On August 25, the U.S and Australian regulators agreed to allow brokers and exchanges to do business in each county while being regulated only by the their home country. This could start as early as January. For the United States Securities and Exchange Commission (SEC), this is seen as a step towards its goal of globalizing investing. This is the SEC’s first mutual recognition agreement with an overseas regulator as part of its campaign to become more international and improve the competitiveness of U.S. markets. The SEC is also in discussion with Canada and other countries to develop a process to discuss mutual recognition. The SEC and the Australian Securities and Investment Commission (SIC) have also agreed to increase cooperation on cross border enforcement and approved an agreement to step up cross border supervision of financial firms.
If this agreement is approved, it would be a first for the U.S. U.S. brokers and exchanges can seek relief from existing restrictions on doing business with institutional investors in Australia. Australian brokers and exchanges can seek the same relief on doing business with U.S. institutional clients. The exemption from dual-regulation would not be automatic and would still be subject to conditions from each country’s authorities. Previously, cross-border operators needed regulatory compliance with both the SEC and the SIC. Each country will retain jurisdiction to pursue violations of their respective anti-fraud laws and regulations.
An application for relief by an Australian broker or exchange will be subject to a public comment period and will not become final without a vote of approval by the five member SEC. It is expected that the procedure for U.S. brokers and exchanges seeking relief in Australia would be similar.
Retail investors in the U.S will be able to access the Australian market directly through the U.S. brokers and enjoy U.S. regulatory protection.
The lowering of the barriers is expected to benefit the two countries by increasing cross border capital flows and reducing transaction costs. The agreement will also enhance cross border law enforcement cooperation, facilitate regulatory coordination, and increase investor access to well regulated capital markets.
Critics point out that such an agreement is deregulatory and passes on the burden of protecting the U.S. investors to other countries that don’t answer to the U.S. The government must look at the breakdowns that led to the current credit crunch before opening up the market. There is also serious concern about allowing individual investors direct access to non-U.S. market through foreign brokers. It would preempt oversight from state laws and other regulatory vehicles.
Wall Street trade groups such as Securities Industry and Financial Markets Association have welcomed the agreement. Hopefully, this is the first of many such agreements that compare regulatory regimes and reduce barriers to investment for firms and individuals in the participating countries. The agreement is being hailed as a groundbreaking effort that will expand access to overseas markets without sacrificing investor protections.