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Culture as a Reflection of Competition

Culture as a Reflection of Competition

by Martin Moloney

Secretary General of the International Organization of Securities Commissions (IOSCO)

Jun 07, 2023


When regulators are fighting the dominant culture in the financial sector they are in trouble. Culture is notoriously difficult to overcome or adjust. But there is an obvious difference between securities regulation and the regulation of other elements of the financial sector which might provide a hint as to when regulators are likely to face this kind of challenge. The hint lies in the observation that securities regulation seems to be able to rely to a greater extent on less detailed rules, instead relying more on broad principles, good practices guides and risk awareness raising activities. [See also The Academy Article An Interview with Professor Kristen Jaconi] Why would this be the case?

I want to explore the possibility that this difference of regulatory approach might reflect the differing impacts of competitive pressures on the culture of the differing elements of the financial system. I can illustrate my point by noting that IOSCO is a bit unusual in that it often addresses its recommendations and analysis directly to the asset management industry as well as to regulators. This contrasts somewhat with what one might expect of a standard setting body. Afterall, isn’t it the point about standard setting to set out the rules? Well, that is not how it works at IOSCO. Yes, IOSCO has set out its ’38 Principles,’ which define how well run securities markets should be organised. But IOSCO rarely goes beyond that to more detailed rules and retains a ‘principles-focused’ and ‘outcomes-focused’ approach where others have found it necessary to go into great detail. One perhaps unexpected consequence of that ‘principles and outcomes-focused’ approach is that IOSCO gets to write reports which analyse risks facing the market in the reasonable expectation that those reports will often directly influence the risk management functions of exchanges, asset managers, custodians and other key players in securities markets.

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