Securities Regulators – Following the Pandemic and New IOSCO Workplan
Thursday, Dec 02, 2021

Securities Regulators – Following the Pandemic and New IOSCO Workplan

In this podcast, Jean-Paul Servais, Chair of the Belgian FSMA and Vice-Chair of the International Organization of Securities Commission (IOSCO) discusses the aftermath of the pandemic and what regulators should expect to face and should concentrate on. It was also an opportunity to discuss the 2021-22 IOSCO workplan and, most especially, its position and work on climate.


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Jean Lorrain: Hello everyone and welcome to this new Toronto Centre podcast. First, let me introduce myself. My name is Jean Lorrain, and I am the Securities Advisory Board Chair of the Toronto Centre. We have with us today, Mr. Jean-Paul Servais, who is the Chairman of the Belgium Financial Services Authority, which the acronyms is FSMA, it's better known as that. [00:00:30] He is also a Vice-Chair of the International Organization of Securities Commission or IOSCO, Chairman of the IFRS Monitoring Board, Co-Chair of the Monitoring Group and Chairman of the European Regional Committee. He's also a Board Member of several international supervisory bodies for the financial sector, such as ESMA on the security side in Europe and ESRB. He teaches [00:01:00] at ULB, Université Libre de Bruxelles and his other of numerous contribution in particular, in areas of relevance to FSMA. Jean-Paul, thank you for accepting our invitation to speak about the securities regulators situation in the current pandemic, about IOSCO's new work plan, and about important issues that the organization will be concentrating on in the coming months, so welcome again.

Jean-Paul:Thank You. And first of all, allow me to thank you, Jean, the Toronto Centre for your candid invitation. It's really a pleasure for me to be able to discuss with your members all around the world.

Jean Lorrain: Let's get it on. Broad question, but I'm sure that you will enjoy responding to that. The financial markets have been really greatly impacted by the pandemic, forcing regulators to adapt very substantially and rapidly to the situation. Remote supervision, remote meetings, doing supervision from home is a new trend around the world. That brings a lot of question. The pandemic is almost at the end or hopefully, at the end because of vaccination. What do you see [00:02:30] the regulators position right now? Is it in a good position? How will regulator after the pandemic? How will they react? How will they be doing their mandate or achieving their mandate? And do you see any big changes in the ways regulators will be set up and doing their job?

Jean-Paul: Personally, as human beings, but also in my capacity as Chair of a national supervisory body, but also as Vice-Chair for our organization. I see three main aspect after this very incredible experience, after one year with pandemic. And the three key message can be presented as follow, I would say, first of all, lessons to be learned, because there are also lessons to be learned from [00:03:30] us. Even if you are not speaking as such about a financial crisis, like with the subprime in 2008, 2009 and other financial crisis. This was not a financial crisis at the starting point, but of course there are also collateral damages and opportunities also for our job as supervisor. Second aspect, I would say, as Vice-Chair of a worldwide organization, I would say the world is a village. [00:04:00] That's what I think after one year. And last but not clear, you know the famous movies from the '80s Back to the Future, I would say no back to the future.

So the first lesson for me was a very impressive one as a CEO of National Competent Authority. I remember quite well the starting point of the change in organization. It was just after a board meeting in Madrid, [00:04:30] because headquarter of IOSCO was located in Spain. I realized that there was, I would say, a treat for not only for some jurisdiction far from Belgium, but for everybody. And then when I took back the plane to Belgium, I decided that we agreed to ask to our IT department to shift to a full-time teleworking system. Of course, like many other supervisor we already [00:05:00] offered, I would say before, I would say the crisis opportunity to do some, to some extent on teleworking, but it was quite limited. And frankly speaking, I have to confess that there was not a support of teleworker and maybe a guy who like a controlled freak management, and I had some difficulties to accept.

Well, I can tell you, in one weekend, Jean, we were able to shift to a fully-fledged teleworking system. We fought any problem of discontinuity. That was something for me, which was very amazing for me.

It means also for all my colleagues, my staff member, to have a very decentralized system, but at the same time with much more accountability, because teleworking means, of course, decentralization, but you must be very accountable because if you are not working very well, what will be the victim? [00:07:00] It will be your colleague, your friends, I would say also working at home required to do the job in your place.

And after one year, frankly speaking, with this experience of generalized teleworking, I think that we may consider that it's in fact an opportunity to simplify a number of processes by digitalizing them and adapting working matters. For instance, good, not surprised, but I think that the speed, the no capacity was very impressive or capacity to perform inspection no more on the field, but on a remote basis. So we are specialized in rule of conduct, for instance, answer the so-called MiFID rules at European level.

So it means that by definition, I would say what we need, it's documentation, quality, assessment of the quality of the internal control system for a bank in order to ensure [00:08:00] at arms-length dialogue between a prospect, John and Mary industry, possibility client and their bankers of their life intro. What I can tell you after one year, I think that I may consider that we are able to do. We didn't experience any pushback, any problem. The only one problem was from time to time, the capacity of some banks to send their files through the protection CIT system, in [00:08:30] order to protect themselves from cyber security attacks, so cyber-attack.

But at the end of the day, frankly speaking, the speed is sustained. We were able to deliver the same number of inspection on a yearly basis. And beside, I would say even more positive or capacity to manage data is very impressive. So we decide from years ago to engage many people with very high, I would say, highly [00:09:00] skilled people with PhD in economics, in law, in IT, Mathematics in order to accelerate or shift to a data mining system. Well, it works. I can tell you, we were able to check if we were facing in Belgium a game stop system, which is not the case. We were able to perform many challenging dialogue with UCITS, a fund manager in order to test the capacity to ensure sufficient liquidity in order to avoid suspension of compartment of asset. So no accident in Belgium, good news, but it's also due to our capacity to challenge on a day to day basis the liquidity management tool.

There were some expectation, question maybe from a more negative point of view, from other point of view of FSB members, Central Bank, Prudential, of our [00:10:30] capacity to deliver and to extract granular information. Do we know our market? We know that by definition as market and product supervisor, we are supervising very fragmented market. Even at national level, we can have thousand, hundreds of asset managers, which is I think, a more fragmented market than being a for instance, a Prudential supervisor for banks of insurance undertaking.

Well, I can tell you, after one year, we have been able to deliver on time and you see that in the press statement delivered in the meantime by the FSB, they recognized that IOSCO is the place to be for market infrastructure, CCP asset management. So there is a kind of, I would say, endorsement by the FSB of the capacity of IOSCO to deliver on time. There was also, I would say a very intense reflection, I would say during [00:11:30] the crisis, for instance, the fact that we decide to launch what we call FSSA, the financial stability engagement co-chaired by the French IMF and the US CFTC. It was also a good example of how to be agile in crisis situation, and then noted the challenge will be to shift to a more permanent, I would say, referred crisis exercise. And so also the way we organize [00:12:00] our work, let us be clear, also many, many bots, very frequently short bots about telematics, I would say, this is something new.

So that's my second point of my experience. The world is a village. Frankly speaking, my capacity for outreach is totally different. When I had the pleasure to give a conference, to be in a panel in Europe, it means one day [00:12:30] to go to Frankfurt and to go back to London, to Paris, and even more, of course, when I have the pleasure to be in the America, of in Asia, of in Africa, of in the middle east and so on. Now, I think my new world, it means less travels and more virtual meeting.

So it will be a series of lectures, but also for us to see, okay, do we need to travel again for all kinds of meetings we can have? Of course, we need to have a network because to be involved in enforcement, immediate capacity to have a network to understand each other. That's important, but from time to time, since the case in the business, for many people also working in the private sector, there are some more formal meeting. Do we need that? No, frankly speaking, we have to think about. And last comment if I may, Jean, I would say no back to the future. [00:14:00] So my late motive, my management style for my people in Belgium, I said, "Okay, when we will go back to our premises, we want go to the old world."

Let us be clear, it means for instance, in a small institution, like the FSMA in Belgium, it means two days at home and three days, I would say in our building.

And it means also that all the different department will have the same lifestyle, because we know what it means.

First of all, it means to be able to direct with your closed colleagues and friends, and then to see how we can shift to this new world. And the objective is not to go back to the world before, but to take them the opportunity. So it means in words, maybe a marketing side, I would say transforming the limitation caused by the crisis into opportunities. In fact, because just I think that the efficiency gains we are making by communicating more efficiently, reducing paper and less travel should not be lost, that also important. But last but not the least, it means also as a financial supervisor, how to be able to catch new, I would say fraud. We had to be much more active through campaigns against online investment fraud via Facebook and Google. That's also a new world of opportunities, challenges, risk, and dangers, so it's a comprehensive, I would say, mission statement.

Jean Lorrain: So I understand from your answer that you won't be coming back to the old ways of...

Jean-Paul: Absolutely.

Jean Lorrain: ... trying to regulate or supervise markets, and that you've experienced good outcomes from remote supervision. [00:16:00] In fact, using data mining and artificial intelligence, I imagine is part of your remit. Do you see the same thing happening elsewhere? Because Belgium, even though you consider yourself to be a small jurisdiction, you're a rich jurisdiction compared to many others. Do you see the same happening elsewhere? And just to qualify my question here a bit, I've heard some comments from colleagues from poor jurisdiction saying that they had issues with being able to rely on the quality of data that they were getting from market participants. So I'd like to hear you a bit about that.

Jean-Paul: Thanks for this question, which is a very important question, Jean. I wouldn't be realistic, or I would be too optimistic if I would say that the speed is the same in all jurisdiction. That is not the true as we know, but on the same time, frankly speaking, I have much more capacity to have contact with many colleagues from emerging countries than before. Many jurisdiction, not everybody, and of course it's something which is very different from one continent to another one, of course, but many [00:18:00] jurisdiction, many supervisor had, I would say a room dedicated to, I would say to video conference.

It was the case in Belgium. So I had this room for 10 years, but I can tell you no more than once a year, I had the pleasure to use this video conference. Now, it's every minute in my life. And it's also thanks to that, due to that, that I have the possibility to have many more contacts with people from all jurisdiction than before. It was much more easy to understand. I think that it's quite stupid to comment that will take you. But one of the challenges from many people in some conference call was to understand who was taking the floor because you know what it means our conference call with phones. Now, I wouldn't say that you have the capacity to see, to understand the body language of all people, [00:19:00] individual room, but it's not far from that. And then I see that I have many more meetings abroad, let us be clear, I am now speaking with you from, I would say a dedicated room to that.

So my universe is now a global universe. And that's the reason why I think that the famous expression, the world is a village. It's now the case. So it means that we are potentially much more international before, even if the FSMA is a good example of a supervisor involved on a very dynamic basis in all organization that we know IOSCO, ESMA, ESRB, but it's much more the case. And you see that the capacity to understand each other, to learn from other people is better than before.

And I think that there is no question for us to go back to the old world. We need to see that from a positive point of view, of course, the speed, it's not the same, let us be clear. And when we speak about the organizational lessons, but many changes will remain in place after the pandemic. And I think, frankly speaking, it's an opportunity for many emergent countries and of supervisor, I would say, active in emerging countries. You know the famous story? Many countries are jumping directly, I would say from an universe without a phone to a mobile phone. So the speed is faster in many emerging countries than in traditional jurisdiction. And that's what I expect about the capacity of all members of IOSCO. I see more inclusiveness due to this electronic. In a membership organization like IOSCO, that's for me something quite obvious that I would say this inclusiveness will be there and even faster than expected.

Jean Lorrain: Let's move on a bit here. It can be somewhat a bit related because there are a lot of issues that are related to the issue of the pandemic. We're just coming out of it, then IOSCO has been quite active during that period, as you said, and it has just released earlier this year a work plan for '21, '22, trying to address some of the issues that securities regulators are facing more intensely. One of those is all things relating to sustainability. I'd like to hear you a bit about what are the IOSCO plan on this issue, and most especially on one component of the issue, which is climate issues.

Jean-Paul: Well, allow me, Jean, first of all, to start with one statement, which is quite amazing, maybe for many of few members of the Toronto Centre members. First of all, there is a work program for two years. So, it means that we are able not only to communicate among our members and I would say we have a very broad membership. We are real, real global membership organization covering 95% of the supervision of financial markets at worldwide level.

But now, we are also able to tell that's outside what I call them and used to call the IOSCO ecosystem. So that's important about our accountability, explain what we are doing. Also, being able to explain why we didn't deliver on time. Why? Is that justified? And the fact that we are able to communicate about our expectation. It's also interesting also for, I would say, the financial actors being supervised by the IOSCO members to understand what we are doing and what we expect from them as supervise entity. That's finance.

Sustainable finance is indeed rightly stress an increasing challenge. This is one of the most important challenges. Is it a surprise? No, it's not a surprise. Let us be clear. I would say everybody knows that there is a political momentum. If I start with a continent, I know a little bit, and it means Europe, as you know, there is a consensus at European level, which is not by definition the case where when you know that I would say finding compromise and solution between 27 members state is by definition, never easy and much more difficult than between four or five member state, but that's the case.

And I think I strongly believe from a personal point of view that if there was no Brexit, that UK was also on board for this ambitious program due to the campaign, the statement made by Mark Carney at the time, the governor of the Central Bank of England. I am convinced that UK was also on the same line. So there is a consensus at European level, not only between member state, but also with European parliament, with the European commission, with the European Council of Minister of Finance, so the so-called and well-known three co-legislator European level. Europe has a very comprehensive, maybe if I may say that I think that it's quite difficult for me to tell you that because some people would say, "Well, it's not objective because he's based in Brussels, one of the capital of Europe."

But I think that many observer, I would say, are used to saying, especially outside Europe, that Europe has the most comprehensive framework about sustainable finance. That's one thing. Second aspect, there is also a political momentum. I think that there is a capacity to liaise with many Asian countries, many countries in the Americas, in the North America, for instance, Canada, but also know in the US with the new Biden administration. That's for the political momentum. The question is to see what would be the best approach, let us be clear. I think, Jean, that I may say that when we start the first discussion at IOSCO level, it was four years ago. I would say repeating always the same idea. And I think that as this time, my first name was not Jean-Paul, but Jean-Baptiste, I was a bit alone in the desert, let just be clear. I was used to saying what I think that who has to be in the first line for that. It must be IASB because IASB, have an experience of developing on our international way accounting standards.

The successful role must start 20 years ago. Of course, we know that IFRS standard are not implemented in all jurisdiction at all level, but I would say the scope of the activities is very impressive. We know that there are also [inaudible 00:27:46] and that I would say the quality of the implementation is not the same in all judgment, but there is, I would say an ecosystem applying the IFRS standard. So we need to work with that. They have experience, they have the capacity for outreach. They have the capacity to liaise with other standard set of specializing sustainable finance at domestic level, at regional level, at worldwide. So we need to require from IASB to take initiative.

Some of them didn't believe that, but I was repeating always the same stuff. And frankly speaking, no due to the fact that I have the pleasure and you're not to be the chair of the IFRS Monitoring Board, which is performing a kind of oversight, I would say with many members coming from the supervisor role, perhaps, I wouldn't say the day-to-day contact with the trustee supervising the IFRS Foundation, but a very frequent discussion with Erkki Liikanen, the former European commissioner, which is now chairing this trustee and they decide to take initiative. So first of all, they decide to launch a consultation. So good example of a powerful and successful decision making process with an interesting aspect relating to the quality of the due process. And then they decided very recently to start, I would say, a kind of copy and paste of IASB, ESSB, a new board, which will also be supervised by the IFRS Foundation in order to develop a sustainable finance standards, but not, I would say in a kind of Ivory Tower with a lot of bridges, a work stream with other stakeholders.

And that's very important because I would say, something which is rather unique in this ambitious challenge and very positive attitude is the fact that when we speak about sustainable finance, we are speaking about a demand-driven, sorry, program of objective. So the demand come from investor, not only from the so-called institutional investor, but also from John and Mary industry investing their savings. Most of the time in investment compliant with ESG factor. What I can tell you about the situation in Belgium. It's absolutely amazing, impressive to see the shift in two years. Now, I can tell you, I would say more than 50% of the net asset value of mutual funds distributed in Belgium are now compliant with what we call article eight and nine of the sustainable finance regulation at European level. So it means either fully-fledged compliant or not far from it.

It was not the case, let us be clear in two years. So the shift, the demand from investor is impressive. And what do they need this investor? They're not interested at all in having a 1000 different frameworks or flavors. It's already the case. They need the demands, I would say, the lobbying even is to be able to understand how it works ESG, I would say with one framework and if possible global. And that will be, I think the challenge, because we know that Europe has been able to develop, has been a pioneer in this matter. So the objective is to avoid any kind of competition, for instance, in Europe, between the European agenda and the worldwide agenda managed by IASB, IOSCO and now supported by the FSB, because it was also important to stage out at the end of March of this year, the FSB released a statement saying that they fully support the initiative taken by the IASB and endorse by, I would say, by IOSCO.

So you see, I would say align between all these initiative, FSB supporting IOSCO, also support supporting IASB. That's something quite unique. I would say in the story of development of supervision and the objective is to avoid any kind of competition, let us be clear. We all know that the speed, the scope of this activities is not necessarily to stay on all jurisdiction about social rights, about human rights. And I think the objective is to develop what I am used to calling a building broad approach.

So the objective of IASB supported by IOSCO is to be ready with the first prototype. That's the name we use, I would say in this agenda. Somewhere in 2022, more or less at the same time, the new technical standards up in level. So it means time flies, but let us be clear, we are all also, we are also financial supervisor. And so there is also what I call it a negative part, if I may say it. I call that like this, agenda is how to prevent and to fight if necessary against greenwashing, because if we are too flexible and if we would think that we can accept everybody on board, that could become a nightmare because we speak about trust.

And if I would say, investors are no more confident in the capacity of the industry, but also of the supervisor to check that all these financial products are really in line with ambitious ESG factor. That could be a really tricky issue because, it's part of our mission statement. It's also to have an added value about trust from our citizens and from the investor in the capacity of the financial system to sell appropriate products and to deliver financial services with a real added value for their client.

Jean Lorrain: So, if I hear you correctly, there seems to be a light at the end of the tunnel about this issue of sustainability within IOSCO and the international members that are looking at this issue. So there's hope certainly that will amend the criticism that has been put on IOSCO because of lagging on this issue. So hopefully, there's a solution at it. I wish to thank you very much Jean-Paul for participating in this podcast.

Jean-Paul: My pleasure.

Jean Lorrain: You've been very generous and your comments are certainly helpful to all the members of Toronto Centre. Thank you very much.

Jean-Paul: Thank you.

Jean Lorrain: I'll stop the recording. Jean-Paul?