This annex provides information on the framework for international cooperation in the supervision and regulation of financial institutions and describes cooperative efforts to regulate both international banks and securities firms on a global, regional, and bilateral basis. There are several motives for international cooperation in these areas. First, as suggested most recently by the failure of Barings Pic, the supervision and regulation of international financial institutions and their activities may be enhanced by better communication among regulators. Second, national policymakers are concerned about creating and maintaining a level playing field on which their firms can compete. In some instances, regulatory coordination has been a way to achieve parity. Third, there is a growing sense as evidenced by recent summit communiques from Halifax (May 1995) and Lyons (June 1996) of the potential systemic risk attendant to unregulated or underregulated financial activities. For these reasons, governments, central banks, and securities regulators have given a higher priority to international regulatory and supervisory cooperation in the 1990s than ever before.

This annex provides information on the framework for international cooperation in the supervision and regulation of financial institutions and describes cooperative efforts to regulate both international banks and securities firms on a global, regional, and bilateral basis. There are several motives for international cooperation in these areas. First, as suggested most recently by the failure of Barings Pic, the supervision and regulation of international financial institutions and their activities may be enhanced by better communication among regulators. Second, national policymakers are concerned about creating and maintaining a level playing field on which their firms can compete. In some instances, regulatory coordination has been a way to achieve parity. Third, there is a growing sense as evidenced by recent summit communiques from Halifax (May 1995) and Lyons (June 1996) of the potential systemic risk attendant to unregulated or underregulated financial activities. For these reasons, governments, central banks, and securities regulators have given a higher priority to international regulatory and supervisory cooperation in the 1990s than ever before.

Three trends can be discerned from the existing cooperative efforts that are surveyed in this annex. First, the character of financial regulation is changing. There has been a move away from intrusive and prescriptive regulation and toward market-oriented approaches.1 For example, the new Basle Agreement, discussed below, allows that risk models used by banks themselves can constitute the basis for the calculation of the capital levels that must be held against market risk. Similarly, disclosure and transparency has been the focus of much supervisory attention with respect to securities firms and derivatives activities.

Second, there has already been a notable harmonization of standards in many areas. Such harmonization has often extended beyond the “geographical reach” of the original collaborators. Many developing countries have, for example, adopted the Basle Committee’s 8 percent capital adequacy rule for international banks.2 Others have decided unilaterally to match the Basle standards with respect to disclosure of derivatives activities.

Finally, there has been the recent development of regional cooperative arrangements. In Asia in particular, new channels for regularized cooperation among financial institution supervisors have been established in the past few years. The Bank of Japan was instrumental in the creation in1991 of a regularized forum for regional central bank contact. In September1995, the Reserve Bank of Australia proposed creating an Asian Bank for International Settlements. It is too early to tell whether these institutions will take root and contribute to cooperative approaches to financial market supervision and regulation. In addition, much of the practical cooperation among supervisors is reflected in increasingly dense networks of bilateral agreements with respect to information sharing—often in the form of MOUs. These efforts, too, are surveyed below.

The next two sections discuss the institutional framework within which international financial supervision and regulation has recently taken place. Although a clear distinction is increasingly difficult to draw, organizations devoled primarily to bank supervision are described first, followed by those dealing with securities firms. The final section considers the formal mechanisms for intersectoral cooperation among banking, securities, and insurance regulators.

Bank Supervision

The Basle Committee on Banking Supervision

The BIS was the first formal institution created to regularize central bank cooperation. It was created to handle the German reparations issue in 1929, but soon developed into a broader forum for reserves management and information sharing among central banks.3 Its membership is overwhelmingly European (28 of 33 member central banks).4 Thirteen of its 17 Board members are Europeans.5 Shares of the BIS are owned predominately by central banks (84 percent), with the remainder held by private shareholders, mainly in Europe. The right of representation and voting at annual general meetings is proportional to the number of shares subscribed in each country and can be exercised only by the central bank of that country or its nominee.

The Basle Process

The Basle Committee on Banking Supervision is widely recognized as the principal international forum for developments in international banking supervision. It was established in 1975—after the failure of Bankhaus Herstatt—by the central bank governors of the Group of Ten countries, and consists of representatives from The bank supervisory authorities of Belgium, Canada. France, Germany, Italy, Japan, Luxembourg, the Netherlands, Sweden, Switzerland, the United Kingdom, and the United States.

The Basle Committee’s work is carried out through plenary meetings three or four times a year and through technical subgroups, supported by the BIS, which provides the permanent secretariat.6 Two technical subgroups, for example, recently developed proposals for the management of market risk and the supervisory treatment of off-balance-sheet items, which provided the basis for the recent Market Risk Amendment to the 1988 Capital Accord (discussed below). The Basle Committee has also coordinated the work of related sectoral supervisors, as in the case of the Tripartite Group of banking, insurance, and securities regulators that addresses issues related to the supervision of financial conglomerates.7 In addition, the Basle Committee has created a Capital Liaison Group to interpret the 1988 Capital Accord and monitor its implementation.

The Basle Committee makes decisions by consensus. Because the Committee has no enforcement authority, implementation of its proposals and standards are dependent upon the members’ cooperation in implementing national regulations. The Basle Committee also attempts, in some instances, to gain the support of other international supervisory groups, such as the International Organization of Securities Commissions (IOSCO) or the Offshore Group of Banking Supervisors.

The set of major guidelines issued by the Basle Committee since its inception in 1975 is sometimes referred to as the “Basle Concordat System” (Box 14). Generally, the guidelines issued by the Basle Committee facilitate the exchange of information among supervisors on banking supervisory practices. They also provide standards and general principles to ensure adequate supervision of internationally active banks. Typically, the guidelines reflect the minimum standards to which the member countries are willing to adhere; members can impose or maintain tougher regulations should they so choose.8

Efforts ami Achievements

The 1988 Capital Accord is perhaps the most important of the Committee’s achievements, requiring internationally active Group of Ten banks to have capital in excess of 8 percent of risk-weighted assets. Banks’ capital ratios have increased regularly since 1988. supported by a substantial increase in tier 2 and especially tier 1 capital. The contribution of the Accord to systemic stability was judged by the Basle Committee to be highly positive: “We believe that, in the spirit of its original motivation, the Accord has considerably contributed to enhancing the safety and soundness of the international banking system”.09

Despite the apparent success of the Capital Accord, one of the main items on the Basle Committee’s agenda for the past four years has been the amendment of the Accord. As trading activities have increased relative to traditional lending activity, the concern has been to design a capital requirement for market risk. A fundamental consensus within the financial industry and among its regulators has emerged, that for internal risk management purposes, market risk should be addressed by looking at the potential volatility in the market value of financial institutions’ assets and liabilities, as well as off-balance-sheet items.10

The Basle Concordat System

The Basle Concordat of 1975: “Report of the Governors on the Supervision of Banks’ Foreign Establishments.”

  • Lays out the guidelines for cooperation between national authorities for supervisory authority over foreign banks (branches, subsidiaries, and joint ventures).

The Basle Concordat of 1983 [the “revised” concordat]: “Principles for the Supervision of Banks’ Foreign Establishments.”

Supplement to the Concordat, 1987-90:

The Capital Adequacy Accord, 1988: “International (’convergence of Capital Measurement and Capital Standards.”

The Minimum Standards Statement, 1992: “Minimum Standards for the Supervision of International Banking Groups and Their Cross-Border Establishments.”

Yet designing a market-risk amendment to the 1988 Accord has taken several years and is still the subject of some debate. Market risk is not easy to measure, and the exponential growth in derivatives products has added an extra layer of complexity to the task of striking a balance between simplicity and accuracy, particularly for instruments with options-like characteristics. In addition, the Basle Committee spent a long lime attempting to develop a joint proposal with securities regulators that would apply to both banks and securities houses. For a number of reasons (discussed below), the attempt at intersectoral coordination failed, leaving banking supervisors to prescribe market risk regulations in their own way.

The Basle Committee has actively solicited the advice of market participants and national regulators as it has worked to redesign capital adequacy requirements for banks. One proposal, floated in April 1993, introduced the idea of measuring market risk according to a standard formula (the so-called building-block approach) to determine capital adequacy requirements. Market participants were given a period of time to study the proposal and a large number of comments were received. While most respondents did not dispute the principle of applying capital charges to market risk, the analytical approach suggested was criticized as too complex for smaller banks and insufficiently accurate for banks with large sophisticated books.11 The major money center banks suggested what some saw as a radical alternative: that the internal models they had developed to manage market risks should be considered as an alternative to the standard approach for the calculation of the capital charge.

Responding to criticisms from the private sector, a revised amendment that incorporated market participants’ suggestion of the use of internal models was proposed in April 1995.12 Comments were then received through July from the Basle Committee’s 12 member countries, and from some non-Group of Ten countries such as Australia and from numerous industry associations.13

Despite its accommodation of industry interests to allow the use of internal models, the newly revised version continues to be heavily criticized, particularly by the largest and most sophisticated firms, but also by some major Group of Ten regulators. The continuing discontent surrounds the parameters to be used in the specification of the proprietary models as well as the multiple of three used to determine the required capital reserves. Some bankers and supervisors, for example, hold that if a model is deemed acceptable by regulators (and regulators should hold very high standards of what is acceptable)14 then firms should be required to hold only the amount of capital implied by the model, rather than some multiple of this amount. In this view, the use of a markup factor of greater than 1 only discourages the use of sophisticated models.

Some have also expressed the view that the market risk amendment does not address fairly one of the most important issues facing large banks in the Group of Ten countries: the competitive issue of a fair playing field. Potential inequities result in the amount of capital that must be held in reserve if there are significant differences in the size and composition of banks’ trading books across national jurisdictions.15 If the definition of the trading book is more liberal in one jurisdiction, banks may have to set aside proportionally more capital than banks elsewhere, creating a competitive disadvantage.

Nonetheless, on December 11, 1995, the Basle Committee approved the market risk amendment to the 1988 Capital Accord with very few changes from the April 1995 version. The only important change was that the capital calculation was altered to permit correlations among (as well as within) the broad risk categories (interest rate, exchange rate, and equities). This is expected to weaken to some degree the effect of the multiplier of three times the estimated value-at-risk measure. The Committee’s press communique released on December 12 emphasized that the amendment "represents a significant innovation in supervisory methods.16 The amendment is to take effect in 1997, and some industry officials reportedly hope to continue to lobby for changes, although this seems unlikely.

While the issue of internal risk management has certainly taken center stage over the last several months, new initiatives are unfolding within the Group of Ten framework. The effort to enhance standards of public disclosure of banks’ off-balance-sheet activities (and particularly derivatives activities) will be the focus of a new subgroup that is to work toward an agreement among regulators concerning further refinement of disclosure rules. While different national accounting standards make this an inherently difficult process, this may prove an important new initiative to improve transparency with respect to derivatives activities.

The European Union

The Legislative Process

The European Union is also central to international banking supervision since it provides consultative forums for the supervisors of some of the major financial centers. The European Union formally entered the banking supervisory arena in 1977 with the enactment of the First Banking Coordination Directive, setting the stage for regulatory coordination among European Union members. As with all European Union legislation, rules regarding banking originate in the European Commission and must ultimately be approved by the Council of Ministers.17 The Commission has several sources of input in crafting banking and investment directives:18

  • The Banking Advisory Committee (BAC). established in the First Banking Directive, advises the Commission in this area. Its members are high-ranking officials responsible for banking supervision within their respective national jurisdictions, and one member from the Commission.

  • The Contact Group of the European Union Banking Supervisory Authorities includes banking supervisory authorities from each member state, the European Commission, and some countries that are not members of the European Union (Norway, Iceland). This group meets and discusses a wide range of topics related to national supervisory developments and presents papers on various topics to the BAC.

  • Tile Banking Supervisory Sub-Committee of the European Monetary Institute (EMI) has indirect access to the European Commission through its advice to the EMI. The EMI has to be consulted on draft European Union and national legislation to the extent that it influences financial market stability. The Banking Supervisory Sub-Committee’s role is to assist the Council of the EMI regarding issues “falling within the competence of the national central banks and affecting the stability of financial institutions and markets.”

Unlike the recommendations of the Basle Committee. European Union directives are binding on the member states. A directive does not supersede the laws of member states, but obligates the member states to bring their national law in line with its objectives. The process by which a directive becomes European Union law is as follows. All legislation for the European Union must be initiated by the Commission. The relevant Committees, staff of the Commission, and other experts in the area of interest provide the relevant department of the Commission with information and draft proposals. The Commission department, under the responsibility of a member of the Commission, drafts the complete text, setting out the content and other details, which goes to the Commission as a whole. If the proposal is accepted by a vote, it is sent to the Council with a detailed explanation of the grounds for its adoption as a directive.

The Council meets in various “formations,” represented by ministers from the member states with expertise in a specific area. The “Economic and Finance” formation, composed of finance ministers from the member states, meets to discuss banking proposals. After the Council receives the Commission’s proposal for a directive, there are four procedures to be followed in its final approval. The procedure used depends on the article of the European Union Treaty on which the proposal is based. For most of the previously passed banking directives, the “cooperation” procedure was used. The Maastricht Treaty introduced the “co-decision” procedure, which expands the cooperation procedure and is now applicable to directives in the services area, specifically banking services.

In the cooperation procedure, the Council consults with Parliament and the Economic and Social Committee, an ancillary body that must be consulted on economic matters.19 After receiving their opinions, the Council adopts a common position, which is transmitted to Parliament, which then has three months to accept it, reject it. or propose amendments in a second reading. If Parliament rejects the common position or the Commission rejects Parliament’s amendments, the Council must adopt the Commission’s proposal with a unanimous vote. A qualified majority (62 out of 87 votes)20 is required for cases in which the common position is approved by the Parliament. Prior to a forma vote by the Council, the proposal is first discussed by the specialized working parties and then by the Permanent Representatives Committee. The Permanent Representatives Committee coordinates the work of the Council and determines their agenda. It can also attempt to reach agreement on technical points prior to Council meetings.

The co-decision procedure is slightly more complicated. The basic difference is that it provides for a “Conciliation Committee” that attempts to negotiate a compromise between the Council and Parliament when they disagree. If the Conciliation Committee is unable to achieve agreement between the two parties, the Parliament has veto power, and the common position proposed by the Council is rejected.

Efforts and Achievements

The European Union is in the process of implementing a “single passport” concept in European financial services. Under the new framework, incorporated banks and investment firms in the European Union can establish branches in other countries and provide services on a cross-border basis without further authorization in the “host” country. Seven key European Union directives underpin this single pass-port approach, the two most recent of which are the Investment Services Directive (ISD) and the Capital Adequacy Directive (CAD) (Box 15).

The CAD is the European Union’s first effort to subject banks and securities firms to similar, if not identical, financial supervision regimes,21 Italy and Spain were among the first European countries to change their legislation and imposed a rudimentary version of the CAD. France and the Netherlands implemented the necessary national legislation in early 1995. Germany has yet to amend its banking and financial markets laws. Arguably, the CAD is more difficult to implement in a country such as Germany where universal banks have never made the distinction between the trading book and the banking book that the CAD requires. Furthermore, some European Union members have delayed implementation owing to the perception that CAD provides little improvement over their own rules for coping with market risks.22 In addition, the technical problem of quickly coming up with suitable new software programs that could meet the requirements of the directive has led a number of regulators to extend deadlines for banks to come into full compliance, making the transition much more staggered than was originally antici-pated.23 Finally, CAD implementation has been complicated by the recent acceptance of the market risk amendment to the 1988 Basle Accords, which brings to the fore problems of coordination between the European Union and the Group of Ten’s Basle Committee.

Coordination Between the Group of Ten and European Union

Despite a considerable overlap in country membership (Figure 2), achieving a coordinated approach to supervision and regulation between the Group of Ten and the European Union has been challenging. Both institutions have attempted to arrive at compatible rules for capital adequacy (as seen in the high degree of similarity between the Basle Committee’s 1993 proposal and the CAD).24 However, different approaches have been taken, in part because the Group of Ten and the European Union engage in very different decision-making processes. Compared with the consensus decision process of the Basle Committee, which makes nonbinding recommendations, the decision-making process of the European Union leads to binding legislation. The checks and balances among the different institutions within the European Union are set up to provide for broad participation by the member states on matters that will require the support of the national legal systems. For example, the CAD, adopted in March 1993, took just under three years to proceed through the formal adoption process after it was approved by the Commission. During the same period, however, the Basle Committee’s April 1993 proposal for capital requirements for market risk exposures was revised in April 1995 and agreed finally in December 1995.

Building Blocks of the European Union’s Single Passport

  • The Second Banking Coordination Directive (effective January I. 1993): Gave European Union incorporated banks the right to branch into or provide banking services into any other member country.

  • The Own Funds Directive (effective January 1. 1993): Defines what is meant by capital for banks.

  • The Solvency Ratio Directive (effective January I. 1993): Established minimum risk-weighted capital requirements for European Union banks.

  • The Consolidated Supervision Directive (effective January 1, 1993): Requires supervisors to supervise the operations of banking groups on a consolidated basis.

  • The Large Exposures Directive (effective January 1, 1994): Places limits on the exposures to individual companies or groups that banks can take on.

  • The Investment Services Directive (effective December 31. 1995): Gives the same passport to European Union incorporated investment services firms that are not banks.

  • The Capital Adequacy Directive (effective December 3l, 1995): Establishes common capital requirements for banks and investment firms.

Figure 2.
Figure 2.

Overlapping Memberships: The Basle Committee, IOSCO Technical Committee, and European Union

* Canada is represented at the Basle Committee by the Bank of Canada, and at IOSCO by the Ontario and Quebec securities commissions.

While the Group of Ten and the European Union held a common approach to capital adequacy in 1993, the former’s recent move to accept internal models for measuring value at risk differs markedly from the CAD. whose original wording does not permit the use of value-at-risk (VAR) models that have since been advocated by the Basle Committee. Because the European Union must follow parliamentary rules for reaching agreement and making recommendations, and then must allow time for member countries to enact its directives, the European Union was not able to react immediately to the new initiatives from the Group of Ten. In addition, the Group of Ten has focused its attention on large money center banks, while the European Union necessarily must craft directives that apply to both large and small banks. As a result, the Basle Committee can be much more focused than the European Union in making its recommendations.

A new interpretation of the CAD approved in April 1995 by the European Commission’s Banking Advisory Committee has tried to address the problem posed by the differences in the Group of Ten and European Union positions. The new interpretation, often referred to as the Amsterdam Accord, would allow national supervisors to let banks use their internal VAR models for daily calculations. Firms that have VAR models in place for calculating risk may avoid the need to per-form the CAD computations on a daily basis, provided (on a date chosen by the supervisor), they benchmark the VAR model against the CAD model and then use it to monitor compliance with the CAD until the next benchmarking date. Between benchmark dates, maintained capital must be at least as high as the CAD requirement at the last benchmark date. If the VAR capital requirement under the Basle rules exceeds the CAD requirement, then the bank may increase the amount of capital withheld. However, reductions based on the VAR model to the CAD amount will not be permitted. Hence, a dual regime will persist to some extent, since the CAD calculation is still the benchmark and must be reported twice a year as the basis for the capital charge.25

The European Union has begun the process of revising the CAD. It recognizes the dangers in putting the actual parameters for the internal models approach into legislation and is attempting to avoid doing so. In the meantime, some European countries have been hesitant to pass their own national implementing legislation until the regime with respect to capital adequacy is clarified.26 Other countries, including France and the United Kingdom, have already taken the newer Basle amendments into account in drafting their implementing legislation for the existing CAD. However, for the majority of banks—those who do not currently use VAR models, or who are not expected soon to win approval for their use—the standard approaches for measuring market risk differ little in the Basle amendment and the CAD.

Efforts are being made in the European Union to make it easier to keep pace with changes in the capital adequacy rules coming out of Basle. The European Commission recently issued a proposal that would streamline the process of bringing CAD into line with the Basle amendment. The proposed directive creates a Securities Committee to provide recommendations to the Commission on the implementation and updating of the CAD and ISD. The Committee may also be used as a discussion forum for the application of community provisions concerning securities markets and securities intermediaries.27

Other Forums for Cooperation on Banking Supervision

By far the greatest activity with respect to cooperation among regulators of internationally active banks has occurred among the Group of Ten and within the European Union. The Organization for Economic Cooperation and Development (OECD) is far less central to cooperative supervision and regulation than are either the Group of Ten or the European Union, although it has been concerned with financial regulation and financial system management and has the power to establish “codes of conduct” to which members formally bind themselves. Perhaps the most important of these has been the Code of Liberalization of Capital Movements and of Current Invisible Operations, promulgated in December 1961 and since revised and updated. The OECD’s work in the banking and financial sectors is done through its Directorate for Financial, Fiscal, and Enterprise Affairs. In 1980, an Expert Group on Banking, consisting of bank supervisory, central bank, and finance ministry officials from 23 of 24 OECD countries, including all the Basle Committee countries, was created to identify and assess important changes in member countries’ banking structures and regulations.

In addition, there are a number of other cooperative organizations in Europe, Asia, the Middle East, Latin America, and Africa. These groups typically have some degree of official contact with the Basle Committee, which has been generally supportive of regional efforts.28 In some cases, the Basle Committee has proposed closer working relationships between it self and these regional groupings, and representatives of the Basle Committee have attended some of their meetings. The more important of these regional associations include the following:

  • The Offshore Group of Banking Supervisors. Members include Aruba, The Bahamas, Bahrain, Barbados, Bermuda, the Cayman Islands, Cyprus, Gibraltar. Guernsey, Hong Kong, the Isle of Man, Jersey, Lebanon, Malta, Mauritius, the Netherlands Antilles, Panama. Singapore, and Vanuatu.

  • The Nordic Supervisory Group. Established in 1925, members include representatives of supervisory authorities from Denmark, Finland, Iceland, Norway, and Sweden.

  • The Group of Banking Supervisors from Central and Eastern European Countries. Established in 1990, with members from Belarus, Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Macedonia, Moldova, Poland, Romania, Russia. Slovenia, the Slovak Republic, and Ukraine.

  • The Southeast Asian Central Banks (SEACEN). Established in 1966, with representatives from Indonesia, Korea, Malaysia, Myanmar, Nepal, the Philippines, Singapore, Sri Lanka. Taiwan Province of China, and Thailand, Central bankers of the Association of South-East Asian Nations (ASEAN) countries—a subset of the SEACEN group—also meet regularly.

  • The Executive Meeting of East Asia and Pacific Central Banks (EMEAP). Established in 1991, with representatives from Australia, China, Hong Kong, Indonesia, Japan, Korea, Malaysia, New Zealand, the Philippines, Singapore, and Thailand.

  • The Committee of Banking Supervisors of the Gulf Cooperation Council (GCC). Established in 1983, with members from Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.

  • The Arab Committee on Banking Supervision (ACBS). Established in 1991 by the Council of Gov-ernors of Arab Central Banks and Monetary Agencies (CGACB). The Arab Monetary Fund acts as secretariat for both the ACBS and the CGACB.

  • The Commission of Supervisory Authorities of Latin America and the Caribbean. Established in 1983. with members from 23 countries.

  • The Eastern and Southern African Banking Supervisors. Established in 1993. with members from Botswana, Kenya, Lesotho, Malawi, Mauritius, Mozambique, Namibia, South Africa, Swaziland, Tanzania, Uganda, Zambia, and Zimbabwe.

  • The West and Central African Group of Bank Supervisors. Established in 1994, with members from Cameroon. Côle d’Ivoire. The Gambia, Ghana, Madagascar, Nigeria, Sierra Leone, and Zaϊre.

In most cases, these smaller regional associations are concerned with cooperation in banking supervision and regulation, often involving the implementation of Basle Committee recommendations on capital adequacy requirements, large exposure regulations, and supervision of banks’ international operations on a consolidated basis. In some cases, particularly for the offshore financial centers and the Caribbean nations, bank secrecy laws and money-laundering laws have been a key concern. In general, these associations are consultative bodies only, with no independent policymaking authority. They serve only as forums for communication and make recommendations that their members may chose to implement in national legislation. Another important function of these associations is the technical assistance and training that they pro-vide to their members.

Securities Firms

International Organization of Securities Commissions

Structure, Procedure, and Authority

Headquartered in Montreal, Canada. International Organization of Securities Commissions (IOSCO) is the focus of international cooperation among securities regulators.29 Almost all countries with stock exchanges—approximately 95 percent of the world’s exchanges—are represented, resulting in a more broadly based membership than the Basle Committee.30 IOSCO has an extensive committee structure (Figure 3). The Presidents Committee is made up of the presidents of member agencies and has alt the powers necessary to achieve the purposes of the organization. The Executive Committee has 12 members elected by the Presidents Committee, and a representative from each Regional Standing Committee (the Inter-American, European. Asia-Pacific, and the Africa-Middle East Regional Committees). In addition, if not already elected members, the chairmen from the Technical Committee and the Emerging Markets Committee are also members. The Technical Committee’s members are primarily from developed countries, whereas those on the Emerging Markets Committee are primarily from developing countries.31 A third committee, the Consultative Committee, is made up of Self-Regulatory Organizations (SROs) and international organizations (affiliate members). Each of these three committees has set up working groups to address the major functional subject areas chosen by the Executive Committee.

The working groups generally produce recommendations that may take the form of a paper, guideline, or general principle. A working group may also recommend endorsement of some other international organization’s guidelines: for example, an international accounting standard proposed by the International Accounting Standards Committee (IASC). The Technical Committee then chooses whether to endorse the recommendation.

The working groups make decisions by consensus. If consensus is not reached, the group may still decide to transmit the range of opinions to the Technical Committee or other body. Because most of the members of the working groups are also members of the Technical or Emerging Markets Committees, once consensus is reached in the working group final approval by the respective committee and then the Executive Committee is often routine.

IOSCO recommendations are advisory and nonbinding on the membership, and the organization has no enforcement powers. Implementation of IOSCO recommendations is a national regulatory prerogative and takes place according to national legislative or regulatory procedures. As a result, there is considerable disparity among the membership with respect to implementation.

Efforts and Achievements

Historically, IOSCO has been important in coordinating international enforcement efforts to curb and punish securities fraud. The organization has encouraged and assisted its member commissions in adopting bilateral and multilateral agreements, making it much easier to initiate an enforcement proceeding in other jurisdictions.32 In October 1994, the Technical Committee issued a “Report on Issues Raised for Securities and Futures Regulators by Under-Regulated and Uncooperative Jurisdictions,” which outlined approaches taken by working group members to obtain information from uncooperative jurisdictions, and emphasized the mutual benefits of cooperating to minimize securities fraud and abuse. At their 1994 conference in Tokyo, the group passed a “Resolution on Commitment to Basic IOSCO Principles of High Regulatory Standards and Mutual Cooperation and Assistance.” This resolution asks all members to prepare a written assessment of their ability to provide mutual assistance and cooperation to foreign securities and futures regulators. This “self-evaluation procedure” facilitates gathering of specific detailed information on the situation prevailing in member countries, not only with regard to laws and regulations but also the ability of member countries to assist a foreign authority. It also signals the importance IOSCO attaches to “cooperative approaches to enforcement.”33 Although it lacks enforcement powers of its own, IOSCO has placed a high priority on encouraging securities commissions to provide mutual enforcement assistance.

The Barings Plc crisis brought the issue of international cooperation among securities regulators to the top of IOSCO’s agenda.34 The crisis focused attention on the potential systemic concerns of under supervised activities on futures exchanges and the need among regulators to strengthen supervision and improve information flows across markets. Meeting in Windsor, England, in May 1995, regulators from 16 jurisdictions35 responsible for regulating the world’s major futures and options markets agreed to strengthen cooperation among exchanges; to work to protect customer positions, funds, and assets; to clarify and strengthen default procedures; and to enhance regulatory cooperation in emergencies (the “Windsor Declaration”).36 The chairman of the Technical Committee and the Secretary General of IOSCO attended the meeting and endorsed the proposals, further agreeing that the work identified be carried out through the Technical Committee.37 Meanwhile, IOSCO’s Presidents Committee has asked its members to promote the measures agreed to in the Windsor Declaration, and to continue to work on the subject.

The Technical Committee has made progress on ideas for addressing market supervision and default procedures. Although these papers are at the discussion stage, the Technical Committee in the spring of 1996 promulgated recommendations regarding trigger levels for identifying large exposures: for developing Information Sharing Agreements (ISAs) among regulators; for developing standards of transparency in the case of default procedures; for disclosure of customer positions; and for best practices for the treatment of positions, funds, and assets in the event of default by a member firm.38

An ongoing item on IOSCO’s agenda has been to work toward accounting uniformity so that companies would be able to list on any stock exchange in the world on the basis of a single accounting system. Over the last several years, a range of possible coordinating rules have been considered: mutual recognition of accounting standards, the adoption of United States accounting standards (USGAAP). or convergence over a set of international accounting standards (IAS). The first has been criticized as misleading to investors,39 while the second is politically unacceptable to many countries. Certainly, the development of a set of international accounting standards raises difficult political questions, many of which have been aired at IOSCO meetings.40 Some national regulators have voiced concern that international accounting standards will converge toward the most lax common denominator.41

Nonetheless, this is an area in which IOSCO has made progress. Over the past few years, the working group on Multinational Disclosure and Accounting has produced a package of accounting issues they believe are necessary to be included in a core of international accounting standards to be recognized by members in connection with cross-border offerings and multiple listings of securities. In July 1995, an agreement was reached between IOSCO and the International Accounting Standards Committee (IASC) on a schedule for working toward an international accounting standard, which will be accepted for quotation on all stock exchanges.42 The Technical Committee is now working on a set of comprehensive core standards that it will send to the IASC for endorsement. By mid-1995. 15 accounting norms had been accepted and there remained 17 to revise, including 4 thought to be quite difficult: research and development, discontinued business, lease contracts, and retirement provisions.43 IOSCO aims for the adoption of all standards by member commissions by 1999.

Because of its broader membership, IOSCO has been far more concerned than the Basle Committee with the special problems that relate to the regulation of financial institutions in emerging and often newly liberalizing markets. Much of the discussion at its annual meetings relates to the special concerns of its developing country members. Its 1995 meeting, for example, included panel discussions of the ways in which regulatory problems differ markedly in the developing country context from those of more highly developed economies.44 First, many developing countries have historically had more highly regulated economies. The regulatory structure therefore is geared principally to ensuring compliance with the instructions issued by authorities. Some of the main concerns of regulatory authorities in emerging markets include enhancing the transparency, quality, and timeliness of data on financial institutions’ positions in order to promote sound supervision and reinforce market discipline; developing reliable systems for portfolio assessment and classification and for evaluating other assets10 reflect the institutions" true financial position; and setting limits on lending to and operations between parties connected with the ownership or management of the institutions in order to avoid improper self-allocation of resources. Regulators in developing countries are also concerned about issues of autonomy from extreme political influence, independent sources of finance, and recourse to independent courts for enforcement purposes. As developing economies liberalize, regulators in developing countries often feel political pressures that do not have exact parallels in the more advanced industrial economies.

More generally, IOSCO envisions itself as a conduit for the transfer of expertise from the more developed to the smaller exchanges. Recently, for example, in an effort to provide guidance, IOSCO released a report and survey for regulators and markets that are considering establishing or revising margin requirements.45 The Working Group on Derivatives is preparing a set of recommendations regarding development and regulation of derivatives markets in emerging market member countries. IOSCO hopes that china and Russia, for example, will do as the Central and Eastern European countries have done: learn from the experience of senior securities commissions in the development of their stock markets.

Other than IOSCO, there are only a small number of regional associations of securities regulators or similar forums for discussion. Chief among these is the Council of Securities Regulators of the Americas (CORSA). which was founded in 1992 to promote the development and harmonization of capital markets throughout the region.46

Memoranda of Understanding

An important avenue for international cooperation among securities regulators has been the negotiation of bilateral MOUs (see Box 16)47 A typical MOU calls on each party to pass on relevant information that gives rise to a suspicion of a breach, or anticipated breach, of the rules or laws of the other party.48 These have most often taken the form of agreements between national securities regulators, but agreements have also been made involving treasury ministries.49 commodities futures regulators,50 and stock exchanges themselves.51 One of the earliest agreements on record is between the Government of the United States of America and the Government of Switzerland (1982). Between 1986 and 1990, a number of agreements were negotiated between the major North American and European regulators, as well as with Japan.52 Among the major industrial countries, at the end of 1994, U.S. regulators had agreed to 41 bilateral MOUs and similar agreements; France, 17: the United Kingdom. 15; Spain. 11; Italy, 7: and Japan, 3.53 The U.S. SEC was the first regulator to receive full legislative authority to cooperate with its foreign counterpart. A number of regulatory authorities have now developed standards of reciprocal authority. Most recently. Hong Kong, which has cooperated with the SEC since 1990. won full compulsory power from its legislature to assist the SEC.54

In the early 1990s, a number of regulators in emerging markets began to negotiate a network of information-sharing agreements, agreements on the application of law. and agreements regarding administrative and technical cooperation. Regulators in Central and South American countries have developed a surprisingly dense network of such agreements over the past five years. Bilateral agreements for these countries tend to be intraregional.55 or made with Spain or to a lesser extent Italy or the United States. Recently, MOU activity has intensified among regulators in the emerging markets of Asia. Hong Kong has been especially active in negotiating a series of bilateral arrangements with foreign regulators for the sharing of information regarding securities activities. Early agreements included agreements in 1990 and 1992 between the Hong Kong and U.K. authorities, and in May 1992 Hong Kong concluded a MOU with the Commodity Futures Trading Commission (CFTC), which in 1994 was the basis for a cooperative enforcement arrangement involving an illegal off-exchange futures case. More recently, an agreement was signed on June 14, 1994 between Hong Kong and stock exchange regulators in France—the first such agreement between the Commission des Operations de Bourse (COB) and an Asian regulator.56 Increasingly. Hong Kong has sought cooperative arrangements with other regional regulators. In September and November 1993. Hong Kong securities regulators signed an MOU with Australia and Thailand, respectively.57 The China Securities Regulatory Commission signed an MOU with the U.S. SEC on April 28. 1994, although both sides noted that the MOU may be supplemented or superseded once China’s securities law lakes effect.58 The National Association of Securities Dealers (NASD) and the Indian OTC exchange have signed an MOU designed to exchange information and provide training that would enhance settlement procedures in India.59 The SEC and the Egyptian Capital Market Authority recently formalized a cooperative and consultative arrangement to assist in the development of a regulatory system for Egyptian securities. Nearly simultaneously, a cooperative agreement was reached with respect to information sharing and enforcement between the SEC and the Israeli Securities Authority.60

In what is perhaps a sign of future developments, co-operative arrangements have recently developed among emerging markets across regions. For example, in April 1994, Lima’s Bolsa de Valores signed a cooperative agreement with its counterpart in Bangkok, linking for the first time Peru’s small but growing capital market with a booming exchange in Southeast Asia. The two exchanges have agreed to conduct information exchanges as well as daily statistical transfers to include trading volumes and price variations.

In response to the Windsor Declaration of May 1995, regulators and exchanges have stepped up their cooperative efforts through multilateral understandings. In March 1996. some 49 exchanges and clearing houses, as well as 14 regulatory agencies, signed companion international information sharing agreements at the annual Futures Industry Association’s Conference61 The pact would allow exchanges and clearing houses to share market and financial information about members, and a companion agreement among regulators is intended to facilitate that agreement. The agreement defines the “triggering” events that would bring its information sharing features into play. Proponents say that the MOU allows members to get a more comprehensive assessment of the intermarket risks that member firms may face: allows members to address potentially destabilizing market events in a timely manner, thus promoting the safeguarding of customer funds and assets: and generally strengthens the communication and trust among exchanges and clearing houses, while more effectively managing and supervising the risks of their respective markets.

Intersectoral Cooperation: Banks, Securities Firms, and Financial Conglomerates

An issue that will continue to occupy regulators of banking and securities firms in the next several years will be the problem of designing regulatory approaches that can cope with the increasingly blurred distinction between banking and securities institutions and activities. Traditionally, the focus of banking regulation has been on protecting depositors and on the soundness of the payments system, while securities regulation has tended to focus on investor protection and market fairness. Banking regulation has traditionally relied on tools of direct regulation and “confidential supervision.” The role of public disclosure as a regulatory instrument for banks, while not novel, has evolved more slowly in most countries62 In contrast, securities regulation has tended to rely to a greater extent on market discipline rather than intervention by the authorities63 Concerns about contagion, which have been the impetus behind consolidated supervision by banking regulators, are thought to be less compelling for securities regulators.64

Memoranda of Understanding and Similar Agreements, 1982-94

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Source: International Organization of Securities Coin missions

United Kingdom: Department of Trade and Industry, SIB: United States: CFTC, SEC.

includes agreements with SROs in each country.

United Kingdom: Department of Trade and Industry, SIB; United States: CFTC, SEC.

Agreement with multiple phases, which took effect in 1991.

Agreement with multiple phases, which took effect in 1992.

Swiss Stock Exchange and the New York Stock Exchange.

United Kingdom: Department of Trade and Industry, SIB; United States: CFTC, SEC.

The distinction between banking and securities activities has become increasingly blurred as the boundaries between different financial products and institutions become more difficult to locate. Increasingly, institutions combine banking, securities trading, asset management, and insurance in one group or holding company. Thus, for example, when Barings Plc collapsed, a significant portion of the liabilities of the bank related to settlement business connected with its securities and other nonbanking operations and 15 percent of the bank’s liabilities were deposits by the group’s asset management company. Certainly, Barings Plc provided a graphic reminder of the way in which many banks are tied in with nonbanking businesses run by subsidiaries or associates in the group.65

Despite the desirability of regulating similar activities in a comparable fashion, it has been very difficult to develop internalionally acceptable norms of supervision and regulation that could be applied to both banking and securities firms. For example, there has been relatively little support among securities regulators for using VAR models as a mode of internal control within securities firms. The Technical Committee of IOSCO has warned that "firms could be incentivized to seek out models which are most effective in reducing capital requirements rather than those which are most effective for the purpose of better risk management.66 The Committee suggests more consideration should be given to the development of standards of best practice by the firms themselves.

An area in which a coordinated approach to the regulation of securities and banking activities has been adopted is that of disclosure of large aggregate exposures with respect to derivatives activities. In July 1994, the Basle Committee and lOSCO’s Technical Committee issued separate reports under a joint cover on the type of qualitative information about derivatives-related activities that may be appropriate for disclosure purposes,67 These were based in pan on input from banks and securities firms themselves, and point to the need for a sound infrastructure for intrafirm rules for risk management, A second joint report, released in November 1995, called for international banks and securities firms to improve disclosure of their derivatives and trading activities.68 These reports make clear that both sets of supervisors see public disclosure as encouraging the prudent use of derivatives by stimulating the power of market discipline, rather than by imposing regulatory limitations that may prove inefficient.

Some of the most intensive cooperation across sectors has involved the regulation of financial conglomerates. In January 1993, at the initiative of the Basle Committee, an informal Tripartite Croup of securities, insurance, and banking regulators was established, marking the first time That issues associated with risks posed by financial conglomerates have been addressed by the supervisors from the three sectors, working together. The Tripartite Group’s first report was published in July 1995. The Report identifies the problem that financial conglomerates pose for supervisors and considers ways in which these problems may be overcome. While the document deals with many issues, a good deal of it is devoted to capital adequacy. The Tripartite Group concluded that solo supervision, whereby individual components of conglomerates are supervised individually, should be supplemented by a group wide assessment (either consolidated supervision or “solo-plus” supervision—qualitative assessment of the group as a whole and quantitative group-wide assessment of its capital). Another point raised in the report is that the structure of a conglomerate can impede effective supervision. The report emphasized the need to simplify the process of obtaining information regarding managerial and legal structures as a step to facilitate effective supervision.69 The Report was sent to the Basle Committee. IOSCO, and IAIS earlier in 1995. Although its contents have not been endorsed by these groups, it is considered to be a basis for further collaborative efforts.

The Tripartite Group has recently been reconstituted as the “Joint Forum.” Its new mandate requires the group “to draw up proposals for improving cooperation and the exchange of information between banks, securities and insurance supervisors, and to work towards developing principles for the future supervision of financial conglomerates.” The first goal listed in the new mandate is to facilitate the exchange of information among supervisors across and within sectors. It will also “examine the possibility of establishing a criteria to identify a ‘lead regulator’ or ‘convener’” and consider their roles and responsibilities, with an eye to “developing principles for the future supervision of financial conglomerates." To facilitate the exchange of information, the Joint Forum in February 1996 circulated a questionnaire to its member supervisors to try to document the extent and nature of current cooperative agreements, The results of this survey will provide some information on current practices that might lead to a broader cooperative approach to the supervision of financial conglomerates. The Joint Forum also faces the difficulty of implementing a coordinated approach among countries with very different legal and regulatory systems that limit possibilities for consolidated supervision.


See, for example, Mary Schapiro, CFTC Commissioner, quoted in International Securities Regulation Report thenceforth, ISRR), October 12, 1995, p. 3.


The debate continues over the appropriateness of these rules for emerging financial markets; see Dziobek, Frecaut, and Nieto (1995) and Kane (1994).


The non-European members are the Reserve Bank of Australia, the Bank of Canada, the Federal Reserve System of the United States, the Bank of Japan, and the South African Reserve Bank.


Two representatives of the United States, and one each for Canada and Japan, were added to the Board of Directors in September 1994.


The BIS also provides support to the two other Group of Ten committees, the Euro-Currency Standing Committee, established in 1962 to monitor and assess developments in the international financial markets, and the Committee on Payment and Settlement Systems, which was set up in 1989.


The Tripartite Group has evolved into the more free-standing Joint Forum, which is no longer supported by the BIS secretariat, and is discussed in the section on intersectoral cooperation below.


For example, in response to the failure of the Bank of Credit and Commerce International (BCCI), the United States unilaterally adopted the Foreign Bank Supervision Enhancement Act of 1991, which requires the Federal Reserve to conclude that a foreign bank is subject to effective consolidated supervision as a condition of being allowed to enter the U.S. market. Some people have credited this move with encouraging other countries to adopt such standards (Kelley (1995)). This act is generally considered to be much stricter than the corresponding minimum standards recommended by the Banking Committee. A recent change in the regulations allows representative offices to be established in the United States through prior notification procedures rather than the more cumbersome application process (amending regulation K), but this only affects banks in countries deemed by the Federal Reserve to be capable of comprehensive consolidated supervision {Thompson’s International Banking Regulator, No. 96-5, February 5, 1996, pp. 1 and 6 thenceforth, TIBR)).


Padoa-Schioppa (1994).


See Brickell (1993).


For a review of the industry’s critique of the 1993 proposal, especially as it relates to foreign exchange risk, see Hartmann (1995).


For an extensive review of the 1993 proposal and the 1995 amendment to the Capital Accord, see International Monetary Fund (1995b). The general approach of the 1993 Basle proposal was reflected in the European Union’s Capital Adequacy Directive (discussed below), which was patterned on the efforts of the Group of Ten banking regulators in the early 1990s.


TIBR (1995), No. 95-38, October 9, p. 1.


French officials have indicated that they expect to give approval for internal models to only a very small number of French banks. More generally, very few banks worldwide—perhaps 4—have working internal value-at-risk models that might satisfy a supervisor. But these banks account for the largest number of positions carrying market risk (Shirreff (1995)).


For example, French banks are required to place their securities holdings into three categories: (1) the trading account (which includes securities held for the purposes of dealing or held on account of trading customers, or securities of less than six months to maturity); (2) the investment account (which essentially includes only medium- and long-term securities that will be held to maturity and equity investments in affiliates); and (3) “participations,” which include securities that will be held as medium-term investments. This third category includes equity investments in nonaffiliates (but may include some closely related firms) and bonds that will not be held to maturity. Once a security is classified in one of these three categories, it cannot be reclassified. Moreover, securities held in the investment or “participations” categories can be marked-to-market down, but not up. In France, the “trading book” to which the market risk capital requirements will be applied consists of their trading book plus participations.


Many in positions of authority within the private sector would agree. Charles Taylor, then Executive Director of the Group of Thirty, called the adoption of the internal models approach an “enormous departure” from standard regulation and an “incredible diplomatic achievement.” In adopting this approach, supervisors are “moving from a mechanical imposition of rules toward much greater dependence on good practice by the banks.” Quoted in TIBR, December 18, 1995, p. 3.


The role of the European Parliament is primarily consultative with respect to banking legislation, and the role of the European Court of Justice is to interpret questions of European Union law and treaties.


A number of other committees have some influence with respect to banking supervision, but these committees appear to play a smaller role than the BAC and the Contact Group in providing the basis for proposals.


Recently, for example, the Economic and Social Committee, acting on its own initiative, decided to draw up an Opinion on derivatives, which was adopted on October 25, 1995 and published in the Official Journal on January 22, 1996. The Opinion made a series of recommendations, including the need to maintain a level playing field between European Union and non-European Union banks and between banks and end users (for example, the industrial sector); the desire to encourage the use of derivatives within the provisions of existing requirements of the Capital Adequacy Directive; essential improvements, including setting up strict internal procedures for tracking and monitoring derivatives based on internal models; various agreements between OTC markets; and recommendations for serious thinking about repercussions of the growth in the use of derivatives on the economies and monetary policies of member states of the European Union {Financial Regulation Report, henceforth FRR, March 1996, p. 10).


Weighted votes in the Council are distributed as follows: France, Germany, Italy, United Kingdom, each 10; Spain, 8; Belgium, Greece, the Netherlands, and Portugal, each 5; Austria and Sweden, each 4; Denmark, Finland, and Ireland, each 3; Luxembourg, 2. A qualified majority normally requires 62 votes. With the 1995 enlargement, two large countries and one small country could no longer constitute a blocking minority. As part of the compromise when the accession package was negotiated, if countries accounting for 23-25 votes do not wish a particular decision to be taken by qualified majority, a compromise solution is to be sought that will secure at least 65 votes.


A detailed discussion of the CAD is provided in International Monetary Fund (1994).


Shirreff (1995).


Falloon (1996).


Most important, they both proposed the use of a “building block approach.” There were, however, some differences between the CAD and the 1993 Basle proposal, especially in the treatment of equity position risk, interest rate position risk, counterparty risk, and foreign exchange risk; see Tattersall (1995) and International Monetary Fund (1995b).


Tattersall (1995).


TIBR, No. 95-38, October 9, 1995, p. 4.


FRR, September 1995, p. 18.


According to Tommaso Padoa-Schioppa, Deputy Director General of the Bank of Italy and Chairman of the Basle Committee on Banking Supervision, “The Basle Committee has constantly encouraged the formation of regional groups of supervisory authorities. No particular organizational structure has been proposed, in the belief that local circumstances should exercise an important influence on the institutional arrangements and cooperation.” Padoa- Schioppa (1994).


The only time that bank supervisors are permitted as members is when they are the primary securities regulator. While all central banks have some regulatory responsibilities over securities, they are only eligible for membership in cases where a securities regulatory authority does not exist. According to IOSCO, in an interview with ISRR, there was no plan to change this arrangement. Vol. 8, No. 22, October 26, 1995, p. 10.


Ibid., p. 11. Seventy-three members are listed in the 1995 Annual Report. Ten associate members and 37 affiliate members, including international organizations such as the Arab Monetary Fund and the European Commission and various stock exchanges were also listed in the 1995 Annual Report.


Members of the Emerging Markets Committee in 1994 were securities regulators from Bahrain, Bermuda, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cote d’Ivoire, Cyprus, the Dominican Republic, Ecuador, Egypt, the former Yugoslav Republic of Macedonia, Guatemala, Honduras, Hungary, India, Indonesia, Israel, Jamaica, Jordan, Kenya, Korea, Malaysia, Malta, Mauritius, Nigeria, Oman, Pakistan, Panama, Paraguay, Peru, the Philippines, Poland, Singapore, South Africa, Sri Lanka, Thailand, Trinidad and Tobago, Tunisia, Turkey, Uruguay, Venezuela, and Zambia.


ISRR, Vol. 8, No. 22, October 26, 1995, p. 11.


“This exercise gives IOSCO members the opportunity to show their determination to address the problems and challenges raised by under-regulated and uncooperative jurisdictions” (Michau, July 13, 1995).


Even before this, IOSCO had twice issued recommendations to financial institutions dealing in derivatives. One called for a strict separation between back office and management and recommended the use of separate controls or audit committees.


Authorities signing the Windsor Declaration included securities supervisors from Australia, Brazil, Canada (Commission Des Valeurs Mobilieres du Quebec and the Ontario Securities Commission), France, Germany, Hong Kong, Italy, Japan, the Netherlands, Singapore, South Africa, Spain, Sweden, Switzerland, and the United Kingdom.


Subsequent to the Windsor Declaration, private sector initiatives also called for increased disclosure. One private sector group, the U.S. Futures Industry Association Global Task Force on Financial Integrity (Global Task Force), recently developed 60 recommendations based upon efforts from most jurisdictions with futures and options markets.


Note the overlap between the Technical Committee and the Windsor Declaratorees. The only attendees at the Windsor meeting who were not members of the Technical Committee were Brazil, South Africa, and Singapore. The only members of the Technical Committee who did not attend the Windsor meeting were from Mexico and the United States.


ISRR, April 11, 1996, pp. 15-17.


Or, more colorfully, a “fraud to investors” according to Michael Sharpe, Chair of the IASC. See ISRR, Vol. 8, No. 22, October 26, 1995, pp. 1 and 4.


The SEC has blocked previous agreements within IOSCO on this issue, but has recently relented. The Europeans have been fairly supportive, but have called for intensified European input; see Lannoo (1995).


German regulators have most consistently voiced this concern. Rold Breuer, President of the Supervisory Board of the German Stock Exchange thought that IAS would not contribute to more transparent and objective valuation. “The harmonization of accounting provisions can probably only be achieved at the price of greater discretionary scope in comparison to all national accounting systems. This could well increase the obscurity and manipulability of commercial law figures.”


A draft of IASC’s Work Program for harmonizing international accounting standards can be found in ISRR, Vol. 8, No. 16, August 3, 1995, p. 4.


See, for example, ISRR, Vol. 8, No. 19, September 14, 1996, pp. 1 and 2 for some of the issues surrounding pension accounting.


Presentation by the Chilean Supervisory Authority for Banks and Financial Institutions to the eighth International Conference of Banking Supervisors (Vienna, October 1994).


ISRR, April 25, 1996, p. 18.


CORSA members are Argentina, Brazil, Canada, Chile, Colombia, Costa Rica, Ecuador, Honduras, Mexico, Paraguay, Peru, the United States, Uruguay, and Venezuela.


Information regarding MOUs as of December 1994 is from IOSCO, “Index of Memoranda of Understanding and Similar Agreements,” December 5, 1994. A few of these agreements have been trilateral. For example, the MOU of June 22, 1993 among regulators in Argentina, Colombia, and Paraguay.


Some regulators have gone beyond agreements to pass on information, and have granted mutual authority for on-site inspections of fund managers in each other’s jurisdictions. For example, the SEC and the U.K.’s Investment Management Regulatory Organization (IMRO) signed an agreement in May 1995 to this effect (ISRR, May 25, 1995, p. 9).


For example, the October 28, 1995 Memoranda of Understanding for the exchange of information between the Securities and Futures Commission of Hong Kong, the H.M. Treasury, and the Securities and Investments Board of the United Kingdom.


For example, the U.S. Commodity Futures Trading Commission entered into 11 agreements with its foreign counterparts in the United Kingdom (1986, 1991, and 1994), France (1990), Brazil (1991), Quebec (1991), Ontario (1992), Spain (1992), and the Netherlands (1993).


For example, a 1991 agreement between the New York Stock Exchange and the Swiss Stock Exchange concerning the exchange of information for market surveillance.


For example, a MOU concerning the exchange of information between the Securities Bureau of the Ministry of Finance of Japan and the Securities and Exchange Commission of the United States (May 23, 1986), and the Securities Bureau of the Ministry of Finance of Japan and the Department of Trade and Industry of the United Kingdom (April 8, 1987).


The list of MOUs provided by IOSCO contains no record of agreements involving Germany.


ISRR, February 29, 1996, pp. 1 and 8.


For example, five of Chile’s six MOUs at the end of 1994 were agreed with other Latin American countries (Mexico, Peru, Argentina, Costa Rica, and Colombia). The sixth was with Spain. Three of Colombia’s four agreements were intraregional (with Chile, Paraguay, and Costa Rica), and the fourth was with Spain. Three of Argentina’s MOUs were negotiated within the region (with Chile, Mexico, and trilaterally with Colombia and Paraguay), two more with Spain, and one with Italy. Mexico has negotiated eight agreements, five of which have been within the region (with Argentina, Brazil, Chile, Costa Rica, and Panama) and one each with France, Spain, and the United States.


ISRR, June 1994.


These MOUs are cited in ISRR, December 14, 1993, but are not mentioned in IOSCO’s list of MOUs in force.


ISRR, May 17, 1994.


ISRR, March 22, 1994.


ISRR, February 29, 1996, p. 2.


For a complete listing of signatories see ISRR, March 28, 1996, Vol. 9, No. 8, pp. 1 and 8. The full name of the agreements are “International Information Sharing Agreement and Memorandum of Understanding” (among the exchanges) and the “Declaration on Cooperation and Supervision of International Futures Exchanges and Clearing Organizations” (signed by regulators). While no Japanese parties signed the initial accord, the Tokyo and Osaka futures exchanges signed at a later date.


Waitzer, ibid.


Waitzer, ibid. See also the comments of Michael Foot, an Executive Director of the Bank of England (Foot (1996)).


See Foot (1996).


FRR, July/August 1995, p. 9. See also ISRR, August 3, 1995, p. 4.


Bank for International Settlements (1994) and International Organization of Securities Commissions (1994a).


Basle Committee and IOSCO Technical Committee joint survey, drawing on a comparison of annual reports from 79 major derivative dealers in 11 countries between 1993 and 1994. The Report’s recommendation drew heavily on concepts developed in the Discussion Paper on Public Disclosure of Market and Credit Risks by Financial Institutions (“the Fisher Report”), released by the Euro-Currency Standing Committee of the Group of Ten central banks in September 1994, and on the Framework for Supervisory Information About the Derivatives Activities of Banks and Securities Firms. This document, produced jointly by the Basle Committee and the IOSCO Technical Committee in May 1995, provides a common minimum framework for providing information on an institution’s overall derivatives market activity and exposure to credit and, to a certain extent, market liquidity risk. It contains definitions of concepts that could improve the comparability of basic disclosures across internationally active institutions. It also provides a detailed definition of trading versus nontrading activities.


FRR, July/August 1995, p. 6; ISRR, August 17, 1995, pp. 5 and 11.

Developments, Prospects, and Key Policy Issues, 1996
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  • Andrews, David, and Shogo lshii, “The Mexican Financial Crisis: A Test of the Resilience of the Markets for Developing Country Securities,” IMF Working Paper No. 95 132 (Washington: International Monetary Fund, December 1995).

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  • Bank for International Settlements, Report on Netting Schemes (Basle: Bank for International Settlements, February 1989).

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  • Bank for International Settlements, Central Bank Payment and Settlement Services with Respect to Cross-Border and Multi-Currency Transactions (Basle: Bank for International Settlements, September 1993).

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  • Bank for International Settlements, (1994a), “Risk Management Guidelines for Deriva-tives” (Basle: Bank for International Settlements, July 1994).

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  • Bank for International Settlements, (1994b), Report on International Developments in Banking Supervision: Report Number 9 (Basle: Bank for International Settlements, September 1994).

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  • Bank for International Settlements, (1994c), “Discussion Paper on Public Disclosure of Market and Credit Risks by Financial Intermediaries” (Basle: Bank for International Settlements, September 1994.

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  • Bank for International Settlements, (1995a), “Framework for Supervisory Information About the Derivatives Activities of Banks and Securities Firms,” issued jointly with IOSCO (Basle: Bank for International Settlements, May 1995),

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  • Bank for International Settlements, (1995b), “Central Bank Survey of Derivatives Market Activity: Release of Preliminary Global Findings” (Basle: Bank for International Settlements, December 1995),

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  • Bank for International Settlements, (1996d), Central Bank Survey of Foreign Exchange and Derivatives Market Activity. 1995 (Basle: Bank for International Settlements, May 1996).

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  • Bank of England, (1995a), “The Gill Repo Market,” Bank of England Quarterly Bulletin, Vol. 35, No. 4 (November 1995), pp. 32530.

  • Bank of England, (1995b), “Financial Market Developments,” Bank of England Quarterly Bulletin, Vol. 35, No. 4 (November 1995), pp. 33945.

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  • Bank of England, “Financial Market Developments,” Bank of England Quarterly Bulletin, Vol. 36, No. 1 (February 1996), pp. 2229.

  • Bank of Japan, “Summary of Results of the Tokyo Foreign Exchange Market Turnover Survey.” Quarterly Bulletin, Vol. 4, No. 1 (February 1996), pp. 111.

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  • Borio, Claudio E.V., and Robed N. McCauley, “The Anatomy of the Bond Market Turbulence of 1994,” Bank for International Settlements Working Paper No. 32 (Basle: Bank for International Settlements, December 1995).

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  • Briekcll Mark, “Comparing and Contrasting the Latest Proposals from the Basle Committee and the G–30 Recommendations on Market Risk,” speech delivered at the Conference on Measuring and Managing Market Risk sponsored by Risk held in London, November 15, 1993.

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  • Chile, Supervisory Authority for Banks and Financial Institutions, presentation to the eighth International Conference of Banking Supervisors, held in Vienna, October 1994.

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  • Crowe, Charles “Treasurers Put Their Views on Banks.” Euromoney (May 1995). pp, 6584.

  • Davidson, Clive, “A Question of Adequacy.” Risk, Vol. 9, No. 3 (March 1996, pp. 4548.

  • Dziobek, Claudia, Olivier Frécaut, and María Nieto. “Non-G-10 Countries and the Basle Capital Rules: How Tough a Challenge Is It to Join the Basle Club?” IMF Paper on Policy Analysis and Assessment No. 95 5 (Washington: International Monetary Fund, March 1995).

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  • Failoon, William, “The Simpler, the Better,” Review 1995, Risk, Vol. 9. No. 1 (January 1996), pp. R13–R16.

  • “February Volumes.” International Financing Review, Issue 1123 (March 9, 1996), p. 111.

  • Federal Reserve Bank of New York, “April 1995 Survey of Foreign Exchange Market Activity in the United States” (New York: Federal Reserve Bank of New York, October 6, 1995).

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  • Financial Regulation Report (London: Financial Times Publishing, various issues).

  • Foot, Michael, speech delivered on March 7, 1996 at the International Swaps and Derivatives Association Eleventh Annual General Meeting held in San Francisco, March 68, 1996.

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  • Foreign Exchange Committee, Reducing Foreign Exchange Settlement Risk (New York: Foreign Exchange Committee, October 1994)

  • “Forex is the Key in Asia,” International Financing Review, Issue 1103 (October 14, 1995), p. 121.

  • Glosten, Lawrence R., and Paul R. Milgrom, “Bid, Ask, and Transaction Prices in a Specialist Market with Heiero-geneously Informed Traders,” Journal of Financial Economics, Vol. 14, No. 1 (March 1985). pp, 71100.

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  • Goodharl, Charles, Takaloshi flo, and Richard Payne, “One Day in June 1993: A Study of die Working of the Reuters 2000-2 Electronic Foreign Exchange Trading System,” in The Microstructure of Foreign Exchange Markets, ed. by Jeffrey A. Frankel, Giampaolo Galli, and Alberto Giovannini (Chicago: University of Chicago Press, 1996).

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  • Gray, Cheryl, Sabine Schlorke, and Miklos Szanyi, “Hun-gary’s Bankruptcy Experience, 1982-1993.” Policy Research Working Paper No. 1510 (Washington: World Bank, September 1995).

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  • Guillaume, Dominique, and others From the Bird’s Eye to the Microscope: A Survey of New Stylized Facts of the Imra-Daily Foreign Exchange Markets(Zurich: Olsen & Associates, December 1994).

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  • Harlmann, Philipp, “Capital Adequacy and Foreign Exchange Risk Regulation: Recent Developments in Industrial Countries,” LSE Financial Markets Group. Special Paper No. 77 (London: LSE Financial Markets Group, December 1995).

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  • Heron, Dan, “Any Time, Any Place,” Risk, Vol. 9, No. 3 (March 1996), pp. 2731.

  • International Monetary Fund, World Economic Outlook, World Economic and Financial Surveys (Washington: International Monetary Fund, various issues).

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  • International Monetary Fund, International Capital Markets; Fart I—Exchange Rate Management and International Capital Flows, World Economic and Financial Surveys (Washington: International Monetary Fund, April 1993).

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