Publication Date: 08/05/2017

by Timothy E. Keehan

Timothy E. Keehan is Vice President & Senior Counsel at the American Bankers Association in Washington, DC, and a former partner at the international law firms of Latham & Watkins LLP and Mayer Brown LLP. He is Chairman of the Financial Markets Working Group of the International Banking Federation.

On 27 March 2017, IOSCO Secretary General Paul Andrews met with representatives of the Financial Markets Working Group (FMWG) of the International Banking Federation (IBFed) at IOSCO’s headquarters in Madrid, Spain.

Joining Mr. Andrews was IOSCO Deputy Secretary General Tajinder Singh and IOSCO Head of Enforcement Isabel Pastor. IBFed was represented by Hedwige Nuyens (IBFed Managing Director) and FMWG members Timothy Keehan (United States), Patricia Rodriguez (Spain), Gary Haylett (South Africa), Simon Pettinger (EU), Tetsuya Hasegawa (Japan), and Sam Mannion (United Kingdom).

IOSCO and IBFed agreed to the high-level meeting to discuss a range of issues and priorities for both organizations. The two-hour session involved an opportunity for extensive dialogue, discussion, and exchange on matters impacting the global financial markets and bank regulation. Both sides came away pleased with the substance and results of the meeting.

Ms. Nuyens began by providing IOSCO with an overview of IBFed, including its founding and background, membership, mission, and its recent activities and initiatives. Ms. Nuyens also discussed the rapid evolution of international supervisory developments, in light of Brexit and the US presidential election, and a discussion of digital banking and its challenges. This was followed by discussion of IBFed’s workings as an international organization and responses to follow-up questions by the Secretary General.

Each of the FMWG members present then shared an issue concerning their jurisdiction directly with the Secretary General, after which followed dialogue on each issue. For instance, Mr. Haylett said that implementation of margin requirements for non-centrally cleared derivatives is a major concern right now for South Africa, which will not have a central clearing platform available for its members for the foreseeable future. Other members expressed concern about regulatory arbitrage, Brexit’s impact on EU cohesion and policy, US concern over the opacity of the workings of international organizations (such as the Basel Committee), and the impact that significantly increased regulation has had on banks and on economic growth. The Secretary General and FMWG members engaged in dialogue on each of the issues raised.

IBFed and IOSCO discussed and dialogued on the FMWG’s priorities of cross-border regulation, OTC derivatives reforms, and shadow banking, explaining the IBFed FMWG positions on each of these issues. IBFed expressed willingness to work with IOSCO on advancing reforms that would benefit consumers and strengthen the banking industry. IOSCO added to the discussion the rapidly evolving role and impact of financial technology (FinTech) on global financial markets and banking practices.

During the discussion, IBFed raised IOSCO’s three-pronged approach to cross-border regulation (National Treatment, Passporting, and Recognition). IBFed expressed strong preference for Recognition as the most promising approach for successful cross-border regulation. The Secretary General then asked IBFed how Recognition as a guiding principle could best be achieved, given how difficult it was for the EU and the US to agree recently on just one issue (CCPs). IBFed suggested that IOSCO begin with an issue that is relatively straightforward: financial reporting. FMWG members explained the challenge of having to digest and analyze substantially similar information on different forms, and the frustration of trying to resolve text and data fields that do not match up. The Secretary General seemed interested in pursuing this possibility further.

The discussion then turned to shadow banking and how the term “shadow banking” should be defined. IBFed said that shadow banking should include any activity outside of bank regulation, while any bank-regulated activity should not be considered part of shadow banking. When the Secretary General raised the question on whether repos and securities lending should be considered part of “shadow banking,” IBFed responded that the focus should be on the activity and the entity conducting the activity to assist in determining whether it should be deemed shadow banking. Under this definition, IBFed concluded, any non-regulated entity engaged in repos, securitization, or securities lending would be considered to be engaged in shadow banking.

Several times during the meeting, IBFed emphasized to IOSCO the importance of allowing sufficient time to respond to IOSCO consultations. Although the Secretary General demurred on always allowing 90 or more days for a comment period, IBFed was pleased to hear that IOSCO is working on a priority of publishing its agenda at the beginning of each year, so that stakeholders can be made aware of what to expect in the form of IOSCO consultations over the calendar year, and prepare their memberships accordingly.

The Secretary General then outlined IOSCO’s priorities and initiatives for 2017 and 2018. These are (1) structural resilience of the capital markets; (2) data (especially data privacy and data gaps); (3) investor protection; (4) market development and sustainability; and (5) Fintech and “Regtech.” There appears to be particular IOSCO interest in the last subject area, especially as it affects market structure and its regulatory implications. The Secretary General expressed optimism going forward, saying that the current environment of divergence provides an opportunity for IOSCO, as a trusted international body, to provide starting points for regulatory principles.

In addition to the discussion on the range of current issues, the extended face-to-face encounter provided IBFed the opportunity to hear about IOSCO’s priorities for the coming 12-24 months and advance notice on IOSCO initiatives, while allowing IBFed to educate and inform IOSCO on IBFed’s core mission and work product. IBFed and IOSCO each agreed to look for and take advantage of opportunities to dialogue and to work together to achieve international standards that would benefit the global financial markets, produce sustained economic growth, and further IOSCO regulatory objectives.