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Finance in a Changing World
Salzburg Global Fellow Randal K Quarles confirmed as member of US Federal Reserve board
Salzburg Global Fellow Randal K Quarles confirmed as member of US Federal Reserve board
Oscar Tollast 
Salzburg Global Fellow Randal K. Quarles has been confirmed by the U.S. Senate as a member of the Federal Reserve board. Quarles, 60, was nominated by President Donald Trump in July to serve as the Federal Reserve's vice chairman for supervision. Last week he won confirmation by a 65-32 vote in the Senate and became Trump's first confirmed Fed nominee. Quarles is also the first person to serve in the role and become part of a new approach to financial regulation, as highlighted by The Economist. Mr. Quarles previously worked in the Treasury Department under President George W. Bush between 2002 and 2006, serving first as assistant secretary for international affairs and then as under secretary for domestic finance. In 2014, he helped establish the Cynosure Group, a Salt Lake City-based company which makes long-term equity investments in private companies across a range of industries. Mr. Quarles has taken part in several programs at Salzburg Global. He first attended Schloss Leopoldskron in 2013 for Session 516 - Out of the Shadows: Regulation for the Non-Banking Financial Sector. The following year, he was a participant at Session 546 - The Future of Banking: Is There a Sustainable Business Model for Banks? He took part in his third Salzburg Global Forum on Finance in a Changing World in 2015 when he attended Session 552 - The Future of Financial Intermediation: Banking, Securities Markets, or Something New? His most recent appearance at the Forum, and Salzburg Global was in 2016 when he attended Session 563 - Financing the Global Economy: How Can Traditional and Non-Traditional Sources Be Integrated? The Salzburg Global Forum on Finance in a Changing World is an annual high-level program convened by Salzburg Global which addresses issues critical to the future of financial markets and global economy in the context of key global trends. 
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Report now online - Global Challenges, Regional Responses: How Can We Avoid Fragmentation in the Financial System?
Report now online - Global Challenges, Regional Responses: How Can We Avoid Fragmentation in the Financial System?
Aceel Kibbi 
The report of the Salzburg Global session Global Challenges, Regional Responses: How Can We Avoid Fragmentation in the Financial System? is now available to read, download and share. The 2017 session of the Salzburg Global Forum on Finance in a Changing World brought together  57 financial leaders from 19 countries across different sectors and regions to discuss emerging risks to the financial system and potential solutions; to review obstacles to global coordination and cooperation in the light of increasing fragmentation; to assess progress in implementing the regulatory reform agenda against the backdrop of ongoing realignment in the global economy; and to outline priority steps to strengthen the global financial system. The report, written by Silke Finken, Professor at the International School of Management in Munich, Germany, provides an executive summary of the discussions from the intensive two-day program. Also included is a list of all participants in attendance, the opening speech of the Session Co-Chair Ranjit Ajit Singh, Executive Chairman, Securities Commission Malaysia, and the remarks of Jerome Powell, Member of the Board of Governors, US Federal Reserve System.   
Download the report as a PDF The Salzburg Global session Global Challenges, Regional Responses: How Can We Avoid Fragmentation in the Financial System? is part of Salzburg Global’s long-running Salzburg Global Forum on Finance in a Changing World. More information can be found here: SalzburgGlobal.org/go/580
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Securities Commission Malaysia and ASIC sign agreement at Salzburg Global
Securities Commission Malaysia and ASIC sign agreement at Salzburg Global
Oscar Tollast 
Securities Commission Malaysia (SC) and the Australian Securities and Investments Commission (ASIC) marked the start of a new partnership with a signing ceremony at Salzburg Global. Both organizations have entered an Innovation Co-operation Agreement to encourage innovation in fintech services in their respective markets. Ranjit Ajit Singh, chairman of SC, and Greg Medcraft, chairman of ASIC, signed the agreement while attending the Salzburg Global Forum on Finance in a Changing World - Global Challenges, Regional Responses: How Can We Avoid Fragmentation in the Financial System? The signing event took place at Schloss Leopldskron.  In a media release, SC said both organizations would work closely to share information on emerging trends and regulatory issues in digital finance. They will also facilitate referrals of innovative businesses looking to operate in each other's jurisdictions and review potential joint innovation projects linked to the application of new technologies. Singh said, “Even as we continue to enable new forms of innovation in capital markets, we must not lose sight of the need to manage digital risks, by taking a strategic approach to risk management, recruiting digital talent and improving IT architectures. "This collaboration between SC and ASIC in the realm of digital finance will further strengthen the cooperative arrangements between Malaysia and Australia in capital market development and regulation." Medcraft sits on Salzburg Global's Board of Directors and chaired last year's Salzburg Forum on Global Finance in a Changing World - Financing the Global Economy: How Can Traditional and Non-Traditional Sources Be Integrated?   Commenting on the agreement, Medcraft said, "International cooperation on fintech is essential. This agreement will help local businesses grow beyond our borders, and improve our understanding of fintech in the region. We look forward to working more closely with our colleagues at the Malaysian Securities Commission." Singh was co-chair of the Salzburg Global Forum on Finance in a Changing World - Global Challenges, Regional Responses: How Can We Avoid Fragmentation in the Financial System?  This year's Forum explored the emerging risks facing global financial markets and the prospects for supporting economic growth in the future. Participants were asked to consider whether better systems to co-ordinate global financial regulation existed and the risks arising from the increasing fragmentation of markets. The Salzburg Global program Global Challenges, Regional Responses: How Can We Avoid Fragmentation in the Financial System? is part of the multi-year series Salzburg Global Forum on Finance in a Changing World. The session is hosted in partnership with Ernst & Young, HSBC, JP Morgan Chase & Co., Oliver Wyman and supported by Clearly Gottlieb, Davis Polk, Deutsche Bank, Buckley Sandler, The Cynosure Group, Dynex Capital Inc., and State Street. More information on the session can be found here: www.salzburgglobal.org/go/580 
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Ranjit Ajit Singh - Long-termism and sustainability must form the lynchpins of our economic philosophy
Ranjit Ajit Singh - Long-termism and sustainability must form the lynchpins of our economic philosophy
Ranjit Ajit Singh 
Below are the remarks of Ranjit Ajit Singh from his opening address at the 2017 session of the Salzburg Global Forum on Finance in a Changing World - Global Challenges, Regional Responses: How Can We Avoid Fragmentation in the Financial System? Mr. Stephen Salyer, President & Chief Executive Officer, Salzburg Global Seminar, Sylvie Matherat, my fellow co-chair of the seminar, distinguished participants, ladies and gentlemen, good morning. I am delighted to be here in the lovely location of Salzburg.   And as I stand here, I am reminded that the best test of any human construct or invention lies in its ability to adapt and remain relevant in the face of the only constant of this world – change. The Salzburg Global Seminar on Finance in a Changing World aims to do just that – to stimulate important conversations on major trends unfolding across today’s financial landscape, as well as the implications they bring, and the responses they necessitate, in this small but highly influential gathering of leading policymakers, regulators, market practitioners and experts in the global financial services sector.  I would like to take this opportunity to thank Stephen Salyer and Tatsiana Lintouskaya for their gracious invitation to be here today and convincing me to co-chair this very important event.  Fragmentation in today’s world  Ladies and gentlemen,  I would like to take some time this morning to offer a few of my observations on global developments and the impact of fragmentation on the financial system. While I do not profess to have solutions for the challenges that confront us, I hope that this will provide some perspectives in our conversations over the next two days.  The theme of this year’s Seminar is timely, as policymakers and regulators around the world respond to the impact of ongoing political and socioeconomic developments. In my view, there are several permutations to fragmentation that transcend economic, social and geographical boundaries.  Open and integrated financial markets are under threat from political and economic challenges stemming in part from growing backlash against globalization and calls for protectionism policies among many countries. The backlash stems partly from concerns of growing social fragmentation with growth not being evenly spread across the income spectrum, reflecting an increasingly widening inequality gap. Today, we live in a world where the richest 1% is said to own more wealth than the rest of the world population [1]. Globalization has also resulted in increased inequality within countries, which is particularly pronounced in some advanced economies of the world.   In contrast, one-third of all food produced for human consumption in the world (around 1.3 billion tons) is lost or wasted, with most wastage occurring in developed markets [2]. In terms of climate change, the share of national GDP at risk from climate change is expected to exceed USD1.5 trillion in 301 major cities (expected to account for two-thirds of the world’s GDP) around the world by 2025 [3]. There are also structural implications arising from technological progress and innovation on employment and job displacement, which are very real. While automation has the potential to increase productivity and economic growth, it also raises concerns on implications to jobs, skills, and wages.  Such developments, if taken to extreme, may even fragment the existing social order. Despite recent geopolitical outcomes, the pivot away from globalization that we see is very much a symptom of deeper rooted socioeconomic imbalances, rather than a root cause of its own. It has also been aggravated by the challenging external environment of heightened uncertainty, low growth and high debt and growing inequality. Ladies and gentlemen, The second aspect of fragmentation relates to economic fragmentation. We have been observing a realignment of global markets, in terms of the presence and significance of emerging markets within the global financial landscape. Emerging economies contribute nearly 60% of global GDP, as compared to 10 years ago when they accounted for only about 30% of global GDP [4].  Global population, in turn, is expected to reach over 9 billion by 2050 with the majority of this growth driven by emerging markets [5]. The significance of emerging markets was reinforced by the IMF Managing Director Christine Lagarde in a speech where she said – “Emerging and developing economies are home to 85% of the world’s population, and these 85% matter to the global economy more than ever, and they matter to you more than ever – because of strong linkages through trade, finance, economics, geopolitics, and personal connections that you experience every day” [6].  In shaping the global agenda, it is critical therefore to consider the heterogeneity of markets with varying economic and social dimensions, and are motivated by different needs. The agenda cannot be one that is premised on a one-size-fits-all model that is driven, and sometimes dictated, by advanced markets. Given the number and growing economic significance of emerging markets, there needs to be a more balanced debate on international regulatory reforms and better inclusion of these considerations in international policy formulation. Otherwise, we risk perpetuating this divide and fragmentation even further. Ladies and gentlemen The third aspect of fragmentation relates to an area close to what I do and that is regulatory fragmentation. The world’s capital markets currently make up more than half of global financial assets. Further, a corollary of the narrowing of traditional financing channels as banks adopt a more conservative lending appetite (in line with more stringent prudential requirements) is the greater reliance on capital market-based financing. Prudential regulation and financial stability issues, however, continue to dominate global policy regulation and often is not reflective of the significant role of capital markets in the overall financial system.  For example, there are instances where prudential regulations are being expanded to reach capital market and non-bank entities which by their nature are different from banks. There is also greater focus on issues relating to market regulation, which have traditionally been within the realm of securities regulators further creating duplication and potential fragmentation in regulation. To reflect the multiple dimensions of global financial regulation and to minimize these unintended consequences on capital markets, there needs to be concerted efforts to increase the representation of capital market regulators in international financial policy-making. Today capital market regulators (both from developed and emerging markets) are severely under-represented in the configuration of some international organizations at a time when market-based financing is increasingly growing.  New paradigms of globalization  The important question for policy makers, regulators, and market practitioners is not whether we should accept or reject globalization, but rather, how do we ensure that that global policy making and regulation leverage on each other and do not perpetuate fragmentation even further and impose undue costs and disruption to the market. As global finance interconnects us, there needs to be, as the Salzburg Global Forum in their efforts of Bridging Divides seeks to do, much greater emphasis placed on bridging the divides and creating greater links to financial development to minimize the risk of further polarization. There is also a need to redefine the paradigms of globalization and re-orientate our development philosophy towards more inclusive access to opportunities that transcend geographical and socio-economic boundaries Growth must be sustainable across generations and be able to support optimal quality of life for those living within the ecosystem. This includes strengthening the safety nets to ensure sustainability of our retirement systems against the backdrop of an aging population. Are the needs of the aging population being catered to and do they have opportunities for wealth creation through effective savings and pensions structures?  To ensure a meaningful response to many of these issues I described earlier, it is clear that long-termism and sustainability must form the lynchpins of our economic philosophy. This is a central theme as we contend with not only finite but depleting resources, as the forces of globalization impact inclusivity and social inequalities. Sustainable capitalism  Ladies and gentlemen, A healthy financial system is vital for the well-functioning of the global economy. It is however observed that finance has also gained a momentum of its own and has become somewhat detached from the real world of industry, manufacturing, services, agriculture, thereby outpacing growth in the real economy and distorting public’s trust and confidence in the financial system along the way.  In order to make finance work for the real world, rapid financial proliferation should be balanced with a more democratized financial system to meet the needs of diversified stakeholders across different segments of society. It cannot be solely anchored on small but influential segments of the economy, whether they be the more advanced markets, the larger companies and institutions or the wealthy and elite individuals.  One clear example is the disconnect between the traditional financial system and the younger generation, where structural inadequacies within the system have helped catalyze new forms of alternative financing and investments enabled by technology (crowdfunding, mobile payments, and investments etc.).   With its ability to provide long-term financing to encourage and sustain business activity, innovation, and infrastructure development, it is critical to have deep and interconnected capital markets that can safely and efficiently allocate investments needed to achieve these outcomes. Global challenges, such as climate change, require significant investments, with the World Economic Forum estimating that an additional investment of US$700 billion per annum is needed to provide for clean energy infrastructure, sustainable transport, energy efficiency and forestry [7]. Due to the sheer scale and duration of financing required, it is argued that capital markets have the appropriate mobilization and risk diversification capacity to fulfill this demand. Further, Islamic finance, based on principles of equitable and participatory growth with emphasis on risk sharing, can also play an increasingly pivotal role in promoting sustainable finance. As Islamic finance transactions need to be supported by genuine economic activities, it is also therefore firmly linked to the real economy.  Conclusion Ladies and gentlemen, Globalization in its current form is not a viable option, nor is fragmentation or permutations of it, the solution to the challenges we face. What is required is a common set of minds to shift the global ecosystem to make the economy and financial system more inclusive and sustainable for all. A world which incentivizes short-term maximization at the individual level over long-term optimization at the aggregate level is not a world that produces sustainable outcomes for the present as well as the future generation. We are at a critical juncture. As stewards of global finance, our actions - or even inaction - in the coming years will be a crucial determinant of the state of resilience and integrity of our economies.  I wish you a productive discussion in the days ahead. Thank you. References [1] Oxfam (January 2017), “An economy for the 99%”, Briefing paper[2] Food and Agriculture Organization of the United Nations (FAO)[3] Harvard Business Review, (2017), “If You Think Fighting Climate Change Will Be Expensive, Calculate the Cost of Letting It Happen”[4] Christine Lagarde, (4 February 2016), “The Role of Emerging Markets in a New Global Partnership for Growth”[5] United Nations Department of Economic and Social Affairs (2015), “World Population Prospects: The 2015 Revision”[6] Christine Lagarde, (4 February 2016), “The Role of Emerging Markets in a New Global Partnership for Growth”[7] World Economic Forum (2013), “The Green Investment Report: The ways and means to unlock private finance for green growth” Ranjit Ajit Singh, executive chairman of the Securities Commission (SC) Malaysia, was speaking at the opening day of Global Challenges, Regional Responses: How Can We Avoid Fragmentation in the Financial System?, the seventh session of the Salzburg Global Forum on Finance in a Changing World.
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Jerome Powell - We Must Be Vigilant Against New Banking Risks
Jerome Powell - We Must Be Vigilant Against New Banking Risks
Jerome Powell 
Below are the remarks of Jerome Powell on the opening panel of the 2017 session of the Salzburg Global Forum on Finance in a Changing World, Global Challenges, Regional Responses: How Can We Avoid Fragmentation in the Financial System? I appreciate the opportunity to speak at Salzburg Global Seminar. Today I will discuss our current regulatory regime, and areas where we may be able to make adjustments. As always, the views I express here are my own. We need a resilient, well-capitalized, well-regulated financial system that is strong enough to withstand even severe shocks and support economic growth by lending through the economic cycle. The Federal Reserve has approached the post-crisis regulatory and supervisory reforms with that outcome in mind. There is little doubt that the U.S. financial system is stronger today than it was a decade ago. Loss-absorbing capacity among banks is substantially higher as a result of both regulatory requirements and stress testing exercises. The banking industry, and the largest banking firms in particular, face far less liquidity risk than before the crisis. And progress in resolution planning by the largest firms has reduced the threat that their failure would pose. These efforts have made U.S. banking firms both more robust and more resolvable. Evidence overwhelmingly shows that financial crises can cause severe and lasting damage to the economy's productive capacity and growth potential. Post-crisis reforms to financial sector regulation and supervision have been designed to significantly reduce the likelihood and severity of future financial crises. We have sought to accomplish this goal in significant part by reducing both the probability of failure of a large banking firm and the consequences of such a failure were it to occur. As I mentioned, we have substantially increased the capital, liquidity, and other prudential requirements for large banking firms. These measures are not free. Higher capital requirements increase bank costs, and at least some of those costs will be passed along to bank customers and shareholders. But in the longer term, stronger prudential requirements for large banking firms will produce more sustainable credit availability and economic growth. Our objective should be to set capital and other prudential requirements for large banking firms at a level that protects financial stability and maximizes long-term, through-the-cycle credit availability and economic growth. To accomplish that goal, it is essential that we protect the core elements of these reforms for our most systemic firms in capital and liquidity, stress testing and resolution. With that in mind, I will highlight five key areas of focus for regulatory reform. The first is simplification and recalibation of regulation of small and medium-sized banks. We are working to build on the relief we have provided in the areas of call reports and exam cycles, by developing a proposal to simplify the generally applicable capital framework that applies to community banking organizations. The second area is resolution plans. The Fed and the Federal Deposit Insurance Corporation believe that it is worthwhile to consider extending the cycle for living will submissions from annual to once every two years, and focusing every other of these filings on key topics of interest and material changes from the prior full plan submission. We are also considering other changes, as I discussed last week when testifying to Congress. Third, the Federal Reserve is reassessing whether the Volcker rule implementing regulation most efficiently achieves its policy objectives, and we look forward to working with the other four Volcker rule agencies to find ways to improve that regulation. In our view, there is room for eliminating or relaxing aspects of the implementing regulation in ways that do not undermine the Volcker rule's main policy goals. Fourth, we will continue to enhance the transparency of stress testing and the Comprehensive Capital Analysis and Review (CCAR). We will soon seek public feedback concerning possible forms of enhanced disclosure, including a range of indicative loss rates predicted by the Federal Reserve's models for various loan and securities portfolios, and information about risk characteristics that contribute to the loss-estimate ranges. We will also provide more detail on the qualitative aspects of stress testing in next week's CCAR disclosure. Finally, the Federal Reserve is taking a fresh look at the enhanced supplementary leverage ratio. We believe that the leverage ratio is an important backstop to the risk-based capital framework, but that it is important to get the relative calibrations of the leverage ratio and the risk-based capital requirements right. U.S. banks today are as strong as any in the world. As we consider the progress that has been achieved in improving the resiliency and resolvability of our banking industry, it is important for us to look for ways to reduce unnecessary burden. We must also be vigilant against new risks that may develop. In all of our efforts, our goal is to establish a regulatory framework that helps ensure the resiliency of our financial system, the availability of credit, economic growth, and financial market efficiency. We look forward to working with our fellow regulatory agencies and with Congress to achieve these important goals. And finally, I would also like to note that work continues to address the risks identified with existing reference rates. Just last week, the Alternative Reference Rates Committee (ARRC) selected a new rate suitable for use with new derivative contracts. I am confident the broad Treasuries repo rate, which the Federal Reserve Bank of New York has proposed publishing in cooperation with the Office of Financial Research, is based on a deep and actively traded market and will be highly robust. With this choice, the ARRC has taken another step in addressing the risks involved with the LIBOR. Federal Reserve Governor Jerome Powell was speaking at the opening day of Global Challenges, Regional Responses: How Can We Avoid Fragmentation in the Financial System?, the seventh session of the Salzburg Global Forum on Finance in a Changing World.
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Global Challenges, Regional Responses - How Can We Avoid Fragmentation in the Financial System?
Global Challenges, Regional Responses - How Can We Avoid Fragmentation in the Financial System?
Nicole Bogart 
Nearly a decade after the financial crisis, much has been done to strengthen financial systems around the world; however, new signs of fragmentation are emerging. Global financial markets are facing weak economic growth prospects, low interest rates, diverging policy stances among major jurisdictions, and high levels of global debt. Although banking systems in advanced economies have been strengthened and recapitalized, adjustments to new regulations have altered banks’ business practices and affected fluidity in financial markets. Evidence of financial cutbacks, demonstrated by a sharp reduction in cross-border lending, has been seen in Europe, as some banks reduce their foreign exposure. Regulators will need to pay close attention to the cumulative effects of various reforms in order to limit any potential negative consequences for the real economy, whereas banks will need to take a longer-term view, tackling structural challenges and communicating their positive role in society. Starting Monday, June 26, Salzburg Global Seminar will convene a special group of senior leaders and rising specialists to address these emerging risks and explore potential solutions for an intensive two-day program, Global Challenges, Regional Responses: How Can We Avoid Fragmentation in the Financial System? This program is the seventh session of the Salzburg Global Forum on Finance in a Changing World, sponsored by Ernst & Young, HSBC, JP Morgan Chase & Co., and Oliver Wyman. The latest session in this series will be led by two co-chairs: Ranjit Ajit Singh, Executive Chairman, Securities Commission Malaysia, and Sylvie Matherat, Chief Regulatory Officer, Deutsche Bank AG. They will be joined by a group of 60 experts, including policymakers, regulators and supervisors, financial service firms, consultants, and academics from 19 countries, through the program which will include panel-led discussions, in-depth working groups, and an Oxford-style evening debate. During the intensive two-day program, participants will consider questions including: What are the emerging risks facing global financial markets and are we prepared for a structure response?What are the prospects for supporting economic growth in the future and how can central banks, policymakers, and the financial industry work together?Is there a better system to coordinate global financial regulation than the one we have now?What are the risks arising from the increasing fragmentation of markets? What are the implications of the fragmentation of the financial eco-system in Europe due to Brexit? Speaking ahead of the session, Salzburg Global Program Director Tatsiana Lintouskaya said: “The topic of this year’s Forum is extremely pertinent as there is an urgent need to tackle new challenges and risks mounting in global financial markets, to maintain the progress of post-crisis regulatory changes and advance international cooperation in order to avoid further fragmentation and regulatory divergence.” The Salzburg Global program Global Challenges, Regional Responses: How Can We Avoid Fragmentation in the Financial System? is part of the multi-year series Salzburg Global Forum on Finance in a Changing World. The session is hosted in partnership with Ernst & Young, HSBC, JP Morgan Chase & Co., Oliver Wyman and supported by Clearly Gottlieb, Davis Polk, Deutsche Bank, Buckley Sandler, The Cynosure Group, Dynex Capital Inc., and State Street. More information on the session can be found here: www.salzburgglobal.org/go/580 
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Salzburg Global Fellow appointed OECD Deputy Secretary-General
Salzburg Global Fellow appointed OECD Deputy Secretary-General
Oscar Tollast 
Salzburg Global Fellow Masamichi Kono has been appointed Deputy Secretary-General of the OECD. Kono, who will replace Rintaro Tamaki, will assist the OECD Secretary-General Angel Gurría by focusing on the strategic direction of OECD policy. Gurría, also a Salzburg Global Fellow after attending Session 523 - Restoring the Public's Trust: Delivering on Public Policy Goals, praised Kono for his broad experience and knowledge on international issues when announcing his appointment. Kono was a faculty member at Session 546 - The Future of Banking: Is There a Sustainable Business Model for Banks? in 2014. Kono and others met to discuss options and best practices for a sustainable financial architecture to meet the needs of the economy, shareholders, entrepreneurs and the public. Before this, Kono also attended Session 492 - Financial Regulation: Bridging Global Differences in 2012. This session brought together regulators, bankers, economists, lawyers and other experts from around the world to discuss trends in regulatory reforms in the US, Europe and Asia. Kono is a former Vice Minister for International Affairs of Japan’s Financial Services Agency (JFSA). He represented the JFSA on the Financial Stability Board between 2009 and 2016, chairing its Regional Consultative Group for Asia. He was also President of JFSA’s Global Financial Partnership Centre (GLOPAC). He also served as the Chairman of the Technical Committee of the International Organisation of Securities Commissions (IOSCO), and was Chairman of the IOSCO Board until 2013. In addition, he was Secretary of the Committee on Trade in Financial Services of the World Trade Organisation (WTO) between 1995 and 1999. Kono is no stranger to the OECD, having worked for four years in the OECD’s Economics Department at the beginning of his career.
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