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The report seeks to highlight similarities, differences and gaps among the different frameworks. IOSCO ́s objective is to update its 1989 Report on Capital Adequacy Standards for Securities Firms (Capital Standards Report), based on the issues identified in this final report. The report ́s comparative analysis focuses on the Net Capital rule (NCR) approach, in particular the US approaches, and the Capital Requirements Directive (CRD), which is founded on the Basel Committee approach. While focusing on those two main prudential frameworks, the report also recognizes relevant national variations.
As stated in the 1989 IOSCO Capital Adequacy Report, “capital adequacy standards foster confidence in the financial markets and should be designed to achieve an environment in which a securities firm could wind down its business without losses to its customers or the customers of other broker -dealers and without disrupting the orderly functioning of the financial markets. Capital standards should be designed to provide supervisory authorities with time to intervene to accomplish this objective. They should allow a firm to absorb losses. They also should provide a reasonable, yet finite, limitation on excessive expansion by securities firms to minimize the possibility of customer losses and disruption of the markets.”
Many of the key themes identified in the final report are already reflected in the existing IOSCO capital adequacy standards report, such as the need for risk-based capital requirements and for minimum capital requirements that reflect the type of business being conducted by securities firms. The report highlights prudential regulatory and supervisory areas that might be considered in an update of the 1989 Capital Standards Report, particularly: