Problem with Maintaining Compliance with the IOSCO Principles - Coursework Example

Problem with maintaining compliance with the IOSCO principles during the move to deregulate the equity markets Student’s name: Institution: Instructor’s name: Date: The international Organization of securities commissions (IOSCO) was developed as a result of the transformation from an inter-American regional association of securities regulators. IOSCO was therefore transformed to become a security body that deals with international financial management. The company is responsible for regulating financial securities, and it operates in approximately hundred countries in the world. The main agenda of IOSCO is to regulate finances through regulating securities it also provides a forum from which countries are able to present their views concerning security regulation. It, therefore, acts as an international finance body that ensures the settlement of the financial crisis in the member countries. Since the endorsement of IOSCO as a financial regulator, it has been able to settle various issues related to finances in many countries, for example, the financial tragedy that befell Asia in the year 1998, this forced IOSCO to develop some strategies intended to curb financial crisis. The framework established to regulate market securities, the effects of intermediaries, the bodies that issue securities and those that collect schemes that relate to investment. These principals developed by IOSCO were for the purpose of reducing the rate of escalating financial crisis in many countries. However, some years later the financial regulation body discovered that the principles intended to regulate finances were not sufficient enough to prevent financial risks. The revision of objectives and principles by IOSCO resulted to addition of more principles which focused on more regulatory measure against risks that affect global markets. Despite the efforts made by IOSCO to prevent financial crisis and the revision of its principles, other financial regulators globally did not concur with the body, this was a challenge because the main purpose of the body was to control risks associated with finances in the countries while other regulators focused their interest in regulating the banking systems of their member countries. It is crystal clear that the purposes of securities markets are to control and regulate financial stability and economic growth as well. This in relation to financial regulation entails the transformation of savings in order to finance for a real sector. Therefore, when there are disparities on the principles intended to ensure that savings are transformed into sect oral management, it affects the banking systems globally and results to challenges in global markets. There are challenges brought by intermediaries when it comes to the banking systems, the bodies that regulate banking systems have not been able to combat these challenges and, therefore, the introduction of principles and regulations by IOSCO had a main purpose to reduce risks posed by intermediaries. IOSCO calls for transparency when it comes to the capital markets because it will motivate more countries to adhere to the principles and regulation of controlling financial crisis. Other sectors such as trading also fall part of financial risks globally because they contribute to competition and they impact on global markets thus posing risks to the banking systems as well. Therefore, the revision of financial regulation principles by IOSCO was intended to respond to the financial crisis that was encountered in the year 2008 globally. Perhaps analyzing the causes of economic and financial crisis will help in understanding the role of IOSCO. There are several factors that influence economic and financial crisis globally, these factors range from global markets, trading and banking systems. When there is a surge in the inflow of capital such that microeconomic and financial vulnerability builds up results to economic and financial crisis. Vulnerability in microeconomic and financial sector results from instability in the capital. Countries face this challenge, and they have not been able to stabilize their capital inflow because they lack proper regulation and control. Therefore, it is the role of IOSCO to develop the regulatory strategies to curb this challenge. The rates of exchange also contribute to financial and economic crisis in the sense that sometimes the rates of exchange are rigid, and they do not give profits to countries under the trade. When this occurs, economic situation will be unstable thus resulting to instability in financial situation as well. Countries that have encountered these problems often fall the victims of economic crisis. It is only through regulation of exchange rates and ensuring stability that will result in overcoming economic challenges. Some countries depend too much on their banking systems for financing, even though, the capital markets are not developed. This results in poor economic state of the country because depending on the baking systems without developed capital markets leads to inappropriate use of resources. When this occurs the countries will lack stability in capital markets since the banking systems will not be stable financially. Poor governance also leads to financial and economic crisis, when a country is experiencing poor governance, there will be mismanagement of resources because the corporate governance is not strong enough to implement actions that will reduce the rate of poor leadership. In most countries, poor governance has been rated the most factor contributing to the failure in economic development. Poor governance is characterized by embezzlement of money, corruption and the use of power to manipulate financial institutions such as the banking systems. There is no systematic way of handling the finance of such country, and therefore they are subject to financial and economic crisis. Transparency is the most important factor when it comes to controlling financial sectors in an economy. When there is no transparency and lack of disclosure in the rates of inflow and outflow of capital, the country will face financial and economic risks due to the factor such as, poor handling of finance due to poor management, distrust resulting from lack of disclosure and slow rates of economic development. IOSCO was initiated to regulate financial flow by sensitizing transparency in countries and enabling them to disclose their financial situation so that challenges can be discovered and handled before it becomes a crisis. Risk management is important when it comes to controlling the financial situation of a country lack of risk management will often result in imbalance in the economy of a country because it will lead to many challenges which will impact on the financial situation. Strong strategies to ensure risk management is implemented are the sensitized by IOSCO so that countries will be able to handle risks in a more appropriate way and end the economic crisis. A sound an appropriate regulation of equity markets is identified through the role implemented by IOSCO in its member countries. With the insight on the factors that results in financial and economic crisis in countries, IOSCO developed the guidelines that have resulted in fair equity markets. These guidelines consider the factors that result to the financial crisis. For example, transparency is an issue that IOSCO focused on when it comes to development of these guidelines, whereby it sensitized countries to be transparent in their economic and financial plans. In this case, the member countries had to submit all their financial details to IOSCO so that it will regulate the manner in which the plans concerning finances were done. Another guideline focused on enhancing regulatory standards and supervisory measures, in this case the member countries of IOSCO were subject to regulatory and supervisory measures whereby thy have to submit their financial and economic reports to IOSCO to be examined whether they meet the standards outlined. By doing this, it enhances fair equity markets because only those markets that meet the standards and guideline were allowed to operate and thus the economic and financial crisis will be reduced. The capital flows were also targeted by IOSCO such that the guidelines focused on controlling the international flow of capital. When there are appropriate measures to control flow of capital, the markets will be relieved from the impact of economic crisis in another country since capital flow is controlled by certain body. Guidelines that regulate governance in member countries also ensured fair equity markets in the sense that when the corporate governance do not meet the standards provided by IOSCO, they will therefore have to surrender their economic plans to them because it is obvious that poor corporate finance always result to drag in economic development as a result of financial crisis. Maintenance of a fair equity market is a result of the guidelines above that were implemented by IOSCO since its formation. The member countries have therefore been able to experience smooth flow of their economic situations because they have followed the guidelines that have directed them towards achieving their economic achievements. Other bodies that deal with the banking systems were not able to ensure a fair equity market because their main agenda was to control the fiancé of their member country and hence the equity markets could not be considered when it comes to the challenges that a country faced. It is because of these regulations that were formed that have enabled countries to trade without the fear of future risks and also the rats of exchange have been controlled therefore influencing countries to enhance their rates of economic developments by engaging in international trade and also foreign exchange. When it comes to competition that exists between markets, these regulations are helpful in the sense that it will ensure fair equity to all the markets. However, some countries are still experiencing challenges in meeting the standards as a result of poor use of their resource. The regulations will, therefore, need to be reduced so that these countries will not suffer. When there is financial and economic crisis, such countries always fall the victims of this crisis because they lack strong establishment of economic and financial regulation. When the weak countries are subjected to more competitive international environment, they will feel infringed of their wish to develop at their own pace. Therefore, IOSCO also regulates the situation of such countries by influencing aspects such as the formation of cross-border merges and alliances. This will help in nurturing the situations that weak countries undergo. IOSCO has been able to help both strong and weak countries to form alliances that will benefit both. This has been enabled through considering the victim country and ensuring that their state of economic development is regulated. For these countries that were affected by the economic crisis in the past years, IOSCO has been able to revive their situation through cross borders an alliance which encourages trading and foreign exchange activities together with maintaining their security markets Implication of IOSCO guidelines for regulation of market places Management of crisis globally has been enhanced as an implication of the guidelines developed by IOSCO. Since the introduction of the guidelines to curb economic crisis, countries globally are experiencing changes in their economic development, this is because they have adopted strategies intended to manage crisis, for example, forecasting of future financial situations by IOSCO has enabled these countries to develop their own strategies that focus on maintaining financial securities of their local markets. When local markets experience minimal challenges, it results in global achievement because equity markets contribute to the stability of the economy globally. Managing crisis has to involve the ability of a nation to analyze their economic state and develop strategies that will improve the current situation of the economy. By doing this, the country will be able to manage any crisis that occur because they have strong and established strategies of economic security. Early detection of crisis due to surveillance globally is another implication of the guidelines. Since the previous global crisis that resulted to downfall in most economic countries, there has been the need to improve on detection of crisis so as to develop strategies to evade the crisis. IOSCO developed guidelines that have helped countries to detect crisis; this is because the body deals with many countries, and they analyze financial situations of many countries through controlling equity markets. As a result, they have an opportunity to survey the economic situations of most countries and thus they can detect a global crisis by evaluating the past and present situations in the economy. International agencies are responsible for economic surveillance and for the past years; aspects such as rates of interests, rates of exchange, deficits concerning the current accounts, monetary and fiscal policies have been under surveillance. The regulatory implications therefore were intended to enhance the surveillance agencies and enabled countries to adopt surveillance so as to detect any crisis. Detection and management of crisis in domestic markets are another implication from the guidelines endorsed by IOSCO. It is obvious that as the domestic markets continue to grow, there are subject to economic shocks as a result of global market crisis. Countries that are able to detect future challenges on their domestic markets are able to manage the crisis. Perhaps a framework to manage the crisis should be developed in every country and hence consider factors such as market growth and the costs of resolving the crisis in the long-run.the guideline such as transparency and corporate governance contributes towards early detection of crisis in domestic markets. When the domestic markets are secured in terms of future crisis, it will, therefore, result in global stability in financial and economic situation. Every country desires stability in their economic and financial aspect, and it is up to the surveillance agencies to regulate their markets and detect any form of crisis that will escalate and result in global concern. The role of communication, in this case, is important because it enhances transparency, and it also enhances exchange of ideas to end domestic crisis. Developing security markets is also another implication that results from the regulations, monitoring, mobilization and allocation of capital is an aspect that relates to market securities. When there are effective roles of security markets in countries, it will regulate the impact or crisis such that it will not affect the growing markets. Due to the impacts resulting from the crisis, many markets should have security as a regulation from regulatory agencies in this case IOSCO. However, there are some aspects that slow down the rate of market establishment in many countries. Such factors as lack of incentives have resulted in over dependence on banking systems to provide loans for development of markets. This contributes to failure to observe the regulations from the agencies. The principles and regulations developed by IOSCO have been of great help to most countries because they are inclined towards attaining economic and financial stability globally. These principles focused on risk management whereby the above implications were the result of guidelines, other principles involved the functions of risk management, measuring the levels of risks, controlling and reporting the levels of risks and assessing the crisis. Also, operations related to managing risks fall under the principles. It is upon the policy makers in every country to stick to the principles intended to deregulate financial and economic situations developed by economic agencies. It is a global concern when there is instability in control measures towards achieving a stable and balanced economy. The move to deregulate equity markets was therefore intended to ensure future stability in markets and global financial situation. Reference Valdez S. & Molyneux P. An Introduction To Global Financial Markets (7th Edition) Palgrave Macmillan Pilbeam K. Finance and Finance Markets (3rd Edition) Palgrave Macmillan Buckle M. & Thompson J. 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