Latin American Capital Markets

PROMOTING REGIONAL CAPITAL MARKET INTEGRATION 167regulation between jurisdictions; establishing a system of mutual reliance between regulatorsin a region; and creating a legal environment in which mutual recognition betweenregulators, and home country control, is accepted and enforced. Each of thesefour initiatives is progressively more ambitious than the last in terms of its anticipatedbenefits, and each has potentially more costs associated with it.Information SharingOne area where regulators have sought to cooperate at a regional level is in sharinginformation about both surveillance and enforcement actions against market participantsand in resolving crises in a market or at a particular firm. Information-sharingarrangements may be especially valuable in examining a firm or market that operatesin more than one jurisdiction.Typically, regulatory information-sharing arrangements do not have any formallegal backing; they are established via a memorandum of understanding (MOU) thatspecifies the types of information the participating regulators are willing to share andthe circumstances in which they will do so.The IOSCO has prepared guidelines on thetypes of core information that market authorities may need to obtain and should beprepared to share during periods of crisis in markets or firms (IOSCO 1997).However, the existence of an information-sharing MOU between regulatorsdoes not mean that appropriate information will actually be shared (Lee 1993).Theeffectiveness of MOUs in general, and of information sharing in particular, depends onthe extent to which the parties to such agreements are willing to work together Ifthe aims of the regulators are congruent, then both institutions are likely to complywith the agreementThe pursuit of fraud, for example, is likely to be a key goal of manyregulators. However, if the exchange of information would impinge on other objectivesof one or more of the regulators, the effectiveness of the MOU could be indoubt This may, for example, be a problem when there is competition between differentnational markets. A regulatory agency in one jurisdiction could believe thathanding over certain information to a regulatory agency in another jurisdiction mightharm the prospects of the financial center. In such circumstances, it is debatablewhether an MOU, if one had been signed, would make any difference as to whetherthe information were released by the first regulatorHarmonization and Mutual RelianceCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pubA conceptually simple way of reducing the costs that arise when jurisdictions have differentregulations—and when capital market participants operating across boundaries