The International Organization of Securities Commissions (IOSCO) has published a speech by Greg Medcraft, IOSCO Chairman, on the future of capital markets in a digital economy.
According to Mr. Medcraft, “digital disruption” (the impact on capital markets of rapid developments in digital technology) has enormous potential to reconfigure and radically improve the efficiency of global capital markets. In asserting this position he discusses:
- some of the changes that digital disruption is bringing to existing business models. Mr. Medcraft stated that businesses have seen the potential for new ways of directly creating and sharing value with investors and consumers, such as peer-to-peer lending, robo-financing, crowdfunding and digital currencies. However, many of these activities may not fit neatly within existing regulatory frameworks or policy. According to Mr. Medcraft the challenge will be to ensure that investor and consumer trust and confidence, and fair, orderly, transparent and efficient markets are continued to be upheld in the face of these developments;
- the potential that these developments have for capital markets, with particular reference to the emergence of block chain technology (the algorithm behind bitcoin that allows it to be traded without a centralised ledger). Mr. Medcraft sees four reasons why block chain technology has the potential to transform capital markets, namely: (i) efficiency and speed; (ii) disintermediation; (iii) reduced transaction costs; and (iv) improved market access; and
- how regulators might respond. Mr. Medcraft stated that regulators and policymakers need to balance harnessing the opportunities and the broader economic benefits of innovation and development, with the need to mitigate the risks those developments pose to their objectives.
In his speech, Mr. Medcraft explains that IOSCO has a key role to play in the digital area, especially in ensuring that there is a global strategy in place and that regulators cooperate to meet the challenge of addressing issues arising from cross-border transactions. Among other things, Mr. Medcraft outlines the following four priorities for IOSCO in its work plan for this year:
- identifying and understanding the risks flowing from digital disruption to business models;
- designing regulatory toolkits and responses that are flexible, creative, and provide incentives for financial technology innovation that drive growth without undermining investor and consumer trust and confidence;
- continuing to work with the Committee for Payments and Market Infrastructures to develop guidance that will help strengthen the cyber resilience of financial market intermediaries. IOSCO expects this guidance to be finalised in 2016; and
- continuing to work on enhancements to IOSCO’s Multilateral Memorandum of Understanding to deal with the new technological environment in which it operates.
View The future of capital markets in a digital economy, 16 September 2015