Foreword
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In this paper, the Technical Committee of IOSCO sets out a framework of management control mechanisms for regulators of securities firms doing over-the-counter (OTC) derivatives business. The purpose of this paper is to provide guidance to securities regulators as to those management control mechanisms which (as appropriate in the context of each regulator's particular regulatory jurisdiction and approach) they should seek to promote or encourage for use by regulated securities intermediaries. The paper contains a flexible, non-exclusive approach to management controls intended to cooperatively reinforce regulators' promotion of prudential practices while permitting those practices to continue to evolve. This paper is being issued at the same time as a similar paper on management controls for derivatives being published by the Basle Committee on Banking Supervision. While the two papers differ in detail, the two Committees share the common objective of promoting sound risk management controls and the papers reflect that securities firms' and banks' derivatives activities give rise to similar risks and risk management concerns. The papers confirm that both Committees attach great importance to prudential risk management on the part of financial institutions. The Committees expect to continue to consult as market and supervisory practices develop.
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Operational and Financial Risk Management Control Mechanisms for Over-the-Counter Derivatives Activities of Regulated Securities Firms
