Post-GFC regulation

Having recently rejoined ASIC after a stint as IOSCO’s secretary general in Madrid, Greg Tanzer discusses how the regulatory environment has changed since the start of the GFC.

I have recently rejoined the Australian Securities and Investments Commission (ASIC) as a Commissioner, having left at the end of 2007 after 15 years, to become the secretary general of the International Organization of Securities Commissions (IOSCO) in Madrid. IOSCO is recognised as the international standard setter for securities markets and is the world’s most important international cooperative forum for securities regulatory agencies.

My time at IOSCO coincided with the start of the global financial crisis (GFC), an event that, like never before, demonstrated the interconnectedness of global financial markets and identified the need for co-ordinated and consistent approaches to regulation.

Over the past four years, IOSCO has played the leading role in developing principles and standards on which regulatory reforms to securities regulation across the world have been based.

During this time, ASIC’s regulatory responsibilities expanded dramatically. As a result, we interact with industry and stakeholders, such as directors, more extensively than ever before, especially under my broad portfolio, which includes ASIC’s corporate registry and licensing business and regulation of investment banks and investment management entities.

GFC: lessons learned

The GFC strongly demonstrated the high interconnectedness of today’s financial markets. This improves the efficiency of, and access to, global capital raisings but can heighten contagion risks. These can be difficult to recognise and mitigate, but they are very real.

There is some uncertainty about the implementation of the policy recommendations flowing from the GFC around the world, especially in terms of timing and detail, and this can lead to regulatory arbitrage. Globally, much effort is being made to monitor the implementation and to reduce or eliminate potential regulatory arbitrage problems.

The global economic outlook is mixed. There are still many good investment opportunities but a clear long-term strategy is needed to take advantage of these. As the recovery takes hold, there may be a temptation to forget the GFC’s lessons. Globally, regulators will increasingly look to counter-cyclical measures to manage the effects of ebbs and flows of the economic cycle on the financial system.

Regulators’ response

As a result of the GFC, IOSCO worked on a number of key areas, including securitisation, over-the-counter (OTC) and commodity derivatives and credit rating agencies (CRAs). With CRAs and hedge funds, for example, IOSCO was involved in setting the framework for their direct regulation, given the substantial role they play in the financial system, specifically securitisation.

ASIC has also been active in holding these gatekeepers to account. In December, ASIC released an information sheet that specifies new reporting requirements for CRAs (ASIC has required them to hold an Australian Financial Services (AFS) licence since January 2010). All CRAs operating in Australia must lodge an annual compliance report with ASIC. These reports will assist ASIC in monitoring compliance with AFS licence conditions, including the mandatory obligation on CRAs to comply with the IOSCO’s Code of Conduct Fundamentals for Credit Rating Agencies.

IOSCO made recommendations to improve transparency in securitised products and to promote safer or less conflicted products by requiring promoters to hold some "skin in the game". And, in the OTC and commodity derivatives space, recommendations were made to improve the transparency of the relevant markets; standardisation (and therefore tradability) of products; trade reporting to enable analysis of potential systemic issues; and clearing and settlement to improve management of counterparty risk.

Australian impact

Those involved in debt financing have been, and will continue to be, affected by the contraction of the securitisation market. The changes to the regulation of securitisation are directly relevant here and while they impose some extra costs in terms of disclosure, they should lead to a much more stable market.

The changes to CRA regulation, aimed at better managing the inherent conflicts of interest in CRAs and improving the quality of credit ratings, will be especially important to all large businesses, given CRAs’ important role in the global financial system.

ASIC priorities

As an ASIC Commissioner, one of my key priorities is the successful implementation of improvements to superannuation, in particular the MySuper initiative. Every Australian needs to get more engaged with their superannuation savings because we all want to build for ourselves a healthy and long retirement.

ASIC is implementing a national business names register this year, which promises for the first time a one-stop shop for registering business names nationally. We expect this to be a real timesaver, especially for those establishing small businesses.

ASIC will also migrate its company database, ASCOT, to a more contemporary technological base. This revamping of the database, which is long overdue, will improve the functionality and adaptability of the Corporate Register, which is a key source of information for people dealing with Australian companies.

Greg Tanzer
Commissioner
Australian Securities and Investments Commission