Latin American Capital Markets

PROMOTING REGIONAL CAPITAL MARKET INTEGRATION 169and makes appropriate recommendations. The participating securities commissions ofthe other jurisdictions then agree that they will accept and rely on the recommendationsof the commission in the principal jurisdiction. It should be stressed, however,that in this mutual reliance framework, each participating regulator retains the ultimatepower and responsibility for regulatory decisions in its jurisdiction.A similar initiative in the European Union that has sought to enhance the harmonizationof regulatory regimes in different jurisdictions is the Forum of EuropeanSecurities Commissions (FESCO), a body composed of the regulatory authorities inthe European Economic Area. 5 It seeks to develop standards that complement thelegal framework established by the European Directives or that cover areas where noEuropean law exists. Each FESCO member is committed to implementing these standardsin its home jurisdiction. The key areas where FESCO hopes to contribute togreater regional cooperation are in surveillance and enforcementThe intended benefits of both the CSA and FESCO are similar They can reduceduplication of effort, free resources for other regulatory matters, enhance consistencyof analysis and decisions, and simplify and speed up regulatory rulings.Theyalso have the strength of the participation of all the regulators in their respective regions—includingsome that have traditionally been sensitive to issues of jurisdiction—and the flexibility to respond to local sensitivities.Both the CSA and FESCO face similar problems. Both work by consensus,which means that the harmonization of policies and rules takes a long time.The consensualprocess also means that individual jurisdictions may be able to insist on anticompetitiveharmonized rules in order to protect their national interests. Both bodieslack legal powers of enforcement, and their recommendations are not binding.The implementationof decisions in the different jurisdictions depends on the regulatorypowers granted to each respective regulator; and these differ widely. Other relevantareas of law and policy vary between local jurisdictions, and these can limit the effectivenessof the regulatory harmonization achieved. There is still a regulator in eachlocal or national jurisdiction in the region, which has to be paid for by market participants.Finally, and most importantly, harmonization is unnecessary if mutual recognitionand home country (or jurisdiction) control are implemented. This is because mutualrecognition and home country control mean that individual firms only have to complywith the single regulatory structure in their home country; thus, there is no needto lower the costs of having to comply with multiple regulators by harmonization.Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pubSee FESCO at http://www.europefesco.org/.