IOSCO has set out its work program (PDF 315 KB) for 2021/2022. In addition to work on sustainable finance, passive investing and index trackers, fragmentation in the securities and derivatives markets, crypto-assets, artificial intelligence (AI) and machine learning (ML), and digitalisation in retail distribution, the program includes two new priorities:
The program includes both new policy proposals and monitoring of markets and the implementation of published principles and recommendations. All areas of the program will resonate with the asset and fund management industry, either directly or as participants in the capital markets. It heralds regional and national regulatory activity over the next couple of years. Sustainable finance and digital finance feature significantly, as do analyses of open-ended investment funds.
For further thoughts on these issues see KPMG's publications series, Financial Services: regulating the new reality.
Are we proactively and regularly revisiting the stress testing of our funds and service offerings, taking into account industry experience during the market stresses in March and April 2020?
Are we reviewing our liquidity risk management and valuation processes, and our use and calculation of leverage in open-ended funds?
Are we thinking innovatively about how to identify, measure and manage the risks arising from new technologies, including the use of new techniques and tools?
Are our corporate reporting and our company and fund-level disclosures on ESG consistent? And are we doing what we say we do?
Given the changing nature of products and services and how they are delivered, are we considering the end-investor, throughout the business and at all stages of a product lifecycle?
In addition to work on the corporate bond market, margin dynamics, corporate debt and leveraged finance, and data gathering:
Recognising the challenges posed to regulators and industry by lockdown measures and the expected continuation of large-scale remote working, and with a focus on investor protection issues, by 2022 IOSCO will issue three reports covering:
IOSCO's three focus areas are:
IOSCO will also explore international collaboration towards mandatory (rather than comply or explain) disclosures. It will engage with the IFRS Foundation on the proposed sustainability standards setting board and will advance discussions on an ESG assurance framework.
In mid-2021, IOSCO will report on the findings of its thematic review of the impact of the growth of passive investing on equity capital markets. It will provide an overview of the increase in passive investing and its drivers; examine the impacts, if any, of increased passive investing on market efficiency and corporate governance; and investigate the consequences of the interplay between passive and other types of funds for how investors collectively pay for efficient and effective equity markets.
By end-2021, IOSCO will report on the findings of its thematic review of conduct-related issues in relation to index providers. The review will explore issues related to the role of asset managers in relation to indices and index providers, and the role and processes of index providers in the provision of indices (including the potential impact of administrative errors on funds and identifying potential conflicts of interest that may exist at index providers in relation to funds).
IOSCO continues to explore how AI & ML is being used in capital markets and the risks that may be emerging from the use of these technologies. It is seeking to gain a better understanding of potential areas of risk where AI & ML is being used by market intermediaries and asset managers. It is expected to report in Q2 2021.
The rapid growth in digitalisation, especially via social media, has changed the way financial products are marketed and distributed, providing new opportunities for domestic and cross-border offerings. IOSCO is developing a set of policy measures to address and mitigate the risks posed by online cross-border marketing and distribution. The measures will also contain guidance on effective enforcement approaches. The final report will be published by end Q3 2021.
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