March 27, 2008
The SEC hasn't abandoned its ever faltering mutual recognition efforts for foreign regulators and the markets they supervise. The last time it tried this seriously, the agency only got as far as Canada - sorta. But perhaps globalization - and the new impetus to harmonize accounting standards - will prove more inspiring this time. Here is the SEC's plan going forward:
The Commission contemplates taking the following actions:
- Exploring initial
agreements with one or more foreign regulatory counterparts, which
would be based upon a comparability assessment by the SEC and by the
foreign authority of one another's regulatory regimes.
- Considering adoption of a formal process for engaging other national regulators on the subject of mutual recognition. This process could be accomplished through rulemaking or other appropriate mechanisms, possibly informed by one or more initial agreements with other regulators.
- Developing a framework for mutual recognition discussions with
jurisdictions comprising multiple securities regulators tied together
by a common legal framework, including Canada (which has no national
securities regulator, but rather provincial regulators) and the
European Union (whose national securities regulators are subject to
supranational legislation and directives).
- Proposing reforms to Rule 15a-6 in order to improve the process by which U.S. investors have access to foreign broker-dealers.
One guy to read on this is Larry Cunningham; you might start here. Chris Brummer has also written on the issue.
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1. Posted by M.D. Fatwa on March 28, 2008 @ 10:20 | Permalink
Seems strange to call this ever-faltering. Granted, the SEC proposed a mutual recognition system back in the late 1990s in a concept release, but a lot has happened since then re the growth of market oversight in other jurisdictions. This latest go-around started with a law review article by 2 SEC staffers in January 07. Given that this could have a dramatic effect on how the U.S. market is regulated, this is lightening speed -- so much so that some in Congress are starting to complain about it.
2. Posted by David Zaring on March 28, 2008 @ 10:32 | Permalink
Well, it does depend on your lens - you could say that the SEC has been thinking about mutual recognition since the mid-70s (and the formation of IOSCO), if not before.
3. Posted by M.D. Fatwa on March 28, 2008 @ 23:09 | Permalink
There is, however, a distinction that should be drawn between convergence/harmonization and mutual recogition. Theoretically, at least, the former renders the latter moot and the latter could put an end to the former. Arguably, both IOSCO and its inter-American predecessor were about the SEC getting the rest of the world to catch up to its standards to make convergence more likely. Even MJDS is more of a convergence exercise, at least originally -- the idea was to have roughly the same prospectus and financial reporting standards in Canada and the U.S. (Of course, later they diverged.) Mutual recognition, by contrast, assumes some regulatory differences will remain but, nonetheless, the foreign regulator's oversight of the foreign entity is sufficient. That's quite a philosophical change for an agency that only this past year agreed to permit foreign issuers to use IFRS.
4. Posted by David Zaring on March 29, 2008 @ 8:01 | Permalink
True enough, and a nice point - though I think that harmonization and mutual recognition often end up being of the same genus, if not species. You're not going to get the latter without a lot of the former.
I like the IOSCO story, though. And now it's maybe a creature of Europe....
