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By Ronald Fink
Foreign regulators would inspect US banks under a proposal released today by a group of international securities regulators. The idea is to help coordinate international regulation, the lack of which is seen as a significant obstacle to oversight of large, increasingly global banks' risk-taking efforts.
The proposal, contained in a report by the International Organization of Securities Commissioners, which includes the US Securities and Exchange Commission, sets out a wide array of measures that it recommends regulators take to ensure better cross-border regulation.
Among them is a recommendation that foreign regulators help oversee banks in other jurisdictions. IOSCO goes so far as to call for on-site visits by foreign bank regulators.
"IOSCO members should consider the benefits to the global financial system of permitting counterpart regulators from other jurisdictions to communicate with, obtain information or documents from, or (where permitted by law) even conduct on-site visits of, entities subject to regulation in one jurisdiction that are located in the territory of another," says the report, entitled "Principles Regarding Cross-Border Supervisory Cooperation.
The authors concede that the proposal is likely be controversial or at least highly impractical, in so far as legal obstacles reflecting issues of national sovereignty may arise.
"To help ensure that such access does not tread on important national sovereignty issues, the context for such regulatory access should be clarified," the report says. It says such a framework should be developed in a way that will not "prejudice the respective positions of regulators and their governments concerning the principles of international law which may be applicable to them with regards to procedures for obtaining information located in another jurisdiction."
Nonetheless, the authors insist that for supervisory cooperation to be effective, "provisions of local laws pertaining to confidential information should not impede the possibility of regulators sharing critical market-related information."
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