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he International Organization of Securities Commission (IOSCO) announced through the Financial Services Authority (OJK) on Jan. 24 that Indonesia would become the 100th signatory country of the IOSCO Multilateral Memorandum of Understanding (MMoU) on Cooperation and Exchange of Information, better known as the IOSCO MMoU.

The IOSCO, headquartered in Madrid, was established in 1983, serves as the main interaction forum and international cooperation among capital market supervisors around the world. It now has 125 country members.

Indonesia itself became a member of the IOSCO back in 1984, then represented by the Capital Market and Financial Institutions Supervisory Agency (Bapepami-LK), the capital market regulator and predecessor to the OJK.

The IOSCO MMoU is a multiparty agreement initiated in 2002, the signatory countries have agreed to exchange information and cooperate in fighting cross-border capital market misconduct. Nevertheless, being a member of the IOSCO does not guarantee that a country will become a signatory country. In fact, it took Indonesia around 12 years (2002-2014) to become eligible. The selection process is carried out by a dedicated IOSCO verification team.

There were at least two major obstacles that Indonesia had to overcome to become eligible as a signatory country. First, Bapepam-LK, as the capital market regulator before 2013, did not comply with the requirement of having independent institutional status.

As many know, Bapepam-LK was previously under the supervision of the Finance Ministry. Independent institutional status is important because the institution needs to have full authority to exchange information and cooperate with the foreign capital market regulator to enforce cross-border capital market misconduct processes.

Second, Bapepam-LK did not have the authority to obtain banking records, especially for law enforcement purposes. Upon the issuance of Law No. 21/2011 on the OJK, as well as the start of the full-fledged operations of the OJK last month as the single regulator and supervisor of the whole financial service industry, including banking, Indonesia is believed to have fulfilled all the major requirements to sign the IOSCO MMoU. The establishment of the independent OJK has been seen as a huge step in regulatory reform in the Indonesian financial industry.

How important is this IOSCO MMoU? The answer to this question shall be observed from its implications on the development of the domestic capital market in Indonesia.

There are at least three implications here that can be identified: from the market player perspective (e.g.: broker/dealers, investment managers or underwriter), from the investor perspective (consumer protection) and from the capital market regulator perspective.

From the market player perspective, a growing demand for cross-border transactions, as a result of a more borderless world, has increased the risks of unlawful or shady transactions. Cooperation with foreign capital market regulators through the IOSCO MMoU will ensure that market players abide by the laws in carrying out cross-border transactions. There is no guarantee, of course.

Nevertheless, we can expect good results. According to data from IOSCO (iosco.org), the number of cross-border law enforcement on capital market misconduct has been increasing. Requests for assistance among capital market regulators around the world have risen significantly in eight years (2006-2012) to 2,374.

From the investor perspective, it is expected that capital market misconduct will be punished or brought to justice by the regulator, leading to a boost in investor confidence. For instance, capital market misconduct by illegal investment managers in other countries to deceive potential investors in Indonesia (e.g.: through telephone and/or email and/or online marketing), can now be detected earlier and dealt with quickly.

From the capital market regulator perspective, in this case, the OJK, being a signatory country of IOSCO MMoU shall open other doors for the financial services sector in Indonesia to actively engage in other international cooperation initiatives. Many major international cooperation initiatives first require a country to be a signatory country of the IOSCO MMoU, especially initiatives related to consumer protection, regional (ASEAN) and global (G20) financial stability.

We will see how effectively this deal is utilized by the Indonesian capital market regulator, in its role to protect consumers through better law enforcement in the capital market. It is also important highlight that the IOSCO will conduct a periodical review (yearly) to assess whether a country has put in maximum effort to implement the IOSCO MMoU. Otherwise, the IOSCO can out Indonesia from the IOSCO MMoU.