Using information barriers
Other than decentralized approaches to regulation such as co-regulation, self regulation should also be considered in order to reduce the regulatory burdens. The work load of the regulators and to allow for more flexibility in reaching the desired outcome. The enormous increase in private capital flows to emerging markets over the past decades, as well as, the increasing diversity and sophistication of the means and instruments through which these flows are affected and the overall impact of this development in fostering more rapid growth and raising the standard of living of hundreds of millions of people around the world.
At the same time the, last decade has witnessed a number of severe crisis which forced the governments to think on more powerful, autonomous and vigilant regulatory frame work. There are clear signs that US public markets are loosing grounds to foreign and private markets; the causes of this decline and its impact on financial industries and the economy have to be found out.
For this the committee on capital markets regulation, a newly formed independent group of US business, Financial, investor and corporate governance, legal, accounting and academic leaders had been set up to suggest ways to improve the competitiveness of the US
At international levels regulatory harmonization is an important part of the steady integration of capital markets, which are fast becoming ‘one global market place’. The speed at which markets are coming together is unprecedented. Regulators and intermediaries are seeing the capital markets flatten before their very eyes. Efforts need to be put in to manage the flattening of markets:- For the benefits of investors and market participants. Securities regulators must address a wide range of challenges which include: ? Flattening of capital markets (especially cross borer activities related to outsourcing and compliance).
Management of conflicts by intermediaries (In particular, Using information barriers). In the current era, information and communication technologies are driving rapid are profound changes in the way the world economy functions. It includes outsourcing of core functions. According to Friedman, it is one of the ten primary forces that have flattened the world. A recent study predicted export revenues from India outsourcing industry will grow from $ 5. 2 billion US in 2005 to about $ 25 billion US in 2010 ;A fivefold increase.
Financial intermediaries are contributing to the trend because they too are outsourcing more activities as it helps them to improve efficiencies and reducing costs. But what are the risks to intermediaries, Investors and regulators? E. g. An intermediary’s control over an activity may be diluted when it is outsourced. A core principle is that regulators must require the intermediary to remain responsible for the outsourced function, as if it was being performed in house. There are certain principles which can help effective controls, business continuity, supervisory access and investor protection.
These include: First principle: Applies to functions that are outsourced on a cross border basis e. g. a rigorous due diligence process should be conducted when selecting an off-shore service provider. In global market place, the core principle is that the intermediary must retain legal liability and accountability to the regulator for all outsourced functions. Second principle as the complexity of market place increases, intermediaries know that it has become more challenging to meet their Compliance responsibilities.
Compliance principle meant to be flexible enough to adapt to the nature, scale and complexity of an intermediary’s after global operations. The Know -your- client requirement, Or KYC, is an increasingly important part of the compliance function. Where intermediaries operate across borders, the compliance function must assure adherence with applicable laws in each jurisdiction. if the function is split between personnel in two or more jurisdiction, then a clear delineation of responsibilities is necessary.