Corporate Corruption, Integrity and Governance Symposium IOSCO - Global Standard Setter

1. Corporate Corruption, Integrity and Governance Symposium IOSCO - Global Standard Setter Jane Diplock AO Chairman New Zealand Securities Commission IOSCO Executive Committee

2. IOSCO Background • IOSCO’s role has evolved in response to • growth & globalisation of capital markets • awareness of need to manage risks that arise from that growth • IOSCO is recognised as the international standard setter for securities regulation

3. IOSCO Standards • IOSCO standards include principles, codes & benchmarks • Designed to be implemented in developed & emerging markets • Non-binding, but have substantial authority from IOSCO’s membership & standing • Members give effect to the principles in local context

4. IOSCO’s Strengths • Depth & breadth of membership • Members from more than 100 countries • Members regulate more than 90% of the world’s securities markets

5. IOSCO Organisation • 3 standing committees • Executive Committee • Technical Committee • Emerging Markets Committee • 4 regional committees • Asia Pacific • Inter-American • Africa-Middle East • Europe

6. International Recognition • IOSCO is recognised & supported by • Basel Committee on Banking Supervision • International Association of Insurance Supervisors • Financial Stability Forum • World Bank • IMF • OECD • International Accounting Standards Board • and others

7. IOSCO Objectives • Objectives and Principles of Securities Regulation • Adopted in 1998 • Core objectives • protection of investors • efficiency, fairness & transparency of securities markets • reduced systemic risk

8. IOSCO Principles • Objectives are supported by 30 broad Principles covering • regulators’ responsibilities & powers • cooperation between regulators • requirements of issuers & intermediaries • responsibilities and oversight of SROs • collective investment schemes • functioning of secondary markets • IMF & World Bank use the Principles for their FSAP

9. Other Standards & Codes IOSCO standards on other key areas • oversight & independence of auditors • disclosure & reporting practices of listed entities • securities analysts & their potential conflicts of interest • credit rating agencies

10. Corporate Governance • Good corporate governance critically important • IOSCO endorses OECD’s 2004 Principles of Corporate Governance • Good corporate governance must apply to all issuers of securities not just listed companies

11. OECD Corporate Governance Principles • Widely recognised internationally • Used by World Bank & IMF • Compatible with IOSCO standards • Underpin codes & rules for good governance • Provide a tool for policy-makers & regulators

12. Financial Fraud • Financial scandals like Pamalat & Enron reveal major failings in corporate governance • Fraud of this type threatens market stability & integrity • IOSCO task force examined the issues from securities regulation perspective

13. Task Force Report • Highlighted 7 areas of concern • independence of directors • independence of auditors • effectiveness of disclosures • transparency & regulation of bond markets • role & obligations of market intermediaries • use of complex corporate structures • role of private sector information analysts

14. Task Force Recommendations • Greater effort to implement standards – especially in the 7 areas • Greater urgency to implement the IOSCO Principles • Greater cooperation between securities regulatory agencies to exchange informationacross borders

15. Board Issues • Independence of directors, related party transactions & minority shareholder protection • IOSCO recognises OECD as the global standard setter on these issues • OECD principles address these issues at high level • Greater clarity needed on independent directors & directors’ responsibilities

16. Gender Benefits • Corporate governance may be enhanced when more women are appointed as directors • Studies in UK & Canada confirm this • Research indicates that women’s problem-solving capabilities & inclination to openness & integrity make them effective at corporate governance

17. Gender Gap • Gender gaps in boardrooms worldwide • Survey of Fortune 500 companies in US • women hold only 14.7% of directorships • women make up 25% or more of directors in only 64 companies • Women are only 7% of the directors of New Zealand’s top 100 listed companies

18. Auditor Issues • Task Force report highlights audit failure due to • outright fraud by corporate managers who deceive the auditors • fraud by the audit firm staff, working in conjunction with corporate managers • malpractice or negligence on the part of the auditors • deficiencies in audit standards

19. IOSCO & Auditor Issues • IOSCO encourages • independent oversight bodies • standards for selection & monitoring external auditors • adoption of IAASB auditor-related standards

20. Cross-border Cooperation • Growing cross-border investments & complex corporate structures • IOSCO’s response is the Multilateral Memorandum of Understanding • Adopted in 2002 & open for all members to join • Creates a platform for cooperation between all securities regulators to exchange information on enforcement matters

21. IOSCO MOU A Priority • 30 members full signatories • 9 on appendix B • all members have agreed to commit to the MOU by January 2010 • HKSFC & NZSC are signatories

22. Progress on the IOSCO MOU • Some jurisdictions have legal & capability hurdles to overcome to comply with MOU • IOSCO assists members to enable them to comply • Benefits for cross-border enforcement • NZSC has successfully used the IOSCO MOU in an insider trading case

23. Conclusion • Corruption & fraud undermine capital market integrity • Financial scandals have given impetus to IOSCO’s work • IOSCO works closely with other standard setters & international financial authorities • We aim to deter & detect corruption & fraud through cooperation • “To get through the hardest journey, we need to only take one step at a time ... but we must keep on stepping”

24. www.iosco.org Jane Diplock AO