IOSCO published a series of eleven good practices on processes for deference to assist regulatory authorities in mitigating the risk of unintended, regulatory-driven market fragmentation and to strengthen international cooperation. The aim of the good practices identified in the report is to help members in establishing and operating efficient deference processes. They are underpinned by the philosophy that deference processes should be outcomes-based, risk-sensitive, transparent, sufficiently flexible, and supported by strong cooperation. IOSCO drew on the experience of the EC and members of the Committee on Payments and Market Infrastructures (CPMI)-IOSCO to develop these good practices.
Over time, the use of deference between regulators has significantly increased, in parallel with enhanced cross-border capital flows. In June 2019, IOSCO published a report on market fragmentation and cross-border regulation, suggesting that it should identify good practices to enhance the processes for deference determinations further. The good practices identified in the report cover all phases of deference assessments—from the initial stages to the processes put in place once an assessment determination has been made. These practices focus on several key issues, including the following:
- Arrangements for ensuring transparency of deference processes, including the scope, steps, and criteria
- The criteria for making an outcomes-based assessment of the assessed authority and/or firm, including the nature of the supervisory and enforcement practices in the assessed jurisdiction
- Important factors such as the nature and degree of risks that entities from another jurisdiction may pose in their markets
- The level of engagement, cooperation, and communication between the assessing authority and the assessed authority and/or firm throughout the process and once deference has been granted
- Revocation of a deference determination
Keywords: International, Banking, Securities, Good Practices, Deference Processes, Cross-Border Activities, Market Fragmentation, Systemic Risk, IOSCO
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