Adrian Whelan (AW): Why is the International Organization of Securities Commissions (IOSCO) best thought of as the ‘Basle Committee for Securities’?

Martin Moloney (MM): In one sense it is similar. IOSCO during the 1990s and the early 2000s rolled out a range of standards covering all the major areas of securities markets-related activi­ties. It is a critical part of what we do now that we keep those standards up-to-date and we adapt them to technological and financial innovation. That is a full-time job itself. But it’s not our only job.

Something we also do, which is not as much of a focus for other global standard setting bodies is that we provide capacity building support on a substantial scale to the securities regula­tors all over the world, in large and small jurisdictions and in developed and emerging markets. This is a huge commitment for us and it means that we are constantly working to help se­curities regulators communicate effectively with each other, learn the lessons of each other’s experiences and build a global cohort of securities regulators with a shared understanding of emerging risks and good regulatory practices.

In addition to that, a key part of our work in the last decade has been to deal with the consequences of non-bank financ­ing relentlessly moving towards eclipsing bank financing in the terms of influence in the global economy. That transition is far from complete, but it puts a huge focus on the impact of securi­ties markets on the resilience of the global financial system. A global financial system that can resist shocks like COVID-19 and the Global Financial Crisis of 2008-10 as well as lesser shocks like the taper tantrum is a must.

What we can’t have is that shocks within the financial system turn into depressions in the real economy. That would make the global economy far too vulnerable. There will, of course, be shocks to the financial markets. Everyone active in markets knows they are volatile. They can be driven by sentiment into sudden adjustments. Those sudden adjustments need to be able to happen without turning into damage to the real econ­omy. We work hard with the Financial Services Board to build policy frameworks which help to make the system more resil­ient. We do all of that from our headquarters in Madrid – not Basle – like other standard setters – and with the close engage­ment of our members from all around the world.

AW: What is your key ambition for IOSCO for 2022?

MM: 2022 is going to be a major turning point for the asset man­agement sector, if we are successful in what we plan for this year. Our ambition is to prove that we can generate global stan­dards related to sustainable finance issues that can be adopted across the world. We want to set a baseline for the industry and the markets meeting that urgent demand that is out there on the part of investors to be able to have a sustainable finance-focused investment mandate delivered on with confidence and transparency. A particular issue we will focus on is climate-relat­ed disclosure by primary market issuers. The new International Sustainability Standards Board, set up by the International Financial Reporting Standards, will develop the standard and IOSCO will go through a careful endorsement process to see if it is fit for purpose. On that basis, we would hope that in 2023 jurisdictions will look favourably on adopting this standard. If we are successful, this will be transformational for financial markets in terms of their ability to respond to insistent investor demand in this area.

AW: With ESG coming of age, has it reached maturity in terms of data transparency for investors and the information distributed by the asset management sector?

MM: We have done a lot of work in 2020 and 2021 looking at what is actually happening in markets in relation to both ESG data and ESG ratings on the one hand and, on the other hand, the risk of green washing by the asset management sector. In both cases we have found a lack of sufficient transparency for investors as to what is going on. In both cases, when we have looked behind that lack of transparency, we have identified points of concern in terms of the data being relied on, the resources and expertise be­ing applied and the risk management. This is not surprising.

The industry has tried to pivot very fast to changing investor de­mand and you can’t build a new ecosystem overnight. In 2022 we will push on to engage with the industry to get better at this. Where you can get good data, that is great. Where you cannot get good data you have to be open with your investors about the risks attaching to the data you can get. This industry relies on the trust and confidence of its clients. So, let’s work together in 2022 to re­ally nail this issue and ensure that the customers have confidence in all of us that we are doing everything possible to deliver sound sustainable finance-focused products.

AW: What do you think of the continued rise and rise of crypto? You seem very focused on Stablecoin?

MM: There is a sense in which both in relation to sustainable fi­nance and in relation to crypto, current trends are about altering that ecosystem of finance to be able to do new things. In one case this could be to deliver on new kinds of investor mandates and, in the other case, to be able to apply the full range of finan­cial management techniques to a new kind of asset.

Wherever crypto ends up, it is clear firstly that the technology of finance has been altered with this innovation and, secondly, that crypto has brought with it a very significant amount of investor harm – as well as huge benefits for those who got their timing right and avoided the various frauds. We in IOSCO have focused a lot of attention on stablecoins, because they are a key bridge between fiat currency payment systems and crypto. The integrity of payments systems is, arguably, even more important than the integrity of even financial markets themselves. So that focus has been correct.

A lot of the challenge here for regulators arises from the specific structures of a jurisdiction’s individual legal frameworks, which is not something we can alter at the global level at which IOSCO op­erates. But we do a lot of work behind the scenes helping mem­bers to share experiences and work out effective strategies to limit the harm. We have more to do in 2022 both on stablecoins and on wider trends in in crypto. Crypto is not going away.