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SRO APPROACHTO
REGULATIONROB BARROW
FINANCIAL SERVICES BOARD
ACSDA International SeminarACSDA International SeminarJohannesburg, South Africa November 19-2, 2003Johannesburg, South Africa November 19-2, 2003
INTERNATIONAL DEBATE
PRINCIPLES – IOSCO
PRACTICAL APPLICATION IN SA
THE INTERNATIONAL DEBATE ON USE OF SRO’S
– USA - 24 bodies including 13 clearing agencies
– Canada - extensive use– Australia - yes, including clearing
houses– Hong Kong - yes– New Zealand - yes
Countries that do use SRO’s
THE INTERNATIONAL DEBATE ON USE OF SRO’S
– Germany – some limited use– Italy – not used at all– France - no
Countries that do not make use of SRO’s
THE INTERNATIONAL DEBATE ON USE OF SRO’S
– SRO’s merged into FSA– Limited SRO functions will continue in
LSE and other exchanges
United Kingdom
IOSCO PRINCIPLES
Principle No 6– The regulatory regime should make
appropriate use of self-regulatory organisations (SRO’s) that exercise some direct oversight responsibility for their respective areas of competence and to the extent appropriate to the size and complexity of the markets
IOSCO PRINCIPLES Principle No 6
– The “appropriate use” of an SRO is related to:• The SRO’s capacity to carry out the
purposes of relevant governing laws, regulations and SRO rules, and to enforce compliance by its members and associated persons with those laws, regulations and rules as reflected in the SRO’s regulatory authorization requirements and oversight program
• The adequacy of the regulator’s oversight• The need for augmentation of regulatory
resources
IOSCO PRINCIPLES
Principle No 7– SRO’s should be subject to the
oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities
IOSCO PRINCIPLES
Principle No 7 Authorisation– As a condition of authorisation, the
legislation or the regulator should require an SRO to demonstrate that it:• Has the capacity to carry out the purposes
of relevant governing laws, regulations and SRO rules, and to enforce compliance by its members and associated persons subject to those laws, regulations, and rules
IOSCO PRINCIPLES
Principle No 7 Authorisation– As a condition of authorisation, the
legislation or the regulator should require an SRO to demonstrate that it:• Treats all members of the SRO and
applicants for membership in a fair and consistent manner
IOSCO PRINCIPLES
Principle No 7 Authorisation– As a condition of authorisation, the
legislation or the regulator should require an SRO to demonstrate that it:• Develops rules that are designed to set
standards and behaviour for its members and to promote investor protection
IOSCO PRINCIPLES
Principle No 7 Authorisation– As a condition of authorisation, the
legislation or the regulator should require an SRO to demonstrate that it:• Submits to the regulator its rules for
review and/or approval, as the regulator deems appropriate, and ensures that the rules of the SRO are consistent with the public policy directives established by the regulator
IOSCO PRINCIPLES
Principle No 7 Authorisation– As a condition of authorisation, the
legislation or the regulator should require an SRO to demonstrate that it:• Cooperates with the regulator and other
SROs to investigate and enforce applicable laws and regulations
IOSCO PRINCIPLES
Principle No 7 Authorisation– As a condition of authorisation, the
legislation or the regulator should require an SRO to demonstrate that it:• Enforces its own rules and imposes
appropriate sanctions for non-compliance
IOSCO PRINCIPLES
Principle No 7 Authorisation– As a condition of authorisation, the
legislation or the regulator should require an SRO to demonstrate that it:• Assures a fair representation of members
in selection of its directors and administration of its affairs
IOSCO PRINCIPLES
Principle No 7 Authorisation– As a condition of authorisation,
the legislation or the regulator should require an SRO to demonstrate that it:• Avoids rules that may create anti-
competitive situations
IOSCO PRINCIPLES
Principle No 7 Authorisation– As a condition of authorisation,
the legislation or the regulator should require an SRO to demonstrate that it:• Avoids using the oversight role to
allow any market participant unfairly to gain advantage in the market
IOSCO PRINCIPLES
Principle No 7 Oversight– Oversight should be on-going to
ensure that:• An SRO meets the conditions of its
authorisation on an ongoing basis
IOSCO PRINCIPLES
Principle No 7 Oversight– Oversight should be on-going to
ensure that:• The government regulator retains
the authority to inquire into matters affecting investors or the market
IOSCO PRINCIPLES
Principle No 7 Oversight– Oversight should be on-going to
ensure that:• Where the powers of an SRO are
inadequate to investigate, or otherwise to address, alleged misconduct or where the SRO has a conflict of interest, the regulator conducts any necessary investigation rather than the SRO
IOSCO PRINCIPLES
Principle No 7 Oversight– Oversight should be on-going to
ensure that:• An SRO provides information to the
regulator that allows matters requiring regulatory intervention to be identified at an early stage
IOSCO PRINCIPLES
Principle No 7 Professional Standards– The SRO should adopt standards
of confidentiality for its staff and standards of procedural fairness applicable to its members comparable to those for the regulator
IOSCO PRINCIPLES
Principle No 7 Conflict of Interest– The SRO should have procedures
in place to address potential conflicts of interest
SOUTH AFRICAN SITUATION
South Africa does make extensive use of the SRO approach and is in full compliance with IOSCO Principles– Annual licencing– Approve rules and can impose a rule– Oversight through “Relationship
Manager” who attends all meetings
SOUTH AFRICAN SITUATION
South Africa does make extensive use of the SRO approach and is in full compliance with IOSCO Principles– SRO enforces its own rules and
impose appropriate sanctions for non- compliance. We assure that the rules of SRO’s do not unnecessarily restrict competition
SOUTH AFRICAN SITUATION
South Africa does make extensive use of the SRO approach and is in full compliance with IOSCO Principles– Fair representation of members on the
committee of the exchange– Equitable allocation of dues, fees and
charges among their members– Prevent fraudulent and manipulative
practices– Promote just and equitable principles of trade – Protect investors and the public interest
SOUTH AFRICAN SITUATION
South Africa does make extensive use of the SRO approach and is in full compliance with IOSCO Principles– Provide a process for disciplining their
members– Cannot impose any burden on competition– What constitutes improper conduct– Should make provision to share information
with foreign exchanges
SOUTH AFRICAN SITUATION
South Africa does make extensive use of the SRO approach and is in full compliance with IOSCO Principles– The Regulator may inspect the
activities of the exchange or its members or an officer or employee of a member
CONCLUSION Advantages:– More likely to attract technical
expertise– Makes management take more
responsibility– More resources likely to be allocated
to supervision– Likely to be able to react more quickly
CONCLUSION Disadvantages:
– Danger that supervision/enforcement will not be adequate
– Could restrict competition– Potential conflict of interest– May be more expensive