Gaps in securities market regulation are worldwide phenomenon. The inability of securities market regulators to enforce compliance with existing rules and regulations hinders the healthy development of markets.
Main deficiencies
In studying the IOSCO assessments in 74 countries completed between 1999 and September 2007, our study for the IMF identified four main areas of concern: weak supervisory practices, including inspections; weak enforcement; poor valuation rules for investment funds; and a lack of understanding and oversight by regulators of risk management and internal controls of market intermediaries.
Enforcement of compliance with rules and regulations was the overriding weakness in regulatory systems, mainly because of a chronic lack of skilled personnel to conduct inspections and use reporting tools, and a lack of resources, skills, and authority to undertake investigations and bring enforcement actions. Weaknesses in enforcement may also be related to another key weakness: the insufficient independence of regulators.
In addition, many countries pay insufficient attention to reviewing valuation practices—especially in markets where funds have significant holdings in relatively illiquid securities and should not rely entirely on the price assigned by an organized market or exchange. And because many regulators lack the staff skills to fully understand the risks associated with the activities of market participants, they cannot effectively set standards for risk management and internal control, nor effectively evaluate firms' practices.
These findings are reflected in the statistics, which showed that for the majority of the countries, full implementation of the IOSCO principles remain a challenge.
Full IMF Survey
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© Graham Bishop
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