Latin American Capital Markets

376 A. M. CORCORAN, R B. HOBSON, G. J. KUSERK, K. K. WUERTZ, AND D. WESTFrom the perspective of both developing and mature markets, the use ofSROs can meet several objectives:• Expand regulatory resources• Enhance regulatory expertise• Provide the immediacy of frontline monitoring• Create a culture of acceptance of regulated markets and responsibility fororderly markets• Counterbalance excessive government intervention.Oversight, Expertise, and CoverageSpecialized KnowledgeSROs may offer considerable depth and expertise regarding market operations andpractices and may be able to respond more quickly and flexibly than the governmentauthority to changing market conditions.Industry MotivationSelf-policing systems and the general concept of self-regulation work because, whenthey are properly administered and governed, there should be a business incentive tooperate a fair; financially sound, and competitive marketplace. Reputation and competitionare powerful motivating forces for sustained proper behavior, especially intoday's global environment where market participants have virtually immediate, 24-hour access to a range of competing markets and products. Reputation risk also motivatesgovernment regulators.The ability to share the responsibility for oversight canreduce this risk by making the market as well as the regulator accountable for its fairoperation. Incorporating self-regulation into the regulatory framework can result inbetter regulation by supplementing and enforcing the statutory regulator Self-regulationtakes advantage of entities directly involved in the regulated activity that havemore detailed knowledge of its operational or technical aspects. Making use of selfregulatorswith statutory responsibilities to oversee markets and industry professionalsis akin to requiring firms to have supervisory programs and internal controls. Itmakes the industry responsible for itself, which can be a powerful factor in jurisdictionswhere stakeholders complain of self-regulatory failures.Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub