Creation of an Integrated Regulator or Supervisor—Security Regulator’s Perspective

During the past decade, a number of securities regulators in both developed and emerging markets have been merged into or reorganized as an integrated regulator or supervisor.39 That is, the securities regulator has become part of an organization with the broader mandate of regulating or supervising not only securities firms and markets but also other segments of the financial sector. Thus, securities regulators may now be merged with authorities responsible for banking supervision, insurance supervision, or both or may, in fact, have even broader authority over pensions or other forms of financial activity. The effect of this development on the effectiveness of securities regulation remains unclear. In particular, it is not yet clear whether an integrated supervisor promotes effective imple­mentation of the IOSCO core principles. Some of the fundamental objectives of securi­ties regulation—particularly market conduct and market integrity—are not identical to, and indeed may be inconsistent with, the objectives of other forms of regulatory supervi­sion. This situation may cause a conflict within the integrated supervisor. This possible conflict raises questions relating to whether sectoral integration of supervisory functions should be based on specific objectives of supervision and whether appropriate internal organization of an integrated supervisor could facilitate efficient resolution of conflicts, if any. See appendix F for further details.

From an assessor’s perspective, a number of factors are important to consider. What were the reasons that motivated the country authorities to establish a single regulator? Are they being achieved? Is the supervisor effectively monitoring risk transfers among dif­ferent financial firms in different sectors? Has the supervisor retained personnel and expe­rienced staff members from the securities regulator? Is the investor protection objective of securities regulation being achieved? For example, how would the integrated supervisor
handle a situation in which a financial intermediary in that country were to develop a significant problem? How would the supervisor protect investors in such a case?

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