IOSCO – Credible Deterrence in the Enforcement of Securities Regulation

The International Organization of Securities Commissions (IOSCO) has published a report, “Credible Deterrence In The Enforcement Of Securities Regulation”, which identifies key enforcement factors that may deter misconduct in international securities and investment markets.

The report reflects the collective experience and expertise of the member jurisdictions of IOSCO’s Committee 4 on Enforcement and the Exchange of Information, which is chaired by the UK Financial Conduct Authority (FCA).

“Ensuring our enforcement activity acts as a credible deterrent is key to our effectiveness as financial services and markets regulators. This critically important report provides our members with a timely basis for designing, developing and reviewing enforcement strategies. I strongly support it”, Chairman Greg Medcraft said in a Press release.

The purpose of the report is to identify and promote awareness of those factors that may credibly deter misconduct in securities and investment markets. It identifies key elements in the prevention of misconduct and financial crime from a range of international regulatory authorities and encourages regulators operating in both emerging and developed markets to consider how they might integrate credible deterrence into new or existing enforcement strategies. The report identifies seven key elements for credible deterrence:

  • legal certainty – consequences for misconduct must be certain and predictable;
  • detecting misconduct – regulators must be well connected and obtain the right information;
  • co-operation and collaboration – safe havens must be eliminated by working together;
  • investigation and prosecution of misconduct – enforcement must be bold and resolute;
  • sanctions – strong punishments must be given to wrongdoers so as to stop them profiting from misconduct;
  • public messaging – public understanding, transparency and caution must be promoted; and
  • regulatory governance – good governance is necessary to deliver better enforcement.

Deterrence is credible when would-be offenders perceive that the risks of engaging in misconduct outweigh the rewards and when non-compliant attitudes and behaviours are discouraged. Deterrence occurs when persons who are contemplating engaging in misconduct are dissuaded from doing so because they have an expectation of detection and that detection will be rigorously investigated, vigorously prosecuted and punished with robust and proportionate sanctions.

The report cautions that credible deterrence cannot be one size fits all and regulators must decide what it means for them in the context of their strategic objectives, powers and responsibilities. National regulators also need to take into account their own market, economic and financial situation.

Georgina Philippou, acting director of enforcement and market oversight at the FCA and chair of IOSCO Committee 4, said of the report:

“This is an important contribution to our global efforts to crack down on financial misconduct and rebuild and strengthen financial systems post-crisis. This is not an assessment tool but a think piece to encourage and support securities regulators around the world to consider how they can build credible deterrence strategies.”

IOSCO – Credible Deterrence In The Enforcement Of Securities Regulation is available here.

IOSCO is the leading international policy forum for securities regulators and is recognized as the global standard setter for securities regulation. The organization’s membership regulates more than 95% of the world’s securities markets in more than 115 jurisdictions and it continues to expand.

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