A conference on the regulatory issues of capital markets was held in the second day of the 34th meeting of the Africa and Middle Regional Committee of IOSCO hosted by the Sultanate represented by the Capital Market Authority in the attendance of HE Yahya Said Al Jabri, Chairman of the Board of Directors of Daqum Special Economic Zone Authority and the participation of more than 25 securities commissions from Africa and the Middle East.
HE Yahya Al Jabri said the importance of such meetings is growing over time because of the growing role of capital market regulators. Indeed, in recent years many countries in AMERC region, market based financing of business has grown substantially faster than bank lending to business and now a key source for funding economic growth.
HE said, for the last two years the capital market has provided twice as much new funding for businesses as has the banking system. We have seen market-based financing grow across nearly all sectors of the capital market from new issues to rights issues to bonds to private placements and other forms of capital expansion. Yet when we have success we as regulators are here today because we want to learn more about what we can do to improve the functioning of the fundamental purpose of our markets which is to fund the real economy. As part of this fundamental object, most regulators have to some degree or other what appears to be a dual mandate: on the one hand that facilitating business, and on the other hand enforcing laws, disclosure, transparency and compliance.
He added, to many observers, this dual mandate is seen as being in opposition to itself, almost every regulatory action we take to protect investors imposes costs, requirements and restriction on business, and almost every waiver and exemption we give to business leaves investors thinking they are exposed to potential disadvantage. However, we at CM don’t see this dual mandate as a set of competing objective. Regulation provides the framework for a resilient and dynamic financial system. It creates a system in which all parties can have confidence in doing business with counter-parts, and participating in the system. Without this confidence, the financial system cannot fund the economy and allow for economic growth. Creating confidence in the capital market system is at the heart of what we must do.
On the importance of explaining and justifying this to regulated entities upon whom we may be imposing new requirements that will require them to utilize additional resources and cost, or perhaps limit their opportunity to make money, is always a very difficult sell. We have all been at the sharp end of more than a few sticks thrown at us by interest groups objecting to new regulation that we deem to be valuable and beneficial to the market, but they strongly object to.
The conference included two papers and discussion session with three professional speakers in stock markets from IOSCO and other international entities. They talked on how to measure and promote the benefits and costs of regulation as well international experience and case studies.
The participants expressed the importance of the working papers which talked about the issue of enhancing the sound regulation through the understanding, justifying and promoting the cost/benefit of securities regulation. Many regulators set out many laws and regulations, however, due to lack of striking balance between the cost and benefits they appear very trivial which lead to shortfall in the performance of the sector.
The participant argue there must be a quantitative analysis prior to issuing any law or regulation to measure the risks and benefits to know the options and the type of intervention which will help evaluate the results.
For the importance of this issue CMA proposed to discuss it in the conference on the sidelines of the AMERC meeting.
IOSCO was established in 1983 to set the standards for securities regulation. It comprises a number of committees including the AMERC.
IOSCO aims to promoting cooperation and encouraging compliance with the international standards of regulation, supervision and enforcement to protect investors and provide fair, transparent and efficient market and to address systemic risks to enhance investor protection and increase confidence in the soundness of the securities markets through exchange of information and cooperation in enforcement against unsound practices .