IOSCO: Credible Deterrence in the Enforcement of Securities Regulation

The International Organisation of Securities Commissions (IOSCO) published a paper on the factors of Credible Deterrence in the Enforcement of Securities Regulation. The factors referred to in the paper highlight useful enforcement practices and powers adopted by various regulatory authorities around the world to promote and encourage credible deterrence of misconduct.

The paper reflects the collective experience and expertise of the member jurisdictions of IOSCO’s Committee 4 on Enforcement and the Exchange of Information.

The study of misconduct is relevant in light of the impact it has in securities and investment markets. Consumers, investors, capital markets, institutions, national economies and global financial systems are all impacted when the integrity of securities and investment markets are undermined by misconduct.

As defined in the paper: ‘ Deterrence is credible when would-be wrongdoers perceive that the risks of engaging in misconduct outweigh the rewards and when non-compliant attitudes and behaviours are discouraged. Deterrence occurs when persons who are contemplating engaging in misconduct are dissuaded from doing so because they have an expectation of detection and that detection will be rigorously investigated, vigorously prosecuted and punished with robust and proportionate sanctions’.

The task of regulators and supervisors is to develop and enforce strong regulation that holds individuals and entities accountable and deters misconduct, and in doing so, promotes public confidence in financial markets. Although the paper focuses on the enforcement programmes, it also recognizes that other regulatory activities, such as authorisation and supervision, also have a strategic function in deterring misconduct.

The enforcement scheme involves an effective sanctions regime, strong and resilient regulatory governance, comprehensive enforcement powers, and good regulatory practices such as timeliness of enforcement intervention and holding individuals and entities accountable.

The paper emphasises the difficulties faced by authorities when they take the compromise to guarantee, in absolute terms, that those who engage in misconduct will be detected, prosecuted and sanctioned, and will receive no personal benefit from their wrongdoing. Thence, there is no one-size-fits-all approach but whatever the regulatory model (twin peaks, integrated, industry-based or functional) and approach (risk, principles or rule- based) a common implied or explicit objective of enforcement programmes is credible deterrence.

The paper complements the IOSCO Objectives and Principles of Securities Regulation (IOSCO Principles), which set out a framework to achieve the objectives of regulation. It does not alter the Principles or the Methodology, which support the assessment of compliance with the Principles.


The paper is available here