AMERC Quarterly Review A PUBLICATION OF AFRICA MIDDLE EAST REGIONAL COMMITTEE OF IOSCO 53rd Edition / January- March 2019 HIGHLIGHTS OF THE 43RD AFRICA MIDDLE EAST REGIONAL COMMITTEE MEETING 13 MAY 2019 SYDNEY, AUSTRALIA FOR AMERC PRIORITIZATION AND FOLLOW UP Dear AMERC Colleagues, Markets Authority, Saudi Arabia; Conseil du Marché I was delighted to chair the 43rd Africa Middle East Regional Financier, Tunisia; and Securities and Commodities Committee (AMERC) in Sydney, Australia on Monday, 13th Authority, United Arab Emirates. May 2019. e meeting took place within the 44th Annual e AMERC members were fortunate to engage with Chair of Meeting of the International Organization of Securities the Committee on Emerging Risks (CER) Mr. Paul Redman Commissions (IOSCO). On behalf of members, I wish to during the meeting. Mr. Redman articulately detailed the convey AMERC's appreciation to Chairman of the Australian process that is involved in development of the Risk Outlook, Securities and Investment Commission Mr. James Shipton, which is submitted to IOSCO Board for adoption annually in and IOSCO Secretary General Mr. Paul Andrews for putting October. Mr. Redman observed that seven Issue Notes were together a successful annual meeting. received from the IOSCO membership as a whole. Allow me to congratulate and also convey the commendation of IOSCO Discussion on Emerging Risks in AMERC Region Secretary General to the AMERC membership for providing e 43rd AMERC Meeting provided an opportunity for majority of the dra Issue Notes presently under members to reect on emerging risks, vulnerabilities and consideration by the CER. e submissions by AMERC trends in our region, which call for regulators' attention. e members speak volumes about the level of engagement deliberations took place within the context of the members are having within the Committee. Mr. Redman development of IOSCO's Risk Outlook for 2020. I note that conrmed that based on preliminary review of the seven Issue the Risk Outlook provides an important basis for determining Notes, there were continuing themes from the Risk Outlook in the Priorities and Work Plan of the IOSCO Board in 2020. 2018 and 2019. e continuing trends on risks observed are Input from the members is therefore critical in ensuring that on:- online distribution and product governance, crypto the work of IOSCO Board remains relevant to the realities we assets, rise of new technology which could alter how markets experience in our region. Members will recall that the IOSCO work such as articial intelligence and machine learning; and General Secretariat and I recently called for the submission of sustainability nance. New themes on emerging risks Issue Notes. Issue Notes are short descriptions of issues, observed include - market integrity and nancial stability, which detail the potential of a risk, trend or vulnerability to risks of macroeconomic dynamics and how they inuence interact with the objectives of each jurisdiction, the region investors' risk appetite, intersection of real estate and and IOSCO as a whole, with the possibility of impeding securities market and concerns that may arise from this, credit achievement of outcomes. A template of Issue Notes was default swaps trends and leveraged loan market. circulated to members and as at the date of the 43rd AMERC Members also had an opportunity to interact with Issue Notes meeting, we had provided three submissions from Capital from Saudi Arabia, United Arab Emirates and Tunisia in detail. Further, we shared experiences and insights on what we Editorial Board perceive to be the pressing risks members are grappling with in our respective jurisdictions. Mainly, members observed Luke Ombara Chairman that the decline in new listings, reduced liquidity, inadequate Anthony Mwangi Member transparency on transaction costs, overregulation, regulatory Leah Muli Member staff capacity to deal with emerging and complex products Viola Kilel Member and regulatory arbitrage by nancial conglomerates and crypto assets posed the greatest challenge in the region. Contents Privatisation, good corporate governance, supportive monetary policy, and better coordination among nancial AMERC Highlights Page 1 sector regulators through a 'twin-peaks' model were proposed as viable opportunities. e need to rely on data to inform AMERC News Page 4 Published by AMERC Secretariat: Capital Markets Authority Kenya, 3rd Floor Embankment Plaza, Upperhill, LongonotRoad. Nairobi, Kenya Tel: +254 20 2264900, Email: [email protected], Website: http://www.cma.or.ke Amerc Quarterly Review AMERC Highlights risks was also emphasised. could explore further. ese measures include ways to foster Given the extensive effort that CER has invested in mutual understanding between members, deepen existing considering input from regional committees in the design of regulatory and supervisory cooperation and help make the Risk Outlook 2020, I appeal to AMERC members to deference processes and the tools associated with this concept develop robust Issue Notes and submit the same to the more efficient. e IOSCO Board will discuss whether and Committee by 31st May 2019. is will ensure that IOSCO how to take the next steps forward given the Report is a G-20 Board's Priorities and Work Plan are aligned to respond to the deliverable, whether IOSCO can publish the Report and send context and realities in our region. it to the G20 Finance Ministers and Central Bank Governors ahead of their meeting on 8-9 June 2019. Key Matters for IOSCO Board Meeting in Sydney 4) Fintech - e Chair of the Fintech Network will Mr. Andrews updated AMERC members during the meeting, present the Network's rst output produced to date and to seek on the key issues that IOSCO Board would be considering on the IOSCO Board's decision/feedback on next steps. e 14th May 2019 and in particular, the input that would be Fintech Network's main purpose to date has been to facilitate required from AMERC representatives in their capacity as the sharing of information and expertise amongst its members of the IOSCO Board. Six matters were outlined for membership during conference calls, and to undertake discussion namely:- substantive work to bring important Fintech-related issues to 1) Margin requirements – Mr. Andrews informed the attention of the Board. With respect to the latter, the Board AMERC members that the IOSCO Board would consider an approved, in October 2018, four priority themes suggested by update on analyses and options proposed by the Working the Fintech Network Steering Group as initial areas of focus. Group on Margin Requirements (WGMR), on potential Each of these themes resourced work streams that have now adjustments to the margin requirements framework for non- produced their rst outputs. e outputs comprise four papers centrally cleared derivatives and their impact to the end user. on use cases of Distributed Ledger Technology (DLT), e Board would be expected to clarify whether it supported specically, World Bank bond issuance on a DLT network, any of the options highlighted by WGMR. ethics and trust in Articial Intelligence and Machine 2) Asset management leverage – the IOSCO Board Learning (AIML), Coding of regulations and machine- would also consider the use of leverage in investment funds in readable rulebooks RegTech and lessons learnt by members in a way that could support nancial stability, including encouraging Innovation. e Board will provide feedback on measurement of leverage across all funds and jurisdictions. publication of the reports. Committee 5 Chair will present ideas to the IOSCO Board on 5) Crypto assets – e Chair of Committee 2 will present how to tackle this issue, taking into account the expectations a paper on issues and risks related to crypto assets trading of Financial Stability Board. e key focus was noted to be platforms. Mr. Andrews noted that initial coin offerings had establishing consistent rather than identical arrangements decreased in popularity and prevalence. e IOSCO Board given the very distinct types of funds and uses of leverage. will consider a Consultation Paper for market participants 3) Market fragmentation – Mr. Andrews indicated that and the public clarifying how digital assets were traded and this was a key issue for the Group of 20 (G20) Presidency of valued. e purpose is to formulate a nal paper for Japan. He indicated that the IOSCO Board approved a submission to G-20 before the end of the year. mandate relating to market fragmentation in securities and 6) Sustainable Finance – Mr. Andrews acknowledged derivatives markets in December 2018. e IOSCO Board the GEMC and especially Malaysia and Argentina for their established a Follow-Up Group to the Cross-Border leadership in developing a Final Dra Report on Regulation Task Force (“FUG”) and tasked the Group to (i) Sustainability Finance and for coordinating with members of conduct a short survey of IOSCO Board members to the Sustainable Finance Network of IOSCO. He observed that understand where market fragmentation may have taken the Board would consider what the Network had been able to place within securities and OTC derivatives markets and (ii) achieve to date, as tackled by Work Stream 1. Work Stream 2 to identify any new developments in cross-border regulation will consider what other global leaders such as the United since the publication of the 2015 Report (dened below). Nations, have done and what securities market regulators can Beginning in January 2019, the FUG carried out its initial learn from those efforts such as the Principles for Responsible work and has prepared a dra report on Market Investment and Global Reporting Initiative Standards. e Fragmentation and Cross-Border Regulation (“2019 Board will consider whether IOSCO has a role to play and how Report”). In the 2019 Report, the FUG, among other things, to accomplish such a role if it does exist. highlighted potential measures that IOSCO and its members It is also important to note at this point that Committees 2 and Amerc Quarterly Review AMERC Highlights 8 are undertaking thematic reviews on two issues: - market of the Working Group on Listings with the CER to inform liquidity and investor education on crypto assets.