Methodology For Assessing Implementation of the IOSCO Objectives and Principles of Securities Regulation INTERNATIONAL ORGANIZATION OF SECURITIES COMMISSIONS MAY 2017 Copies of publications are available from: The International Organization of Securities Commissions website www.iosco.org. © International Organization of Securities Commissions 2017. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated. ii TABLE OF CONTENTS – BOOK I1 A. Principles Relating to the Regulator .............................................................. 5 B. Principles for Self-Regulation ........................................................................ 5 C. Principles for the Enforcement of Securities Regulation ............................... 5 D. Principles for Cooperation in Regulation....................................................... 5 E. Principles for Issuers ...................................................................................... 6 F. Principles for Auditors, Credit Rating Agencies, and Other Information Service Providers ........................................................................................................ 6 G. Principles for Collective Investment Schemes............................................... 6 H. Principles for Market Intermediaries ............................................................. 6 I. Principles for Secondary and Other Markets ................................................. 7 J. Principles Relating to Clearing and Settlement ............................................. 7 I INTRODUCTION ...................................................................................... 8 A. Objectives of Securities Regulation ............................................................. 10 1. The Objectives .................................................................................... 10 2. Discussion of the Objectives .............................................................. 10 B. The Regulatory Environment ....................................................................... 12 C. Background of the Principles ....................................................................... 13 D. Purpose of Developing an Assessment Methodology.................................. 14 E. Scope of this Methodology and Intended Scope of Assessments ................ 15 F. The Assessment Process and Assessment Measures ................................... 15 II PRINCIPLE-BY-PRINCIPLE ANALYSIS ........................................... 20 A. Principles Relating to the Regulator ............................................................ 20 1. Preamble ............................................................................................. 20 2. Scope .................................................................................................. 21 3. Principles 1 through 8 ......................................................................... 22 B. Principle Relating to Self-Regulation .......................................................... 53 1. Preamble ............................................................................................. 53 2. Scope .................................................................................................. 53 1 Book II is a compilation of Annexes relating to the conduct of assessments prepared for IOSCO members. Book II is not publicly available on the IOSCO website. iii 3. Principle 9 ........................................................................................... 55 C. Principles Relating to Enforcement ............................................................. 63 1. Preamble ............................................................................................. 63 2. Scope .................................................................................................. 64 3. Principles 10 through 12 ..................................................................... 65 D. Principles Relating to Cooperation .............................................................. 80 1. Preamble ............................................................................................. 80 2. Scope .................................................................................................. 81 3. Principles 13 through 15 ..................................................................... 82 E. Principles Relating to Issuers ..................................................................... 100 1. Preamble ........................................................................................... 100 2. Scope ................................................................................................ 100 3. Principles 16 through 18 ................................................................... 104 F. Principles for Auditors, Credit Rating Agencies, and Other Information Service Providers ....................................................................................... 127 1. Preamble ........................................................................................... 127 2. Scope ................................................................................................ 128 3. Principles 19 through 23 ................................................................... 129 G. Principles Relating to Collective Investment Schemes and Hedge Funds . 150 1. Preamble ........................................................................................... 150 2. Scope ................................................................................................ 151 3. Principles 24 through 28 ................................................................... 155 H. Principles Relating to Market Intermediaries ............................................ 191 1. Preamble ........................................................................................... 191 2. Scope ................................................................................................ 192 3. Principles 29 through 32 ................................................................... 194 I. Principles Relating to Secondary and Other Markets ................................ 221 1. Preamble ........................................................................................... 221 2. Scope ................................................................................................ 223 3. Principles 33 through 37 ................................................................... 224 J. Principle Relating to Clearing and Settlement ........................................... 266 Appendix 1 – The Legal Framework ................................................................... 269 iv LIST OF PRINCIPLES A. PRINCIPLES RELATING TO THE REGULATOR 1. The responsibilities of the Regulator should be clear and objectively stated. 2. The Regulator should be operationally independent and accountable in the exercise of its functions and powers. 3. The Regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers. 4. The Regulator should adopt clear and consistent regulatory processes. 5. The staff of the Regulator should observe the highest professional standards, including appropriate standards of confidentiality. 6. The Regulator should have or contribute to a process to identify, monitor, mitigate and manage systemic risk, appropriate to its mandate. 7. The Regulator should have or contribute to a process to review the perimeter of regulation regularly. 8. The Regulator should seek to ensure that conflicts of interest and misalignment of incentives are avoided, eliminated, disclosed or otherwise managed. B. PRINCIPLES FOR SELF-REGULATION 9. Where the regulatory system makes use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, such SROs should be subject to the oversight of the Regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities. C. PRINCIPLES FOR THE ENFORCEMENT OF SECURITIES REGULATION 10. The Regulator should have comprehensive inspection, investigation and surveillance powers. 11. The Regulator should have comprehensive enforcement powers. 12. The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program. D. PRINCIPLES FOR COOPERATION IN REGULATION 13. The Regulator should have authority to share both public and non-public information with domestic and foreign counterparts. 14. Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts. 5 15. The regulatory system should allow for assistance to be provided to foreign Regulators who need to make inquiries in the discharge of their functions and exercise of their powers. E. PRINCIPLES FOR ISSUERS 16. There should be full, accurate and timely disclosure of financial results, risk and other information which is material to investors’ decisions. 17. Holders of securities in a company should be treated in a fair and equitable manner. 18. Accounting standards used by issuers to prepare financial statements should be of a high and internationally acceptable quality. F. PRINCIPLES FOR AUDITORS, CREDIT RATING AGENCIES, AND OTHER INFORMATION SERVICE