Scandal-hit banks must ‘stop the rot’, says Iosco’s Wright

The finance industry needs to put a stop to its sequence of scandals and work to rebuild trust, according to David Wright, secretary general of the International Organization of Securities Commissions.

Speaking at a conference organised by the Association for Financial Markets in Europe, Wright highlighted behaviour and ethics as a key concern for global securities regulators, noting that “nothing causes the rot and more regulatory angst” than revelations of further scandals. Regulators will clamp down further unless the industry cleans up its act, he warned.

“So the ball is in your court as the financial industry. Improving behaviour, reducing scandal, treating customers fairly – all of that,” he said.

His comments follow the news last week that Royal Bank of Scotland has been fined $612 million for Libor rigging – the third bank to be hit, following earlier fines for UBS and Barclays. In the UK, banks also face payouts over the mis-selling of interest rate swaps to small business clients and payment protection insurance to retail customers.

Wright also highlighted four other priorities for regulators: resolution, over-the-counter derivatives regulation, bank capital and moves to regulate the shadow banking sector.

On the first issue, Wright said global regulators agree on the need for robust resolution regimes, but acknowledged there are plenty of details that need to be wrapped up – particularly around the cross-border resolution of large, globally active firms.

“Will the firm-wide plans for resolution work? Are they up to speed? Is all the methodology and the detail right? Are we sure that we’re not going to have conflicts of law between one jurisdiction and another if an international firm fails?” he asked.

Further work is also needed on bank capital, he said – with regulators particularly concerned about the wide variation in bank risk-weighted asset numbers, which was revealed by a recent report from the Basel Committee on Banking Supervision.

Elsewhere, progress has been made on the Group of 20 commitment for all standardised OTC derivatives to clear through a central counterparty and, where appropriate, trade on an exchange or electronic trading venue, but cross-border conflicts between the various sets of regulations need to be ironed out.

“There is still a lot of work to do. There are still cross-border conflicts, in terms of the registration of swap dealers and so forth. And we haven’t sorted out yet the margin requirements for OTC derivatives that are not cleared,” said Wright – although interim rules on the latter initiative will be published within days, he noted.

Another focus is the regulatory framework for the shadow banking sector – something Wright said should be finalised by September. Here, he highlighted two major outstanding issues: the setting of haircuts for repo transactions, and the decision over which non-bank and non-insurance entities should be captured by the new regulation.

“Those are the issues that will preoccupy us for the rest of the year,” he said.


This article was first published on Risk

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