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INTERNATIONAL COUNCILS OF SECURITIES ASSOCIATIONS Communiqué of the 14th Annual General Meeting, 2001 Paris, France The International Councils of Securities Associations (ICSA) met on May 13-15, 2001, in Paris, France, to discuss, initiate and endorse actions affecting their respective capital markets and securities industries, with the goal of maximizing the benefits to investors and firms of technological change and globalization while also promoting the sound growth of the international financial market. Delegates welcomed the Australian Financial Markets Association (AFMA) as a new ICSA member. ICSA is now composed of 15 members representing the securities industry in 11 nations and accounting for the overwhelming majority of the world’s equity, bond and derivatives markets. ICSA members reviewed efforts they had made during the previous year to increase acceptance of the principles of regulatory decision making transparency that were adopted at last year’s annual meeting, specifically through discussions held with IOSCO’s Technical Committee. ICSA members remain strongly committed to encouraging increased transparency on the part of regulators as a means to enhance the growth of the international capital market. To that end, members agreed that ICSA should continue its work with IOSCO’s SRO Consultative Committee and other IOSCO committees as appropriate. ICSA members also agreed to report on progress made toward increased regulatory transparency in their respective jurisdictions and the European Community at next year's annual meeting. Delegates discussed the European Union’s Data Protection Directive and its potential impact on the capital market, which may be particularly disruptive if agreements on data transfer cannot be reached with non-EU governments in the near future. ICSA members recognize the importance of protecting consumers’ privacy, since the public’s trust and confidence is essential for the maintenance of healthy and vigorous financial markets. ICSA members also understand, however, that the public as a whole benefits from the stable functioning of the international financial system, which could be interrupted if cross border data flows were impeded. ICSA members believe that ways can be found to protect privacy rights without the introduction of barriers to cross border data flows. ICSA members also reviewed recent changes in the structure and organization of the European securities market, with particular emphasis on the clearing and settlement system. While recognizing that some efficiencies had already been gained through the reorganization of this sector, ICSA members noted that additional efforts need to be made in order to reduce the high cost of clearing and settlement in Europe. Delegates discussed a recent proposal by the Forum of European Securities Commissions (FESCO) concerning the regulation of alternative trading systems in the European Union. ICSA members believe that the development of alternative trading systems is a positive market development in the international market that is encouraging both increased liquidity and greater transparency in the price discovery process. Any new regulations, therefore, need to take account of the positive impact of these systems and neither inhibit the growth of new alternative trading systems nor impose undue burdens on existing ones. ICSA members reviewed current initiatives in the U.S. and Canada to reduce settlement time from T + 3 to T + 1 and recognized that the result would be reduced costs, lower risks, and enhanced investor confidence for that market. Several ICSA members also noted that in the area of cross-border trading and securities lending, the shortening of the settlement time to T + 1 in other markets will be more difficult to accomplish and may not achieve the same benefits as in the U.S. and Canada. Some members also noted that differences in institutional arrangements in their respective countries could preclude a rapid move toward shortening settlement time in those markets. ICSA members once again discussed the importance to global market stability of a legal and regulatory framework that would promote and recognize the enforceability of financial contract closeout, netting and set off rights. In that context, ICSA members discussed the Cross Product Master Agreement (CPMA) and noted that the CPMA is one important tool that may be used by market participants as a means to manage counter-party risk across different financial product types and widely used product specific master agreements. Delegates also discussed new developments in technology that are beginning to shift the paradigm of industry self-regulation from one heavily dependent on external surveillance to one where firms and markets are able to assume a larger share of the responsibility for routine self-monitoring. ICSA members welcomed this trend, and endorsed efforts by regulatory bodies to encourage industry self-compliance through appropriate rulemaking, consultation, and the provision of effective technology. ICSA members discussed a proposal to work toward a common international accreditation standard for traders and other professionals involved in the sales and trading of securities. Currently, national regulators and self-regulators set the terms for accreditation of these individuals. Such a practice derives from segmented national capital markets. In the current global setting, the current practice may lead to uneven standards across countries, inefficiencies due to the need for retesting, and reduced labor mobility. In light of these considerations, ICSA members welcomed the Lamfalussy report’s call for better training for European market participants and committed themselves to work toward helping to develop a global competency-based standard for market professionals. ICSA delegates reviewed recent developments in the international effort to provide greater legal certainty for securities held as collateral through multiple tiers of intermediaries. The key question in this area is which jurisdiction’s law applies to the proprietary effects of dealings in such indirectly-held securities. ICSA members strongly support the conclusion reached by a meeting of legal experts at the Hague Conference on Private International Law in January 2001. The legal experts concluded that the place of the relevant intermediary approach (PRIMA) is the appropriate conflict of laws rule for disposition of securities held through indirect holding systems. PRIMA is to be the basis of an international convention that is to be adopted in 2002. ICSA endorses PRIMA and supports the work of the Hague Conference on this project. ICSA members agreed to stress the importance of a speedy completion of the Convention with their respective national governments. ICSA members also discussed the OECD’s effort to build an international consensus on the taxation of international financial institutions under Article 7 of the OECD Model Tax Convention on Income and Capital. In particular, ICSA members considered the current requirement that global financial institutions allocate capital for tax purposes to their operations in each of the jurisdictions in which they operate. Delegates noted that the absence of an international consensus on this aspect of taxation is unsatisfactory and can lead to the double taxation of international financial institutions. ICSA members revisited the ongoing debate about the reform the international financial architecture, particularly calls from the official sector for increased private sector involvement in the resolution of financial crises in emerging market countries. ICSA members are pleased that the IMF and other official sector participants appear to have recognized that any attempt to make increased private sector involvement compulsory for private sector bondholders would be counter-productive, and also support the IMF’s decision to devote greater resources toward surveillance of emerging market economies and the international financial system. During the meeting ICSA members heard from Andre Icard, Deputy General Manager of the Bank for International Settlements, on recent financial market and international regulatory developments. Members also heard from Fabrice Demarigny, Secretary General of the Forum of European Securities Commissions, on progress towards harmonizing the regulatory environment in Europe. Finally, Tamara Adler, Managing Director of Deutsche Bank and chair of the European Securitisation Forum, spoke on the need for a more harmonized legal and regulatory framework in Europe for asset securitisation. During the meeting several critical areas were discussed in detail regarding efforts to promote an efficient, open and stable global financial market, including: Financial Privacy and the EU Adequacy Standard Multinational financial services companies and their partners continue to face a costly uncertainty due to the implementation of the EU Data Protection Directive (Directive 95/46/EC), which prohibits the transfer of personal data outside of the EU unless the data are subject to an “adequate” level of protection at their destination. Since the Directive has only recently taken effect and there is little official guidance on the subject, there remains considerable uncertainty about how the Directive will affect flows of personal financial data between financial institutions in the EU and elsewhere. As a result, investment and operational decisions by banks and non-bank financial institutions are affected by the risk of data stoppages as well as concern that firms might be required to hurriedly reconfigure their systems and revise customer and partner agreements. Prolonged uncertainty about the treatment of data flows between the EU and other countries does not serve the interests of individuals or business in the EU or elsewhere. ICSA members continue to believe that privacy regulations should be concerned with the efficacy of privacy protection when data are transmitted across international borders and with the preservation of individual rights, rather than with the specific form of protection arrangements. Accordingly, when considering appropriate means to protect privacy relevant authorities should also recognize protection by enforceable commercial contract or by group policies covering members of an affiliated commercial group. ICSA members also agreed that the European Commission should give full weight to the legislative and self-regulatory initiatives now well advanced in a number of countries in the rapidly evolving area of consumer privacy. OECD Taxation ICSA members discussed the OECD’s ongoing effort to build an international consensus on the taxation of international financial institutions, which could significantly ameliorate the double taxation problem and provide better symmetry across jurisdictions in the taxation of global financial institutions. Given the complexity of this issue and the importance of it to the industry, members encouraged the OECD to work closely with the financial services industry in determining its approach. Given the urgent need for a single internationally accepted method for attributing the actual capital of an enterprise in order to minimize the incidence of double taxation, members agreed specifically: 1. that individual ICSA members will submit detailed comments to the OECD on matters of specific concern to their own markets; and 2. that ICSA will serve as a forum through which members will continue to exchange views on the OECD process as it develops further. Standard Global Proficiency/Individual Accreditation In light of the problems associated with the current system of accreditation for traders and other professionals involved in the sales and trading of securities, the SRO Consultative Committee of IOSCO determined earlier this year that it would work toward a global standard for accreditation of traders, salespeople and other individuals involved in the sales and trading of securities. ICSA delegates strongly support this project, as such a standard would improve actual practice on a global level and increase both confidence in and stability of the international financial market. ICSA members committed themselves to advancing the development of a global proficiency standard by: 1. providing where possible a detailed description of the accreditation process in their respective countries to IOCSO, written in a manner that will facilitate cross country comparisons; and 2. establishing a working group of interested members to work on this project. Burden Sharing and the New International Financial Architecture Although the official sector appears to have scaled back previous calls for mandatory “burden sharing” by the capital markets private sector, official statements about private sector involvement in the resolution of financial crises in emerging market economies are extremely vague about the actual treatment that is envisioned for private sector bondholders. This reliance on “constructive ambiguity” leaves the door open for official efforts to force restructuring on private bondholders, which is not supported by ICSA in any shape or form. At the same time, deliberations of the Paris Club remain highly opaque, fostering the impression that the decisions made by this group of creditors will continue to be determined on a political as opposed to an economic basis. In response to these concerns, ICSA members strongly support efforts to make the policies and deliberations of the Paris Club more transparent. While ICSA notes that the Paris Club has recently taken steps toward increased transparency, such efforts need to be deepened and formalized. More broadly, ICSA members strongly endorse the improved dialogue between private and official creditors, which has resulted in increased awareness of the constraints facing both sides. In support of these objectives, ICSA members commit themselves to work more closely with official creditors, such as the IMF and the Paris Club, as well as the recently formed private sector Emerging Markets Creditors Association. ICSA 2002 Annual Meeting ICSA members agreed to hold an interim meeting in November of 2001. ICSA members also accepted the invitation of the International Banks and Securities Association of Australia and the Australian Financial Markets Association to hold next year’s Annual General Meeting in Sydney, Australia. The meeting will be held in March 18-21 of 2002. The members of ICSA are as follows: Association Francaise des Entreprises d’Investissement, France Attending as Observers: Association Professionnelle des Societes de Bourse, Morocco *ICSA Secretariat
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