The Research Department of the International Organization of Securities Commissions (IOSCO) today published a Staff Working Paper entitled Risk Outlook Survey: Detailed methodology and results 2015, which provides a detailed analysis of responses to its annual Risk Outlook Survey.
The views expressed in this Staff Working Paper are solely those of the IOSCO Research Department and do not necessarily reflect the views of IOSCO or its members.
The survey is an annual exercise formulated to collect the views of financial market regulators and experts globally on those risk areas that are of concern. This edition of the survey was conducted in March/April 2015. The main purpose of the survey is to gather views on risks to and within securities markets and to help identify or highlight pockets of risk that may not be captured by normal statistical analysis or desk research.
This is the fourth year that IOSCO Research has conducted this particular exercise. Unlike previous editions of the survey, the latest iteration expanded the line of questioning to include not only risks to financial stability, but also the risks to investor protection and to the fair, efficient and transparent operation of markets. The exercise now covers the three main objectives of IOSCO.
The focus on a broader range of risks is in line with the IOSCO mission and was identified as a key priority for Research in the recently published IOSCO’s Strategic Direction 2016 to 2020.
The report offers a synthesis of expert opinions. The main areas of concern highlighted by the report are:
- In the areas of financial stability, cyber-security threats to financial markets are now considered a prominent risk by respondents, while micro-prudential risks are clustered around the areas of corporate governance, financial risk disclosure, shadow-banking activities, harmful conduct especially, regulatory policy;
- Most respondents saw financial stability risks to the system either being transmitted or amplified by securities markets. Regarding the economy, respondents thought that banking vulnerabilities, housing markets and capital flow volatility would have considerable impact on the real economy if these risks materialised;
- In the area of investor protection, survey participants identified harmful conduct as the top risk; harmful behaviour by capital market participants damages the proper function of the capital market, harms the investing public and undermines public confidence and trust in capital markets;
- Market liquidity, especially that of secondary trading in bond markets, was considered by respondents to be the biggest challenge to fair and efficient markets– an interesting finding given that much of the recent global commentary has been about the systemic implications (not market efficient implications) of such a risk.
The full IOSCO report can be found here.