Iosco secretary-general slams US and Europe as 'regulatory sharks'

Moves by the US and Europe to impose a global regulatory standard on the rest of the world ignore the changing global economic dynamic and leave both polities looking like "regulatory sharks", according to David Wright, secretary general of the International Organization of Securities Commissions (Iosco).

Wright was speaking at the Securities and Futures Commission's 2014 regulatory forum in Hong Kong on Friday when he said that Asia needs to have "one voice" in pushing back on the "policy preference" being exported from the US and Europe.

Wright said that the actions of the US and EU had set a dangerous precedent that could have longer-term consequences as global markets develop.

"Today we have two big sharks in the pond. As they draw up rules, they say 'abide by our rules or you won't do any business with the US or EU'. Effectively the rest of the world is a regulatory taker and that's not fair. Fast forward 10 years when there are more big markets, what's to stop China, Brazil, India or Indonesia saying 'if you want to do business with us here's our rulebook'?

"Another problem is that whoever goes first, their rules apply so without symmetrical timing of political decision making you will have a first-mover advantage by whoever gets in with their rules, which isn't satisfactory," he said.

Ashley Alder, chief executive of the Securities and Futures Commission, described how the increasing influence of countries in Asia meant that Asia needed a stronger voice. He quoted a paragraph in a document published by the Transatlantic Economic Council – a forum to encourage dialogue between the US and EU about transatlantic financial reform – which he described as "sinister".

"'And as transactions have moved to ever diverse parts of the world so has regulatory influence and so closer co-ordination between the EU and US is necessary. Going forward it's increasingly likely that only when the US and EU act in unison will they be well positioned to export their policy preferences,'" he said quoting the paper.

Alder added that the export of policy preferences from the EU and US "may well not be appropriate and may in fact be quite destructive".

The knock-on consequences of fragmented and dysfunctional global markets as a result of uncoordinated regulation would be severe, according to panellists at last Friday's forum. They noted that 15% of GDP had been lost since the financial crisis and the huge infrastructure requirements in Asia meant that well-functioning global markets were of vital importance.

"Is there potential for the G-20 reforms to backfire by fragmenting markets and further reducing cross-border liquidity which means that the $747 billion per year infrastructure hole in Asia is harder to fill?" asked Alder. "As the hole can't be filled by bank finance alone it needs to be helped by capital markets."

Greg Medcraft, chairman of the Australian Securities and Investments Commission, agreed that the risk of a contraction of capital flows was a challenge. He noted that capital flows in emerging markets fell from 18% in 2007 to a nadir of 4% in 2009.

Ranjit Ajit Singh, chairman of the Securities Commission Malaysia, said he was encouraged by efforts being made by Asian regulators to put their case forward on the global stage but that "the articulation of the Asian voice isn't as strong as it ought to be."

In addressing the question of whether regulators are tackling the symptoms or the causes of the crisis, Singh argued that the system was "undoubtedly safer but was not yet safe" with regulators not at a stage where they could avoid the next crisis.

"Some of the work talked about now on stability was at the forefront of discussion in 1997 and in Asia we said it's important to address issues of systemic stability but the response from a global regulatory level was that this is an emerging market and Asian problem. It took 10 years for the global financial crisis to drive home the message that systemic stability was an important part of the Iosco principles and that we should identify leading indicators of stress in different parts of the market," said Singh.

Iosco's Wright called for a global institution to deal with consistency.

"We don't have institutions at a global level with legally binding powers and that has just about worked so far but in a world where we will have many more big powers, will everybody play by the rules? We need to think hard about an institutional framework to guarantee that."