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Scope of this Paper
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In continuation of its Mandate, the Working Group is now considering the means by which IOSCO can achieve "enhancement of regulatory co-operation in relation to collective investment schemes and their operators".
This Discussion Paper examines current issues in relation to cross-border marketing of CIS and canvasses strategies for enhancing co-operation between jurisdictions. The Paper does not seek to achieve a particular outcome or set of principles which would be binding on all members, but rather to propose options and strategies as a means of moving forward.
It is important to note that in terms of regulatory co-operation in relation to CIS, this Paper seeks to address this issue primarily in the context of compliance or routine surveillance of CIS. That is, in the pre-enforcement stage. The Working Group acknowledges that the role and the work carried out by Working Group 4 is primary in the area of enforcement and co-operation between regulatory authorities.
The Paper discusses:
m m the extent to which cross-border activity (in its various forms) already occurs;m current issues which are seen as restricting cross-border activity (such as regulatory or legal issues);m the ways in which regulatory authorities currently co-operate in relation to information exchange (Memoranda of Understanding, domestic legislation which facilitates regulatory co-operation, etc); andm options or strategies for improving co-operation to ensure effective supervision of CIS and regulation of global markets.
The Working Group has developed two draft agreements which assist in overcoming the regulatory and legal differences in many jurisdictions and will thereby facilitate co-operation amongst regulatory authorities.
1. A draft Mutual Recognition Agreement which is based on the recognition and acceptance of the Principles. The agreement would apply to those CIS that come within the Principles and that meet any additional conditions relating to distribution. The agreement also encompasses mechanisms whereby information relating to CIS and their operators can be readily exchanged amongst regulatory authorities; and
2. A draft Declaration on Co-operation and Supervision of Cross Border Investment Management Activity. This Declaration provides a practical means by which regulatory authorities can co-operate in relation to surveillance activities and exchanging information.
The Working Group is of the view that whilst regulatory authorities are not obliged to enter into either type of agreement, the advantages in adopting them are that they provide regulatory authorities with a proforma agreement and a means for achieving a more consistent approach to the regulation of CIS. In particular:
(a) Regulatory authorities are not obliged to chose one form of agreement over another. They are able to decide which agreement would best suit their particular needs taking into account their legal and regulatory regimes. They may in fact, incorporate parts from both model agreements into one agreement;
(b) The agreements are not prescriptive. They can be used as a starting point (ie as a proforma) or as tools for negotiating an agreement which could cover other issues or circumstances. They could also refer to, or incorporate, details of arrangements (formal or informal) in relation to co-operation which are currently in place between regulatory authorities (for example, Memorandum of Understanding);
(c) The agreements are not intended to be mutually exclusive. That is, if a regulatory authority signs a mutual recognition agreement with another regulator, this will not prelude it from entering into the Declaration on Co-operation with a third regulatory authority, or vice versa; and
(d) Both agreements can be used bilaterally or multilaterally. Although they may be used initially on a bilateral basis, it is hoped that in time, they will form the basis of a multilateral co-operative arrangement, as this will lead to a uniform or consistent approach in regulation and improve regulators' global oversight of the markets.
In this context, it can be seen that by adopting this approach, the model agreements do overcome many of the differences in regulatory and legal regimes, where local legislative provisions may restrict a regulatory authority from entering into either or both agreements.
The Working Group is therefore of the view that these two model agreements provide a means of moving forward in facilitating regulatory co-operation in relation to CIS and their operators, and thereby address the second part of the Group's Mandate. In time, it is hoped that this may lead to increased harmonisation in regulation. The Group considers that the Technical Committee should approve and circulate the Discussion Paper, incorporating the two model agreements, to IOSCO Members.
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Discussion Paper on International Co-operation in Relation to Cross-Border Activity of Collective Investment Schemes
