the Screening Group and itsverification teams, and in assisting members dealing withthe obstacles they face in signing the IOSCO MMoU.

The Capital Markets Board of Turkey, together with thePolish Financial Supervision Authority, organized aseminar on Enforcement Aspects of Takeover Regulationin Istanbul. The seminar focused on the key issues intakeover regulation and supervision, as well as currenttrends and the presentation and discussion of a numberof case studies from both EMC and TechnicalCommittee jurisdictions. The seminar was alsopresented with an updated version of the Report onTakeover Regulation in the Jurisdictions of some IOSCOEMC members.

The issue of properly establishing the fitness ofindividuals to participate in regulated financial activitycontinues to be a matter of concern and interest toregulators, and the Working Group has been activelyengaged in work over the last year on its mandate on theexchange of information regarding fit and properassessment. Its work is aimed at identifying the natureand scope of the assessments and a final internal reportwas presented to members in Marrakech. However, as aresult of the interest in the report and the issues ithighlighted with regard to differences in practice, theWorking Group has decided to do further work and iscurrently working on Best Practices on Exchange ofInformation under Fit and Proper Assessment.

Investment Management

The Working Group on Investment Management hascontinued, through its work, to offer support andassistance to members with the issues they encounter intheir supervision of their developed and developing fundmanagement industries, particularly in the area of CIS.

The Working Group is currently working on preliminaryreports on the Development & Distribution of ForeignCollective Investment Schemes (CIS) Funds inEmerging Markets and also on the Development ofCollective Investment Schemes (CIS) Industry inEmerging Markets – which is a regular survey ofmembers’ experiences in the development of theirmarkets.

Besides the work on these mandates, the Working Grouphas been instrumental in organizing presentations formembers by regulators and industry representatives ontopics related to the above mandates during the IOSCOand EMC Annual Conferences in 2008.


The objectives of IOSCO’s members are:

to cooperate together to promote high standardsof regulation in order to maintain just, efficientand sound markets;

to exchange information on their respectiveexperiences in order to promote the developmentof domestic markets;

to unite their efforts to establish standards and aneffective surveillance of international securitiestransactions; and

to provide mutual assistance to promote theintegrity of the markets by a rigorous applicationof the standards and by effective enforcementagainst offenses.

Structure of IOSCO

The Presidents Committee, which meets once a yearduring the Annual Conference, is made up of all thepresidents of both ordinary and associate memberagencies and has all the powers necessary to achieveIOSCO’s aims.

The Executive Committee acts as the executive armof the organization and is currently chaired by Ms.Jane Diplock. It is composed of the following 19members:

the Chairmen of the Technical and EmergingMarkets Committees;

the Chairmen of the four Regional Committees –Africa/Middle-East Regional Committee; the Asia-Pacific Regional Committee; the EuropeanRegional Committee and the Inter-AmericanRegional Committee;

1 ordinary member elected by each RegionalCommittee from among the ordinary members ofthat region; and

9 ordinary members elected by the PresidentsCommittee.

General InformationThe International Organization of Securities Commissions (IOSCO) is an internationalassociation of securities regulators that was formed in 1983. Its General Secretariat is basedin Madrid, Spain.

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The current members of the Executive Committeerepresent the ordinary members from:

Argentina, Australia, Belgium, Brazil, Chile, China,People’s Republic of, France, Germany, Italy, Japan,Morocco, New Zealand, Spain, South Africa, UnitedKingdom, United States of America and Uruguay.

The chairs of both the Africa/Middle East Committeeand the Asia-Pacific Committee are currently vacant andwill be filled shortly.

The Executive Committee meets periodically during theyear and, subject to the By-Laws of IOSCO, takes alldecisions and undertakes all actions in support ofachieving IOSCO’s objectives.

IOSCO has four Regional Committees, which meet todiscuss problems specific to their respective regions andjurisdictions:

Africa/Middle-East Regional Committee;

Asia-Pacific Regional Committee;

European Regional Committee; and

Inter-American Regional Committee.

The Executive Committee has established twospecialized working committees. The first is called theTechnical Committee and is made up of fifteen agencies

that regulate some of the worlds larger, more developedand internationalized markets. Its objective is to reviewmajor regulatory issues related to international securitiesand futures transactions and to coordinate practicalresponses to these concerns. The members of theTechnical Committee are Australia, France, Germany,Hong Kong, Italy, Japan, Mexico, the Netherlands,Ontario, Quebec, Spain, Switzerland, United Kingdomand the United States. This committee’s membershipwill expand to include the members from Brazil, Chinaand India from June 2009.

The second specialized committee is called theEmerging Markets Committee which endeavors topromote the development and improved efficiency ofemerging securities and futures markets by establishingprinciples and minimum standards, preparing trainingprograms for the staff of members and facilitating theexchange of information and transfer of technology andexpertise.

Self-Regulatory Organizations (SROs), who are affiliatemembers of IOSCO, are members of the SROConsultative Committee. IOSCO recognizes theimportance of maintaining a close dialogue with theSROs and international organizations who make up itsaffiliate membership, and of allowing and encouragingthem to make a constructive input in the work ofIOSCO. The SRO Consultative Committee has ongoingcontact with the Technical Committee StandingCommittees and Task Forces which ensures it is in aposition to provide substantive input on their regulatoryinitiatives.

PRESIDENTS COMMITTEE

EXECUTIVE COMMITTEE

GENERAL SECRETARIAT

SRO CONSULTATIVE COMMITTEE

AFRICA / MIDDLE EASTRegional Committee

ASIA - PACIFICRegional Committee

EUROPEANRegional Committee

INTERAMERICANRegional Committee

TechnicalCommittee

Emerging MarketsCommittee


Annual Conferences

IOSCO’s members meet every year at its AnnualConference to discuss important issues related to globalsecurities markets regulation. Observers may attend.Event and registration can be found atwww.iosco.org/events or can also be obtained from theIOSCO General Secretariat. The 2009 AnnualConference will take place in Tel Aviv and will be hostedby the Israel Securities Authority (ISA).

Previous Annual Conferences

Caracas, Venezuela September 1974*Lima, Peru January 1976 *Buenos Aires, Argentina November 1977*Queretaro, Mexico November 1978*Rio de Janeiro, Brazil November 1979*Montreal, Quebec September 1980*Washington, D.C., United States of America May 1982*Quito, Ecuador April 1983Toronto, Ontario August 1984Cartagena, Colombia June 1985Paris, France July 1986Rio de Janeiro, Brazil September 1987Melbourne, Australia November 1988Venice, Italy September 1989Santiago, Chile November 1990Washington, D.C., United States of America September 1991London, United Kingdom October 1992Mexico City, Mexico October 1993Tokyo, Japan October 1994Paris, France July 1995Montreal, Quebec September 1996Taipei, Chinese Taipei November 1997Nairobi, Kenya September 1998Lisbon, Portugal May 1999Sydney, Australia May 2000Stockholm, Sweden June 2001Istanbul, Turkey May 2002Seoul, Korea May 2003Amman, Jordan May 2004Colombo, Sri Lanka April 2005Hong Kong, China June 2006Mumbai, India May 2007Paris, France May 2008Tel Aviv, Israel June 2009Montreal, Quebec June 2010Cape Town, South Africa June 2011

* Conferences of the Inter-American Conference of Securities Commission, the forerunner of IOSCO.

Categories of Membership and Applications Procedure

There are three categories of membership: Ordinary,Associate and Affiliate.

Ordinary

The Ordinary membership category is open to statutorybodies with responsibility for securities marketsregulation in their jurisdiction. If there is no statutoryregulatory body in a jurisdiction, then a self-regulatorybody (such as a stock exchange) from that jurisdictionwill be eligible for Ordinary membership of theorganization. Each Ordinary member is a member of thePresident’s Committee and has one vote.


A securities commission, or a similar government body,that is not presently a member is eligible for ordinarymembership of IOSCO. If there is no governmentalregulatory body in a jurisdiction, a self-regulatory body(such as a stock exchange) from that jurisdiction iseligible for Ordinary membership of IOSCO. Applicationsfor ordinary membership must include:

A brief description of securities regulation in theapplicant’s jurisdiction, including the bodieswhich exercise regulatory functions with regard tosecurities in that jurisdiction;

A translation of the primary securities legislationof that country in one of the official languages ofthe Organization (English, French, Portuguese andSpanish);

A Declaration, signed by the President of theapplicant, that the body has received and acceptsthe present By-Laws and Resolutions adopted bythe Presidents Committee.

Associate

Associate members are those regulatory bodies withresponsibility for regulation within subdivisions of ajurisdiction where the national regulatory body is alreadyan Ordinary member. Associate members are membersof the Presidents Committee but have no vote and arenot eligible for the Executive Committee.

If the national regulatory body of a country is already anordinary member, an association that consists of thepublic regulatory bodies with jurisdiction in thesubdivisions of that country, is eligible for associatemembership. Any other eligible body with an appropriateresponsibility for securities regulation is also eligible forassociate membership.

Applications for Associate membership must include adescription of the applicant and its mission.

Affiliate

The Affiliate membership category is composed of self-regulatory bodies, or international bodies, with anappropriate interest in securities regulation. Affiliatemembers are not members of the Presidents Committee,are not eligible for the Executive Committee and have novote. The Affiliate members, which are SROs, arehowever members of the SRO Consultative Committee.An SRO, or an international body, with an appropriateinterest in securities regulation, is eligible for Affiliatemembership of IOSCO. Applications for Affiliatemembership must include:

A description of the applicant and its mission;

A recommendation letter by the Ordinary member,or Ordinary members, of the applicant’s country(if applicable).

A body will become an IOSCO member if its applicationis accepted by the Presidents Committee upon therecommendation of the Executive Committee.

All applications for membership must be sent to theSecretary General accompanied by the prescribedapplication fee of 10,100 Euros.

Financial Contribution of Members

IOSCO is financed by an annual contribution from eachof its members. This is currently set at 10,100 Euros.

Further information about IOSCO can be found atwww.iosco.org

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Contact Details

General SecretariatInternational Organization of Securities Commissions (IOSCO)Calle Oquendo 1228006 MadridSpain

Tel: (34 91) 417 5549Fax: (34 91) 555 9368E-mail: [email protected]: www.iosco.org

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A U D I T O R ´ S R E P O R T O N T H E F I N A N C I A L S T A T E M E N T S


Financial StatementsSTATEMENT OF COMPREHENSIVE INCOMEYear ended December 31, 2008

2008 2007(Restated *)

REVENUEContributions from members 2,040,895 1,808,222Annual conferences 120,000 120,000Exchange gain 1,180 -Other 95,148 83,138

Total revenue 2,257,223 2,011,360

EXPENSESSalaries and employee benefits 1,312,013 1,339,218Rental and maintenance (note 11) 83,357 85,818Travelling 201,113 190,112Office supplies 16,176 20,479Organization and follow up of meetings 56,840 47,250Telecommunications 54,611 44,820Delivery and communication 14,389 12,226Printing and Annual Report 14,425 20,388Computer 134,420 137,586Professional fees 30,435 24,135Educational programs 35,647 44,870Miscellaneous 31,537 49,234Exchange loss - 17,692Depreciation of capital assets (note 7) 76,676 73,307

Total expenses 2,061,639 2,107,135

Excess of revenue over expenses before tax(expenses over revenue) 195,584 (95,775)

Taxation - -

Excess of revenue over expenses net of tax 195,584 (95,775)(expenses over revenue)

Other comprehensive income - -

Total comprehensive income for the year net of tax 195,584 (95,775)(in euros)

The accompanying notes are an integral part of the financial statements.


STATEMENT OF FINANCIAL POSITIONAs at December 31, 2008

2008 2007 2007(Restated *) Opening

BalanceASSETSCurrent assetsCash (note 5) 422,227 393,018 248,109Term deposits (note 6) 2,100,504 1,950,000 1,950,000Accounts receivable 10,671 9,394 21,070Prepaid expenses 4,027 4,772 3,365

2,537,429 2,357,184 2,222,544

Capital assets (note 7) 92,488 145,042 155,354

Total assets 2,629,917 2,502,226 2,377,898

LIABILITIESCurrent liabilitiesAccounts payable and accrued liabilities (note 8) 666,171 621,865 534,096Contributions received in advance 150,235 262,434 130,100

Total liabilities 816,406 884,299 664,196

MEMBERS' FUNDSTotal comprehensive income for the year net of tax 195,584 (95,775) -Unrestricted members' funds 1,617,927 1,713,702 1,713,702

Total members' funds 1,813,511 1,617,927 1,713,702

Total liabilities and members' funds 2,629,917 2,502,226 2,377,898(in euros)



CHANGES IN MEMBERS' FUNDSYear ended December 31, 2008

2008 2007(Restated *)

UNRESTRICTED TOTAL TOTALBalance, beginning of year 1,617,927 1,617,927 2,129,844Adjustments to opening balance relatedto Contractual staff commitments - - (416,142)Restated Balance, beginning of year 1,617,927 1,617,927 1,713,702Total comprehensive incomefor the year net of tax 195,584 195,584 (95,775)

Balance, end of year 1,813,511 1,813,511 1,617,927(in euros)



STATEMENT OF CASH FLOWSYear ended December 31, 2008

2008 2007(Restated *)

OPERATING ACTIVIESTotal comprehensive income for the year net of tax 195,584 (95,775)Depreciation of capital assets 76,676 73,307Decrease (increase) in working capital items (note 4) (68,425) 646,514Adjustments to opening balance relatedto Contractual staff commitments - (416,142)

Net cash generated 203,835 207,904

INVESTING ACTIVITIESPurchase of REPO (1,000,504) -Capital expenditures (24,122) (62,995)

Net cash used (1,024,626) (62,995)

Net increase (decrease) in cash and cash equivalents (820,791) 144,909

Cash and cash equivalents, beginning of year 2,343,018 2,198,109Cash and cash equivalents, end of year 1,522,227 2,343,018

CASH AND CASH EQUIVALENTSCash 422,227 393,018Term deposits 1,100,000 1,950,000Total cash and cash equivalents 1,522,227 2,343,018(in euros)

On behalf of the International Organization of Securities Commissions (IOSCO)

Greg TanzerSecretary General

The accompanying notes are an integral part of the financial statements,


1 Governing Statutes and Purpose of the Organization

The non-profit organization IOSCO (hereinafter “the Organization”), incorporated under a private act in Canada (L.Q.1987, Chapter 143) sanctioned by the Quebec National Assembly, is an association of securities regulatory organi-zations. During 2001 the Organization changed its domicile to Madrid (Spain). It is recognized by the Spanish Go-vernment by means of the Third Additional Disposition of Law 55/1999.

2 Basis of preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards and re-flect early adoption of the 1 January 2009 amendments to IAS 1, Presentation of Financial Statements.

The financial statements are prepared in Euros.

Accounting estimatesThe preparation of financial statements in accordance with International Financial Reporting Standards requires ma-nagement to make estimates and assumptions that affect the amounts recorded in the financial statements and notesto financial statements. These estimates are based on management’s best knowledge of current events and actionsthat the Organization may undertake in the future. Actual results may differ from these estimates.

Accounting modificationsDuring the current year the Organization modified the accounting treatment of certain staff contractual commitments.Termination benefits that are payable to IOSCO staff in accordance with their contractual terms have been recogni-zed as an accrued liability. This modification has been applied retrospectively and the balances and figures for 2007restated to provide consistency and to enable a direct comparison going forward.

This has resulted in the crystallization of a liability of € 435,484 in 2007. This is made up of the amount that ac-crued prior to 2007 (€ 416,142) and the amount that accrued during 2007 (€19,342). The former amount(€ 416,142) has been charged against member’s funds in 2007. The final outcome has been a negative adjustmentof the opening balance of members’ funds to € 1,713,702 in that year. The latter amount (€ 19,342) has beenadded to salaries and employee benefits expenses for 2007, to total € 1,339,218. The result for 2007 after tax nowshows a loss of € 95,775.

The effect of this modification in 2008 is an accrual of € 67,682 under salaries and employee benefits expenses.

3 Significant accounting policies

Revenue and cost recognitionFollowing IAS 18, section 28, member contributions are deferred when prepaid and recognised as income only uponaccrual and receipt.

Contributions are denominated in Euros or US Dollars. Contributions denominated in US Dollars are accounted for inEuros at the rates of exchange prevailing at the transaction date. Differences arising on translation are recognized inthe statement of comprehensive income.

Deferred revenue represents prepaid members contributions. Costs are recognised as an expense when incurred.

Cash and cash equivalents

The Organization’s policy is to present cash and temporary investments having a term of three months or less fromthe acquisition date, as cash and cash equivalents.

Capital assetsCapital assets are recorded at cost. Any impairment in the net recoverable amount as compared to the net carryingamount is recognized immediately.


Capital assets are depreciated over their estimated useful lives according to the following methods and annual rates:

Methods RatesFurniture and fixtures Straight-line 20%Computer equipment

Computers and Software Straight-line 33%Servers Straight-line 25%

Foreign currency translationForeign currency transactions are accounted for in Euros at the rates of exchange prevailing at the transaction date.Exchange gains or losses on settlement of balances are taken to profit or loss when they arise.

Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to Eurosat the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognized inthe income statement.

4 Information Included in the Statement of Cash Flows

The increases (decreases) in working capital items are detailed as follows:

2008 2007Accounts receivable 1,277 (11,676)Prepaid expenses (745) 1,407Accounts payable and accrued liabilities (44,306) (503,911)Deferred revenue 112,199 (132,334)Increases (decreases) in working capital 68,425 (646,514)(in euros)

5 Cash2008 2007 2007

OpeningCash in U.S. Dollars (US$ 5,695 in 2008; US$ 243,595in 2007; US$ 230,645 Opening 2007 ) 4,040 165,475 174,824Cash in Euros 418,187 227,543 73,285Total cash 422,227 393,018 248,109(in euros)

There are no restrictions for the use of cash.

6 Term Deposits2008 2007 2007

Opening

1.85% term deposit. Expiration date: January 15, 2009 1,100,000 - -1.70% term deposit. Expiration date: December 18, 2009 1,000,504 - -3.70% term deposit. Expiration date: January 14, 2008 - 700,000 -3.70% term deposit. Expiration date: January 28, 2008 - 1,250,000 -3,35% term deposit. Expiration date: January 31 2007 - - 1,950,000

Total term deposits 2,100,504 1,950,000 1,950,000(in euros)


7 Capital Assets

2007Furniture and Computer

fixtures equipment TotalAt the lower of recoverable value and cost

Balance, beginning of year 12,381 394,786 407,167Additions - 62,995 62,995Disposals - (2,384) (2,384)Balance, end of year 12,381 455,397 467,778

Accumulated depreciationBalance, beginning of year (3,716) (248,097) (251,813)Depreciation (2,132) (71,175) (73,307)Disposals - 2,384 2,384Balance, end of year (5,848) (316,888) (322,736)

Net as at December 31, 2007 6,533 138,509 145,042(in euros)

2008Furniture and Computer

fixtures equipment TotalAt the lower of recoverable value and cost

Balance, beginning of year 12,381 455,397 467,778Additions 2,477 21,645 24,122Disposals - - -Balance, end of year 14,858 477,042 491,900

Accumulated depreciationBalance, beginning of year (5,848) (316,888) (322,736)Depreciation (2,301) (74,375) (76,676)Disposals - - -Balance, end of year (8,149) (391,263) (399,412)

Net as at December 31, 2008 6,709 85,779 92,488(in euros)

8 Accounts payable and accrued liabilities

2008 2007 2007Opening

Professional services 25,540 11,802 10,222Occupancy 58,500 57,500 54,000Spanish Taxes and Social Security 29,292 42,465 30,383Contractual staff commitments 503,166 435,484 416,142Other 49,673 74,614 23,349Total Accounts payable and accrued liabilities 666,171 621,865 534,096(in euros)

9 Financial Instruments

Short-term financial instrumentsCash, term deposits, accounts receivable and accounts payable are financial instruments whose fair value approxi-mates their carrying amount, given that they will mature in the short term and are not perceived to bear any signifi-cant credit risk.


10 Government Assistance

As part of the localization agreement in Madrid, IOSCO receives from the Spanish Authorities the right to use the 12Oquendo premises free of charge, exclusive of non-structural maintenance expenses (electricity, water, elevator main-tenance, etc) up to a maximum of € 70,501 for the year 2008. This amount will be adjusted annually by the co-rresponding Consumer Price Index. The total for non-structural maintenance expenses has not yet exceeded the abovementioned cap.

11 Rental and Maintenance

2008 2007Estimated Spanish Authorities’ charges for non structural maintenance costs 58,500 57,500Other external maintenance services 24,857 28,318Total rental and maintenance 83,357 85,818(in euros)

12 Subsequent Events

In the opinion of the management there are no significant events that need to be reported.

On behalf of the International Organization of Securities Commissions (IOSCO)

Greg TanzerSecretary General

Documents

Annual Report 2008 - Iosco.org...Annual Report 2008. Annual Report 2008. INTERNATIONAL ORGANIZATION OF SECURITIES COMMISSIONS. to cooperate together to promote high standards of regulation