Wednesday, 8 April 2020

IOSCO redirects resources to address COVID-19 matters

By John Filar Atwood

The Board of the International Organization of Securities Commissions (IOSCO) is redeploying its resources to focus primarily on COVID-19 matters, including addressing areas of market-based finance which are most exposed to greater volatility, constrained liquidity and the potential for pro-cyclicality. The decision means that the work on the priorities outlined in its 2020 work program will be delayed.

IOSCO’s new focus will include examining investment funds, as well as margin and other risk management aspects of central clearing for financial derivatives and other securities. IOSCO said that it will continue a limited number of work streams that are close to completion, and will continue its efforts on G-20 deliverables.

In deciding on which priorities to delay, the board considered several factors, including that a delay would relieve untoward pressure on IOSCO members who are addressing core crisis challenges. The board also recognized that operational constraints on financial institutions would likely impede their ability to contribute to IOSCO projects and follow up on final reports.

Overtaken by events. A third factor IOSCO considered was that it may be inappropriate to issue reports during the crisis given that they may be overtaken by events and would need to be modified to take account of lessons learned or factor in a substantially changed financial landscape as a result of the crisis. Finally, the board said that it recognized that the standard-setting bodies with which it collaborates are busy focusing on helping to address the crisis.

The work that IOSCO is placing on the back burner includes its analysis of the use of artificial intelligence and machine learning by market intermediaries and asset managers. The board also will pause its study of the impact of the growth of passive investing and potential conduct-related issues in index provision, issues around market data, outsourcing, and implementation monitoring.

The 2020 annual work program also includes among its five focus areas cryptoassets and retail distribution and digitalization. The program indicates that IOSCO also was planning, based on its 2020 risk outlook, to study the rising levels of corporate debt and the potential resulting risks in capital markets.

Work continues. IOSCO plans to proceed with its work on good practices for deference, as well as other projects near completion that will not burden limited regulatory or industry resources. In addition, the board intends to examine specific investor protection issues, market integrity, or conduct risks that may arise in the context of the crisis.

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