By Verushca Pillay, Partner, Refentse Chuene, Senior Associate, and Jarryd Hartley and Simon Mateus, Candidate Attorneys, Corporate/M&A Practice, Baker McKenzie Johannesburg
On 15 June 2023, the Johannesburg Stock Exchange (JSE) published an announcement proposing certain amendments to the JSE Listings Requirements (Listings Requirements), including a new section 23 (Section 23), which is a self-standing section containing the listing requirements relating to a listing on the Black Economic Empowerment (BEE) Segment of the JSE (BEE Segment).
Sections 23.1 to 23.3 mirror the current requirements for a listing of securities on the BEE Segment, as set out in sections 4.32, 4.32A, and 4.32B of the Listings Requirements. As a reminder, these requirements include that trading in BEE securities must be restricted to a BEE-compliant person pursuant to the use of either a BEE contract or a BEE verification agent. Such requirements also provide for the terms that an applicant issuer must comply with in relation to the use of the BEE contract or BEE verification agent to regulate the ownership and trading in its securities by BEE-compliant persons.
In terms of the current requirements for a listing of securities on the BEE Segment, an applicant issuer must also meet the basic listing criteria in section 4, 15, 19, 20 or 21 of the Listings Requirements. Section 23.1(a) makes provision for listing as a BEE SPV (defined as a “special purpose entity created with the specific objective of facilitating a black economic empowerment transaction”) (BEE SPV) as an alternative to listing as an issuer that is capable of meeting such basic listing criteria. A BEE SPV must have committed capital or subscribed capital of at least ZAR 10 million prior to listing; and must have assets that are held by a trust, ringfenced entity or through an issuer that has insolvency remoteness from the arranger or issuer of the underlying assets, and which must be administered by trustees or directors in the interests of the shareholders of BEE SPV. The BEE SPV’s assets may be listed or unlisted assets. The BEE SPV does not have to have a financial history; it may be a newly incorporated entity without assets or historical financial information provided that its latest audited balance sheet is included in the its pre-listing statement.
The introduction of provisions to enable the listing of a BEE SPV is encouraging. The immediate benefit would be to enable the listing and trading in BEE securities from the outset of a BEE ownership transaction, thus potentially boosting participation by a broad section of public BEE shareholders in the transaction and providing them with access to liquidity. The issuer of the assets held by the BEE SPV will have the benefit of an evergreen BEE shareholder with a broad BEE-compliant shareholder base.
Section 23 contains more detailed requirements for the listing of securities of a BEE SPV; sets out the continuing obligations of a listed BEE SPV; and makes provision for the publishing of circulars and announcements by issuers listed on the BEE Segment.
The JSE has invited comments on the proposed amendments by close of business on Monday, 17 July 2023. Comments can be sent via email here.
By Lerisha Naidu, Partner, Head of the Practice, Angelo Tzarevski, Director Designate and Sphesihle Nxumalo, Senior Associate, Competition & Antitrust Practice, Baker McKenzie Johannesburg
There has been a general upward trend in competition policy enforcement across the continent over the past few years. African jurisdictions have strengthened their competition and antitrust regimes by way of amendments to existing legislation, the introduction of new laws and regulations, and renewed fervour and political will to enforce existing laws. Most notably, there has been a growing convergence of competition law and social policy on the continent.
The central tenet of competition policy is that inclusive economies yield better outcomes for both producers and consumers. Recent trends indicate that governments in various parts of the world, particularly Africa, are moving away from the purely economic origins of competition regulation and are instead adopting a model that recognizes and, to some extent, caters to the broader needs of modern society and socioeconomic transformative narratives. In this context, the South African Competition Act was amended in 2019 to ensure economic transformation (among other things) by providing mechanisms to address high levels of concentration, enhance small business development, combat the “racially-skewed” spread of ownership through merger control, and by vesting the authority with increased powers to launch market inquiries into highly concentrated industries and impose structural remedies to facilitate the effective and sustainable participation of small and medium enterprises (SMEs) and historically disadvantaged persons (HDPs) in the economy.
As another illustration, competition authorities in Africa have increasingly acknowledged their role as protectors of fair practice and consumer protection, and have stated their intention to enforce these principles in the future. Across the continent, the price volatility of essential food items is a growing concern. In addition, businesses in the consumer goods and retail sector are facing significant supply chain disruptions due to geopolitical, environmental, and infrastructure challenges.
The issue of price volatility in relation to essential food items was addressed in the South African competition authority’s Essential Food Pricing Monitoring report, which included a list of fruits, meats and cooking oils that have recently experienced price volatility. It was noted that poorer communities were most negatively affected by such price increases. Having said that, it bears noting that not all increases in the cost of essential foods were caused by the pandemic. Changing weather conditions (from drought to heavy rain), oil price fluctuations, severe supply chain blockages and massive geopolitical challenges have all contributed to a decrease in supply and subsequent price increase. The authority stated that it would continue to keep a close eye on the price of essential and imported food items, to ensure that anti-competitive behaviour does not occur and that the increase in prices of essential food items can be justified. After noting “unjustified price increases” in recent years, the authority announced in early 2023 that it would investigate the prices of a variety of essential food products, including bread, cooking oils, cornmeal, rice, flour and margarine. It noted that food was a priority sector due to the fact that poor consumers spend a significant portion of their income on essential foodstuffs.
Public interest considerations are especially taken into account in the case of merger control, but they can also be factored in investigations into alleged abuses of dominance and other prohibited practices. Notably, merger regulation in South Africa, and in many other African countries, is heavily influenced by the government policy agenda. Many African merger control regimes have developed a competition policy approach that balances traditional competition law considerations with public interest concerns, especially in terms of market concentration, access to competitive markets for SMEs, greater spread of ownership by firms owned by HDPs, and employment considerations. For example:
Botswana’s competition legislation mandates “certain aspects of general public interest”. The use of the specified public interest considerations is especially notable in the context of mergers. In previous years, the authority imposed conditions on merger clearances aimed at promoting the sustainability and growth of a sector by ensuring that the merged entity sources its input requirements from local suppliers; maintaining and creating employment; promoting citizen economic empowerment by ensuring that Botswanan citizens hold shares in the merged entity; ensuring the professional development or employability of local citizens by ordering their appointment to certain positions in the merged entity; and promoting citizen economic empowerment by ensuring that Botswanan citizens hold shares in the merged entity.
In Ethiopia, the authority considers the contribution that a merger will make to accelerating economic development, promoting technical knowledge transfer, improving the production and distribution of goods and services, and enabling SMEs to be capable and competitive.
Namibia and Nigeria, like South Africa, consider the likely impact of a merger on a specific industrial sector or region; employment (whether the merger will result in redundancies); SMEs’ and HDPs’ ability to effectively access or compete in the market; and national industries’ ability to compete in international markets. The Namibian authority frequently considers the employment implications of a transaction. For example, during the 2017-2018 fiscal year, the authority imposed employment conditions on the majority of the mergers evaluated, resulting in approximately 860 jobs being secured.
In Kenya, the Competition Act includes a public interest test in merger control that assesses a merger’s impact on a particular sector or region, the creation and retention of employment and the competitive access that SMEs have to the market. The Act also provides for the granting of exemptions to certain indispensable restrictive practices aimed at increasing exports, enhancing efficiency in production and maintaining the quality of services, only under exceptional and compelling reasons of public policy.
In Tanzania, the public interest factor is especially important when a merger is likely to create or strengthen market dominance. In such cases, the authority may consider whether the merger is likely to benefit the public by increasing efficiency in production or distribution, promoting technological or economic progress, increasing efficiency in resource allocation, or protecting the environment.
Although legislatively mandated public interest factors frequently carry equal weight, the employment effects and promotion of ownership by local citizens (particularly in Botswana) and HDPs (particularly in South Africa) are scrutinized by the authorities in every transaction. Conditions are almost always imposed when job losses are intended or anticipated, even when the numbers are negligible. Even if job losses are not anticipated, conditions may nevertheless be imposed to safeguard against potential merger-specific job losses in cases of uncertainty. The promotion of greater ownership diversity, particularly among HDPs, is also gaining importance, especially as transactions that reduce ownership by historically disadvantaged individuals are scrutinized more closely by authorities. In the last 24 months, the South African competition authority has been particularly active, imposing public interest conditions on more than 74 mergers relating to employment, and with heavy focus on greater spread of ownership by HDPs, as well as local production and procurement, amongst others.
As social imperatives play an ever-increasing role in the development of competition policy, the trend of placing emphasis on the empowerment of SMEs as a means of fostering a healthy economic ecosystem, as well as the need to provide adequate opportunities to HDPs will continue into the future. Furthermore, with digital innovation allowing many previously excluded individuals and businesses to participate in the African economy, it is likely that public interest imperatives will play a critical role in the development and implementation of competition law in the digital space across the continent.
The African Continental Free Trade Area (AfCFTA) is providing impetus for the continent to move toward the adoption of a pan-African competition policy, which could be geared toward socioeconomic transformative goals (such as maintaining acceptable consumer prices) and a consistent approach to public interest. In February 2023, the African Union Assembly of Heads of State and Government adopted the protocol on competition policy.
Doing business in Africa will necessitate awareness of the public interest mandates of competition authorities and how practices promote or impact public interest outcomes, as enforcement trends on the continent indicate that public interest considerations will significantly influence broader enforcement activity, especially through prioritisation policies.
IOSCO, the global standard setter for securities markets, has today issued for consultation detailed recommendations to jurisdictions across the globe as to how to regulate crypto-assets.
In a major initiative designed to improve global standards of regulation of crypto-assets, IOSCO has set out how clients should be protected and how crypto trading should meet the standards that apply in public markets.
Jean-Paul Servais, Chairperson of IOSCO said: “As the G7 Finance Ministers and Central Bank communiqué of 13 May has once again reminded us, the time has come to put an end to the regulatory uncertainty that characterises crypto activities. Today’s consultation paper received unanimous support from the IOSCO Board and is the outcome of an intense period of regulatory risk analysis, information sharing and capacity building. As such, it will mark a turning point in addressing the very clear and proximate risks to investor protection and market integrity risks.
With 130 members around the world regulating more than 95% of the world’s securities markets, IOSCO is best positioned to deliver an effective and globally consistent set of policy recommendations. The strong support of the IOSCO Board will ensure the timely implementation of the recommendations by all IOSCO members to limit the risk of regulatory arbitrage. Strengthened cooperation between our members while supervising these markets through a global framework will contribute to protecting investors better and to credible deterrence of non-compliant actors.”
LIM Tuang Lee, Chairperson of the IOSCO Board-Level Fintech Task Force, set up to develop the policy recommendations, said: “The Recommendations in IOSCO’s Consultation Report set expectations and guardrails to regulate and supervise crypto-asset markets, which are inherently cross-border in nature. Crypto-asset service providers need to address unacceptable conflicts of interest and take far more seriously the right of clients to have their monies and assets carefully minded and accounted for. It is time for Regulators to work together across borders and various jurisdictions to ensure that investor protection and market integrity are upheld in crypto-asset markets.”
IOSCO has opened a public consultation on its recommendations and aims to finalise them by the end of the year. Thereafter, it expects that jurisdictions will review their current regulatory frameworks to ensure that they comply with the standards and fix any gaps promptly.
The Department of Employment and Labour has released proposed sectoral targets (click here to view) for compliance with the Employment Equity Amendment Act, 1998. Employers and stakeholders have a 30-day public comment period to review and make any necessary representations. Compliance with the targets will be important for employers in the upcoming reporting period and will impact their ability to obtain compliance certificates required for state contracts.
SAIFM encourages all employers to review these targets and take advantage of the opportunity to comment.
Following an extensive review of ETF markets, IOSCO has determined that the existing IOSCO Principles for the Regulation of Exchange Traded Funds (ETF Principles) remain relevant and appropriate. Since the publication of the ETF Principles in 2013, ETF markets globally have continued to evolve and exhibit sustained growth in assets under management. ETF industry developments include new products with exposures to less liquid and more novel asset classes and more complex investment strategies. The IOSCO Board has therefore concluded that ETF Principles would benefit from being supported, and further operationalised, by a set of Good Practices.
Jean-Paul Servais, Chair of the IOSCO Board, said: “With the publication of these Good Practices, IOSCO ensures that its policy framework for ETFs remains up-to-date, particularly in light of significant market developments since the publication of IOSCO’s ETF Principles. This report provides a rich discussion of major themes and recent developments in ETF markets as a backdrop to a set of Good Practices centred on the trading of ETF shares in the secondary market and the associated arbitrage mechanism.”
Martin Moloney, IOSCO Secretary General, said: “Recognizing differences and variances among jurisdictions in the way that ETFs operate, are regulated, and the markets in which they trade, IOSCO is providing a set of Good Practices, as examples of how a jurisdiction could implement the ETF Principles and other relevant IOSCO standards and guidance. IOSCO encourages regulators, responsible entities and trading venues to review and adopt these Good Practices, where appropriate, within each jurisdiction’s regulatory framework.”
In developing these Good Practices, IOSCO undertook a comprehensive review of the ETF market, surveying regulators and industry participants, conducting extensive stakeholder outreach, reviewing recent academic literature, considering major market events affecting ETFs including the COVID-19-related market volatility in March and April 2020, and engaging with the Financial Stability Board. In particular, IOSCO published a Thematic Note – Findings and Observations during COVID-19 Induced Market Stresses, summarizing its findings regarding the operation and activities of the primary and secondary ETF markets during COVID-19.
The ETF structure has generally remained resilient during historical stress events. No major gaps have been identified, and no major regulatory issues were reported by IOSCO members or industry participants. As of the date of this report, IOSCO has identified no structural issues related to ETFs that bear on financial stability.
The Good Practices highlight issues for regulators, responsible entities and/or trading venues to consider when putting into practice the ETF Principles and other relevant IOSCO standards and guidance.
The 11 Good Practices set out in this report can be broadly categorised under four themes that encompass the full life cycle of ETF products: [1] product structuring (including range of assets, strategies for ETF offerings, effective arbitrage mechanisms), [2] disclosure requirements (including on fees and on clear differentiation of ETFs from other Exchange Traded Products and Collective Investment Schemes), [3] liquidity provisions (including market monitoring and ensuring orderly trading), and [4] volatility control mechanisms (including communication between trading venues).
By Johan Botes, Partner and Head of the Employment & Compensation Practice, and Ethan Chetty, Candidate Attorney, Baker McKenzie Johannesburg
Financial institutions, law firms, estate agents and other accountable institutions operating in South Africa must vet all employees for competence and integrity, or risk sanction, including a fine of up to ZAR 50 million.
On 31 March 2023, the South African Department of Finance published Directive 8 on the compulsory screening of employees. In terms of this directive, accountable institutions (including lawyers, estate agents, financial services providers and other forms of companies listed in Schedule 1 of the Financial Intelligence Centre Act (FICA)) must periodically screen prospective and current employees for competence and integrity, and to determine whether such employee is a person subject to UN Sanctions in terms of Section 26A(3) of FICA. Additionally, accountable institutions are obliged to record how the screening has been conducted and must keep records of the outcome of such screening. These records must be made available to the Financial Intelligence Centre (FIC) upon request.
In February 2023, the Financial Action Task Force (FATF) Plenary concluded that it would adopt the Report on South African Anti-money Laundering and Counter Terrorist Financing Measures and officially “greylist” South Africa. The FATF sets out a comprehensive framework that countries should strive towards to combat money laundering and terrorist financing. South Africa aims to be removed from the greylist by implementing its legal framework for combating money laundering more effectively. Although not yet confirmed at the time, greylisting was explicitly mentioned as the trigger for certain proposed amendments to FICA in 2022. This new directive seems to be one of the actions taken to assist South Africa in overcoming its greylisting.
In Public Compliance Communication 55 (PCC 55), the FIC advised the public on mechanisms to abide by Directive 8. Such mechanisms include:
Competence
Screening for competence must entail determining whether an employee has the necessary skills, knowledge and expertise to perform their function effectively and includes scrutinising, amongst other information, the employee’s previous employment history, employment references, qualifications and relevant accreditations.
Integrity
Screening for integrity involves scrutinizing the morality and integrity of the employee, which may include considering criminal records (with a particular emphasis on crimes involving an element of dishonesty) and financial crimes. The FIC emphasised that such screening should be more stringent in respect of employees that pose a greater risk of money laundering, terrorist financing and proliferation financing (including senior management and certain other categories of employees).
Risk-based approach to screening
In Directive 8 and PCC 55, the FIC emphasizes a risk-based approach to the screening of employee information. This involves a proportionality exercise in which an employer is required to balance the risk of a particular employee/category of employees (from a money laundering, terrorist financing and proliferation financing perspective) with the measures taken, detail and frequency of employee screenings (with high-risk employees being screened in greater depth and more often than low-risk employees).
Sanctions and Penalties
Accountable institutions that fail to uphold the directive may be subject to administrative sanctions in terms of Section 45C of FICA. These sanctions vary and could take the form of a caution, reprimand, directive to take remedial action, restriction on business activities or financial penalty not exceeding ZAR 10 million in respect of natural persons and not exceeding ZAR 50 million in the case of legal persons such as companies.
Other legislative considerations
PCC 55 explicitly states that these mechanisms and Directive 8 must be applied in compliance with applicable South African labour laws. Additionally, when conducting such screenings, employers must abide by the provisions of the Protection of Personal Information Act, which adds further considerations when contracting with third parties that process personal data (such as outsourced background checks), evaluations of security measures to store personal data, mandatory notifications and obtaining of consent.
Impact on employers
PCC 55 obliges accountable institutions to perform screening for competence and integrity and targeted financial sanctions (following the risk-based approach). At the time Directive 8 was gazetted on 31 March 2023, and without giving specific timelines for enforcement, PCC 55 stipulated that screenings should begin as soon as possible.
ESG is an acronym that stands for Environmental, Social, and Governance. It is used as a framework for measuring the sustainability and ethical impact of a company’s operations. The environmental aspect of ESG focuses on a company’s impact on the environment, including its use of natural resources, energy consumption, and carbon emissions. The social aspect focuses on the company’s impact on society, including its labor practices, human rights, and community engagement. The governance aspect focuses on the company’s internal management and decision-making processes, including its board structure, executive compensation, and transparency.
The concept of ESG has gained increasing importance in recent years as investors seek to incorporate sustainability and social responsibility into their investment decisions. Companies that score well on ESG metrics are seen as more attractive investment opportunities, as they are perceived to be better positioned to manage risks and create long-term value. Investors are also increasingly interested in using their capital to support companies that align with their values and contribute to positive social and environmental outcomes.
The use of ESG as a framework for evaluating companies is not without its challenges. One of the main challenges is the lack of standardization in ESG metrics and reporting, which can make it difficult to compare companies across different industries and regions. Another challenge is the potential for “greenwashing,” where companies make superficial or misleading claims about their environmental or social practices in order to appeal to investors.
Despite these challenges, ESG is likely to continue to play an important role in shaping corporate behavior and investment decisions in the years to come. As consumers and investors become increasingly focused on sustainability and social responsibility, companies will need to prioritize ESG considerations in order to remain competitive and meet stakeholder expectations. By doing so, they can create value not only for their shareholders, but for society and the planet as a whole.
These topics will be discussed at the SAIFM Regulatory Summit on 23 August 2023 (www.regulatorysummit.co.za). Click here to view the programme.
“The Conduct of Financial Institutions (CoFI) Bill is being put in place to “reshape the future conduct regulatory framework by consolidating the conduct financial sector laws into a single overarching piece of conduct legislation.” ~ Financial Sector Conduct Authority (FSCA)
Hayley Brown, Head of Business Solutions at Glacier Invest, helps us understand some details of the Bill, what it means for this sector, and how choosing the right discretionary fund manager (DFM) can ease the burden.
CoFI defined
CoFI’s key objective is to improve customer outcomes by regulating how financial advisers conduct themselves. It will formalise the application of Treating Customers Fairly (TCF) principles and encompasses a wide spectrum of criteria including products and services that are developed and implemented; operational expertise; capital requirements, as well as business culture.
It’s designed to protect customers.
From a customer perspective, CoFI will promote financial inclusion, while ensuring customers’ fair treatment and protection. It’s also intended to promote trust and confidence through financial products and services and by ensuring transformation in the financial sector.
It ensures fair treatment and promotes trust and confidence.
This is achieved through increasing compliance and governance. At the same time, it will require financial institutions to have robust systems and operational processes, and it will require them to have adequate operational capital.
This is relatively easy in big companies, but it will be considerably more difficult for small brokerages that do not have the necessary skills and resources.
It’s changing the industry.
CoFI is intended to consolidate and strengthen market conduct laws in the financial services industry, and once legislated, it will cancel many of the financial sector laws that we’re accustomed to.
It will impact all financial institutions, such as financial services providers (FSPs), banks, insurers, credit providers, and discretionary fund managers.
What CoFI means for advisers
If you have an FSP license, then CoFI is going to disrupt your world. The CoFI Bill will have an impact on three main areas in your practice:
Your operational processes (systems, reporting, compliance)
Under CoFI, there will be even more focus on compliance regarding conduct standards and fair customer consequences. To comply with this, practices will be obligated to have strong systems and robust processes in place.
This may not be problematic for larger businesses or those that have implemented proper customer relationship management (CRM) systems and that use comprehensive tools. It is likely that smaller businesses will be most severely affected. Often smaller practices may not have the skills and resources to implement these robust and detailed systems and processes.
Your operational working capital
Operating capital can be understood as the most critical asset in any business, as it allows a company to stay open. The capital condition in terms of CoFI is quite onerous relative to current legislation because it states that all adviser practices will need to be sufficiently capitalised to cover “the risks to which it is exposed or is likely to be exposed to in the future.”
This CoFi stipulation will impact both larger and smaller businesses, with the exception being those that are already sufficiently capitalised, as well as those who may have wealthy shareholders who may be willing to make additional investments.
Your transformation plan
CoFI gives the FSCA meaningful power to effect transformation in our industry. To this end, it requires that all adviser practices with an annual turnover exceeding R10 million, have a transformation plan that will lift them to a minimum of a level 4 B-BEEE contributor. If a practice fails to show progress in this light, they could face substantial fines.
The R10 million threshold means that initially, bigger practices will be impacted, but it won’t take long for small firms that join, to reach the threshold as well. It will be increasingly difficult for larger one- or two-person practices, who have not transformed, to comply.
Important to note that the pressure will not only come from the regulator. Product providers will be scored on their procurement spend. This implies that they will be negatively impacted by paying commission to untransformed brokerages.
It’s not about ticking boxes
Most firms will need to make changes to fulfil the conduct requirements to ensure good outcomes for clients. However, adviser practices need to consider the real-world implications that CoFI will bring to their day-to-day lives and beyond.
The implementation of the CoFI Bill means that regulation no longer serves to be a tick-box type legislation. At the heart of it, CoFI serves to ensure that customers are treated fairly. This means that broadly CoFI aims to ensure customer outcomes are achieved by requiring advisers and/or providers of financial services to have processes and controls in place.
Be ready with a strong partner
During the last few years, increasing regulatory pressures and a ballooning collective investment industry have meant that some advisers have found the changes too difficult to comply with and proactively chose to exit the industry, while others simply cannot adapt and exit the market.
The same is likely to happen in the case of CoFI, which creates a huge opportunity for advisers who can adapt. Now more than ever, advisers need to consider the need to partner with a reputable DFM that has the skill and technology to bring the necessary discipline and rigour to your investment offering. As we wait for the implementation of the CoFI Bill, advisers need to consider their next steps.
CoFI can be viewed as ‘disruptor’ legislation that affects everyone with an FSP license, ranging from insurers and banks to discretionary fund managers and adviser firms. There could be instances where business models that are currently flourishing will be severely disrupted. It is almost certain that the “adviser market” will consolidate in some shape or form.
As advisers, this is the time to consider who we will partner with, to thrive in the new world.
Sources
Fairbairn Consult, Guy Holwill
The fundamentals of practice management for representatives, Anton Swanepoel
The Board of the International Organization of Securities Commissions (IOSCO) today published the 2023-2024 Work Program to further its core objectives of protecting investors, maintaining fair, efficient and transparent markets, and addressing systemic risks. The work program, like the previous edition, covers a two-year horizon and will be reviewed and refreshed, as appropriate, at end-2023 to ensure its ongoing relevance.
Jean-Paul Servais, Chair of the IOSCO Board, said: “I am pleased to present, as IOSCO Board Chair, IOSCO’s 2023-2024 work plan. In this period, IOSCO will deliver, among other things, on its priorities to address emerging risks arising from sustainable and digital finance. In 2023, IOSCO will review the first set of standards developed by the IFRS International Sustainability Standards Board (ISSB) to determine whether they can be endorsed as a global framework for sustainability related corporate disclosures. IOSCO will also move at pace with its policy-focused work on crypto-asset markets and activities. IOSCO’s priorities continue to include strengthening financial resilience by addressing the pre-identified vulnerabilities in the Non-Bank Financial Intermediation sector, in tandem with the FSB. IOSCO will also keep monitoring recent market developments from the perspectives of investor protection, orderly markets and financial stability in financial markets.”
Martin Moloney, IOSCO Secretary General, said: “We will also turn our attention to increasing the level of support we provide to regulators around the world to encourage and support strong standards of securities supervision. This kind of ambitious workplan, with tight delivery deadlines, requires a lot from our members who continue to provide substantial resources to get all this work done. Increasing collaboration with other international bodies is also a strong feature of our ambition.”
The 2023-2024 work program builds on ongoing priorities identified in the 2021-2022 Work Program, the internal workplans of the Board-level Financial Stability Engagement Group (FSEG) and Board-Taskforces, selected sectoral initiatives of IOSCO Board Committees, as well as new workstreams to emerge from Board discussions on the prioritization of IOSCO work.
The workstreams in this Work Program are organized under the following five themes:
Strengthening Financial Resilience
Supporting Market Effectiveness
Protecting Investors
Addressing New Risks in Sustainability and Fintech
Promoting Regulatory Cooperation and Effectiveness
Under the theme of Strengthening Financial Resilience and under the stewardship of the FSEGIOSCO will maintain its resolve to strengthen the resilience of the global capital markets as a core area of focus. At a time of inflationary pressures, recessionary concerns and monetary tightening, IOSCO will meet its commitments under the Financial Stability Board’s (FSB) 2023 Non-Bank Financial Intermediation (NBFI) workplan as part of its agreed follow-up work in response to the COVID-19 pandemic.
The IOSCO Board identified Private Finance as a new priority for the 2023-24 Work Program. The renewed regulatory interest in this area stems from the unprecedented growth of private finance and its increasing role in funding the real economy, combined with emerging concerns around the increasing interconnectivity of the sector with regulated public markets at a time of heightened interest rate risk across the financial markets.
IOSCO will also focus on delivering work under its core mandates of Supporting Market Effectiveness and Protecting Investors. Recent shifts in the economic landscape have created new challenges for market participants and underscored the importance of maintaining strong market infrastructure to support resilient primary issuance and secondary markets trading activities across the full range of tradeable assets. It also remains essential to monitor and address misconduct and promote investor protection and education initiatives. In particular, IOSCO will focus on follow up work stemming from IOSCO’s Retail Market Conduct Task Force (RMCTF) stock-take of regulatory approaches regarding conduct in retail markets published in Q1 2023.
Under the theme of Addressing New Risks in Sustainability and Fintech, the work program calls on IOSCO to continue its efforts in contributing to the urgent goal of improving the completeness, consistency and comparability of sustainability reporting under the stewardship of its Board-level Sustainability Taskforce (STF). Similarly, with respect to fintech, the Work Program calls for IOSCO to maintain the momentum reached under its July 2022 crypto-asset roadmap, to assess and respond to the risks associated with crypto-asset market activities and decentralized finance under the stewardship of the Board-level Fintech Taskforce (FTF).
IOSCO will also sustain its efforts on promoting regulatory cooperation and effectiveness, which is essential in IOSCO’s efforts to maintain strong and resilient capital markets worldwide. One of the key initiatives towards promoting regulatory cooperation is the IOSCO Multilateral Memorandum of Understanding (MMoU). IOSCO remains committed to promoting the benefits of the MMoU, and to encouraging more jurisdictions to become signatories.
IOSCO will also continue its work in other important areas, including matters of special importance to growth and emerging markets (GEM), its collaboration with the FSB and standard setting bodies, and continuing work on implementation monitoring, capacity building for its members and supporting investor education as a critical pillar of investor protection.
The Board of the International Organization of Securities Commissions (IOSCO) today published its Report on Retail Market Conduct, in response to the evolving retail trading landscape, influenced by changing macro conditions, demographic trends, and technological developments.
IOSCO Board Chair Jean-Paul Servais said: “Safeguarding the interests of retail investors is a core objective for IOSCO and a pre-requisite to help sustain retail investors’ interest and trust in capital markets. As a result of their increasing share in the overall trading volume, the retail market segment is increasingly influencing price formation and market trends. This in turn can make retail investors more vulnerable to misconduct by wrongdoers via a wide range of sophisticated tactics to exploit vulnerabilities. In today’s digital world, fraud patterns are increasingly cross-border and have no jurisdictional boundaries. IOSCO’s Retail Market Conduct Report is an overarching and global response to evolving misconduct trends and fraud patterns. As the IOSCO Board Chair, I would recommend the Toolkit suggested in the Report to regulators and supervisors around the world. IOSCO will continue to work on these issues.”
The Chairperson of the Retail Market Conduct Task Force, Derville Rowland from the Central Bank of Ireland, said: “Technological developments are permanently changing the way in which retail consumers interact with financial services and products. As digitalization enables retail investors to invest more easily via apps and online trading platforms, various external factors, including social media and cross-border offerings of complex products, including crypto assets, increasingly influence retail investor decision making. This can lead retail investors to products that might not be safe or suitable. In such an environment, regulators face novel conduct challenges and new forms of financial consumer protection issues, which traditional regulatory tools may not suffice to address. While it’s important that the potential benefits of innovation can be realized, it’s also critical that the risks are effectively managed. To deal with these issues, IOSCO´s Retail Market Conduct Report provides timely, practical and innovative guidance to regulators in coping with such challenges.”
The Report highlights a wide range of retail trends and sources of potential retail investor harm in an increasingly online environment, where social media is now a major source of information. Increasing digitalization of financial services and greater use of online distribution methods provide fraudsters with easier and cheaper ways of spreading false communications and information to a wider target audience. More and more, digital promotions and online marketing are used to facilitate fraudulent activities. Crypto-asset scams and greenwashing are two important examples of misconduct arising from global trends and technological developments.
To respond to retail market conduct challenges, IOSCO notes that regulators need to address retail investor harm at its source. Regulators can employ technological tools to eliminate detrimental online marketing channels, identify misconduct early on and intervene rapidly.
IOSCO also highlights the persistent challenges regarding supervision and enforcement of cross border misconduct and the importance of deepening co-operation between jurisdictions in combatting financial fraud on a global scale.
The toolkit outlined in the Final Report is a collection of adaptable measures for regulators to consider when dealing with retail market conduct issues. It includes various innovative approaches under five overarching categories:
Heightening regulators’ digital presence and online strategy to proactively address retail investor harm;
Honing approaches to better identify and mitigate misconduct;
Enhancing cross-border and domestic supervisory and enforcement cooperation frameworks, both bilaterally and multilaterally;
Addressing retail investor harm that stems from crypto-assets; and
Implementing new regulatory approaches against retail misconduct.
IOSCO’s Final Report, prepared by its Board-level Retail Market Conduct Task Force, which is led by the Australian Securities and Investments Commission and the Central Bank of Ireland, is a follow-up to the IOSCO Report on retail market conduct implications of the COVID-19 pandemic and a Consultation Report, published respectively in December 2020 and March 2022.
