IOSCO's Chairman: A clear concept of systemic risk in markets is needed; this analysis is still a nascent science
13 June 2010
Speaking at the 35th IOSCO Annual Conference, Jane Diplock said that one of the major lessons of the Global Financial Crisis is the highly interconnected nature of securities markets. It may be time to rethink regulator’s “institution by institution approach” and move to a network analysis.
Speaking at the 35th IOSCO Annual Conference, Jane Diplock said that an interesting challenge for future regulators may be to look across the perimeter of regulation into this virtual world. Regulators have plenty of challenges without taking this one on just yet.
Within our own sphere of financial regulation here in the real world, one of the major lessons of the Global Financial Crisis is the highly interconnected nature of securities markets and the potential for disruption in one market to have major implications in others. Before the crisis, few investors and market participants in Europe or the UK would have imagined that the mis-selling of a mortgage product to an unemployed person in the suburbs of Chicago would impact on their economic futures and that of those around them.
Conclusion
The time has come for a step change in the approach to regulation of markets. Recognition of the interconnectedness of global markets requires us to rethink our approach to systemic risks in markets and in doing so to seek new narratives, new metaphors and new approaches to the actual regulatory craft. It may be time to rethink our institution by institution approach and to consider taking our understanding of capital flows into a completely new approach to regulation. Network analysis may assist us to understand the directions this might take.
IOSCO’s new research function will undoubtedly provide some interesting analysis of the global markets which will assist us in the important rethinking process. IOSCO as an international organisation with its global reach and inclusive membership is the ideal forum for these new ideas, new tools and new regulatory approaches to emerge.
Never has IOSCO’s role been more pivotal to the new ways of thinking the 21st Century global capital markets will demand.
© IOSCO
