SEC, European Regulators Establish Supervisory Cooperation Arrangements Related to the Asset Management Industry

The Securities and Exchange Commission today announced that it has established supervisory arrangements with financial regulators of the member states of the European Union (EU) and the European Economic Area (EEA) as part of long-term strategy to improve the oversight of certain entities in the asset management industry that operate across national borders.  

The memoranda of understanding (MOUs) signed this week provide a framework for supervisory cooperation and exchange of information between SEC and the EU/EEA member state national regulators in the area of asset management.  These MOUs were negotiated between the SEC staff and staff of the European Securities and Markets Authority (ESMA).  ESMA negotiated the MOUs required under the EU Alternative Investment Fund Managers Directive on behalf of the EU/EEA member-states’ national regulators.  

The MOUs were concluded with 25 EU and 3 EEA member-state regulators.  The EU member-state regulators with whom the Commission signed MOUs are those from Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxemburg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Spain, Sweden and the United Kingdom. The EEA signatories to the MOUs are regulators from Iceland, Liechtenstein and Norway.

These supervisory cooperation arrangements will enhance SEC staff’s ability to share information about certain entities in the asset management industry, such as investment advisers and investment fund managers.  

“Supervisory cooperation arrangements help the SEC and its counterparts cooperate and consult with each other regarding our oversight activities in ways that may help prevent fraud in the long term or lessen the chances of future financial crises,” said Dr. Robert Fisher, Acting Director of the SEC’s Office of International Affairs.

The SEC’s approach to supervisory cooperation with its overseas counterparts follows on more than two decades of experience with cross-border cooperation, starting in the late 1980s with MOUs facilitating information sharing regarding enforcement matters.  The SEC’s enforcement cooperation arrangements — which now encompass partnerships with approximately 80 jurisdictions via bilateral MOUs and a Multilateral MOU under the auspices of the International Organization of Securities Commissions — detail procedures and mechanisms by which the SEC and its counterparts can collect and share investigatory information when there are suspicions of a violation of either jurisdiction’s securities laws.

The SEC’s supervisory cooperation arrangements, by contrast, establish mechanisms for continuous and ongoing consultation, cooperation, and the exchange of supervisory information related to the oversight of global firms and markets.  Such information may include routine supervisory information as well as the information that regulators need to monitor risk concentrations, identify emerging systemic risks, and better understand a globally-active regulated entity’s compliance culture.  These MOUs also facilitate the ability of the SEC and its counterparts to conduct on-site examinations of registered entities located outside the United States.

Although they are designed to achieve different objectives, enforcement and supervisory cooperation arrangements are complementary tools.  Supervisory cooperation involves ongoing sharing of information on day-to-day operations of regulated entities while enforcement cooperation helps the SEC collect information abroad to investigate potential violations of federal securities laws and to compensate securities fraud victims when possible.

The SEC entered into its first supervisory cooperation MOU in March 2006 with the United Kingdom’s Financial Services Authority. Following the financial crisis, SEC has expanded its emphasis on supervisory cooperation to better identify emerging risks to U.S. capital markets and the international financial system.  As part of this effort, SEC commissioners and staff co-chaired an international task force in 2010 to develop principles for cross-border supervisory cooperation.  These principles have since proven to be a useful guideline for structuring MOUs around the type of information to be shared, the mechanisms that regulators can use to share information, and the degree of confidentiality this information should be accorded.

Additional information about SEC cooperation arrangements with foreign regulators can be found at: http://www.sec.gov/about/offices/oia/oia_cooparrangements.shtml