News

Insurance & Asset Management Update – January

Asset Management

IOSCO seeks to help regulators address retail market conduct risks during stress events

The International Organization of Securities Commissions (IOSCO) has published a report aiming to support regulators dealing with retail market conduct issues following stress events, such as the COVID-19 crisis. The report identifies several retail misconduct risks appearing in the financial services industry during the pandemic. The pandemic has increased the risk of misconduct, due to the increased market volatility, working from home, revenue pressure on firms (which might cause them to offer riskier products) and pressure on retail investors (which can be exploited). These risks are ranging from fraudulent or predatory practices by unlicensed operators to incidents of inadvertent misconduct by regulated entities.

Based on these observations, the report suggests a set of measures for regulators to use in responding to the pandemic, such as:

• Proactive monitoring of investor behavior;
• Supervisory scrutiny of firm behavior that might flag potential misconduct;
• Monitoring of return to normal and taking effective enforcement action;
• Addressing risks emerging from remote working and social distancing requirements.

COVID-19 and CCP Risk Management Frameworks

The Clearing Member Committee of the International Swaps and Derivatives Association (ISDA) has published a report analyzing the reaction of the risk management frameworks of central counterparties (CCPs) on the COVID-19 crisis. The report concludes that the CCPs were able to withstand the health crisis, and the subsequent volatility in the markets, as only a limited number of defaults was observed. However, the report also provides two recommendations for issues that were observed in the market:

• Calibrate anti-procyclicality tools to ensure less extreme margin increases following market volatility in the future and hence, limit the procyclical effect of margin calls.
• Increase the transparency of CCP models for clearing participations, to improve the predictability of margin requirements in stressed and more volatile markets.

IOSCO responds to IFRS consultation on sustainability reporting

In response to the IFRS Consultation on Sustainability Reporting, IOSCO supports the establishment of a Sustainability Standards Board (SSB). This new board would function under the IFRS foundation and help to promote a global system architecture for sustainability reporting. The increased robustness in this reporting process would support audit and assurance as well as enhance market’s trust in sustainability disclosures. IOSCO also stresses that the SSB should contain expertise which is different from traditional financial reporting expertise. IOSCO is committed to helping the potential SSB with the setup of a global and transparent framework which is applicable to different company types and sectors that are active within the capital markets.

Please contact Mark van Maaren or Bas van Oers for more information regarding regulatory compliance, CCP risk management frameworks or sustainability reporting.