Ensuring regional harmonization of financial regulations


Context

The regional harmonization of legislation and supervision should preferably be based on such international standards as the accounting recommendations of the International Accounting Standards Committee (IASC), the Business Conduct Principles and the recommended Capital Adequacy Standards for Securities Firms of the International Organization of Securities Commissions (IOSCO), the Basel Agreement on Capital Adequacy for Financial Institutions (signed under the auspices of the Bank for International Settlements) and the Directives of the European Union, naturally adapted to local circumstances. (For example, the minimum capital requirement for listing in small developing countries may be lower than in developed markets).

Implementation

IASC, in cooperation with national standard setting bodies and the European Commission, is working on greater compatibility of financial statements across countries through the harmonization of accounting standards. IASC has issued 31 standards dealing with most of the areas that affect the financial statements of corporations which issue securities in international capital markets. The Committee had aimed, by the end of 1992, to eliminate most of the choices of accounting treatment for similar transactions and events that are currently permitted by International Accounting Standards.

IOSCO's Business Conduct Principles prescribe the observance of such conduct in securities trading as honesty, fairness, diligence etc. The Capital Adequacy Standards for Securities Firms set a globally acceptable common framework for minimum requirements. The Basel Agreement (1987) which resulted in the creation of the consultative body of "Basel Committee", sets standards for all financial firms.

In Europe, the EEC/EU Directives played a key role in facilitating free and fair securities trading. As a consequence of the European Economic Area (EEA) Agreement, investors in any EEA country can purchase securities issued by corporations or by local/central government in any other EEA co un try. For issuers of securities, the enlargement of the capital market may entail adopting easier and cheaper ways to raise capital, on condition that investors receive reliable information about issuers, that they find these securities sufficiently liquid and that legislation is protective enough to avoid manipulations on the securities markets.

The European Union may have a more competitive and rationalized capital market at the turn of the century if all the directives are fully implemented. This process may however face opposition from the present fragmented and protected market actors who fear loss of activities. The example of Europe may be followed by developing countries with some reservation, given the different global economic position of the two.


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