IOSCO published a report titled “Credible Deterrence in the Enforcement of Securities Regulation.” The report outlines key enforcement factors that may deter misconduct in the international securities and investment markets.
The report, which was produced by the IOSCO Committee on Enforcement and the Exchange of Information, reflects the collective experience and expertise of IOSCO’s members.
The seven key elements for credible deterrence outlined in the report are as follows:
- legal certainty: consequences for misconduct must be certain and predictable;
- detecting misconduct: regulators must be well connected and obtain the right information;
- cooperation and collaboration: safe havens must be eliminated by teamwork;
- investigation and prosecution of misconduct: enforcement must be bold and resolute;
- sanctions: strong punishments must be meted out to wrongdoers to stymie attempts to profit from misconduct;
- public messaging: public understanding, transparency, and caution must be promoted; and
- regulatory governance: good governance is necessary to deliver better enforcement.
In addition to the seven key elements, the report outlines considerations for the regulators of emerging and fully developed markets regarding how they might integrate credible deterrence into new or existing enforcement strategies. The report also provides real examples of effective approaches to achieving deterrence.
Lofchie Comment: According to IOSCO, the best ways to prevent crime in the financial industry are (i) not to allow bad people into the financial industry, (ii) if any do get in and happen to do bad things, to catch them quickly and (iii) to punish those who do bad things severely but appropriately. One suspects that few regulators were surprised by these conclusions.
If anything of real interest appears in the IOSCO report, it is the statement that “Regulators can deter misconduct when they . . . enhance the quality of legal and regulatory frameworks to provide legal certainty” (at page 8). If this is true, and I am not sure that it is, it seems predicated on a good idea: that the essence of decent government is for the governed to know the rules to which they are subject, and for such rules not to be modified ex post to “catch” persons whom the regulators decide that they do not like. If there is one suggestion in the IOSCO Report to which I hope that U.S. regulators will attend, it is this: rules should be made as clear as possible; prohibitions and requirements that are imposed on a “facts-and-circumstances” basis should be found inherently troubling.