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From Securities Regulation Daily, March 28, 2017

Piwowar welcomes foreign regulators to annual securities market institute

By Jacquelyn Lumb

Acting Chair Michael Piwowar welcomed attendees to the SEC’s 27th International Institute for Securities Market Growth and Development and noted that robust capital markets lead to economic growth, which in turn can literally save lives. Economic growth reduces mortality and morbidity rates, he explained. The Institute brings together the SEC’s counterparts from around the world and provides a forum for the exchange of best practices in enforcement and regulatory approaches.

Lowering the cost of capital. Piwowar said the SEC’s mission as a capital markets regulator is to maintain the right equilibrium between those with capital and those in need of capital. It must facilitate capital formation while protecting investors. One important factor in making capital markets work is to lower the cost of capital for businesses and entrepreneurs. Piwowar then shared some thoughts on growing and developing capital markets.

In Piwowar’s view, the regulator’s primary role should be to ensure there is regulatory certainty and a level playing field, but not to substitute its judgment for that of the market. He noted that some of the most important innovations in the U.S. market have developed through exemptions from regulation. For example, staff no-action letters have given assurance to the industry that the SEC will not bring an enforcement action in response to certain conduct. Piwowar said the best practice is to rely on the industry to self-police, subject to appropriate oversight.

Importance of disclosure. Disclosure is the SEC’s most effective tool, according to Piwowar. The disclosure of material information to investors provides protection and lowers the cost of capital. He warned about the tendency to impose bank prudential regulations on capital market players, given that banks must minimize risk while capital markets allocate risk. The disclosure of material information provides market discipline that regulators cannot hope to achieve. He added that market-based prudential regulation would work for banks as well. Investors need to be able to assess the stability of banks and Piwowar said the disclosure regime that works for the capital markets would bring needed transparency to the banking system.

Enforcement. Piwowar noted the importance of enforcement, advising that nothing will drive investors from the capital markets faster than fraud. Economic studies have proved that appropriate enforcement actions facilitate capital market activity. He also emphasized the successes of international cooperation.

International cooperation. Piwowar mentioned in particular new amendments to the securities laws in Pakistan which allow its regulators to assist foreign authorities even if a potential violation in a foreign country does not violate the laws in Pakistan. He said this new comprehensive assistance goes beyond the minimum standards in IOSCO’s memorandum of understanding and serves as a model for other jurisdictions. The SEC extended a special invitation to Pakistan’s SEC to send 20 representatives to the Institute, he reported. The Institute includes sessions on how the SEC can use its investigatory powers to assist its foreign counterparts. Cooperation is a reciprocal matter, he explained.

Piwowar said the efforts by IOSCO members reflect a race to the top and have greatly benefited the capital markets and investors. The adoption of high quality regulatory standards and cooperative relationships creates what economists refer to as a virtuous circle, he advised. It creates a positive feedback loop in which everyone benefits.

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