The International Monetary Fund's (IMF) Financial System Stability Assessment (FSSA), published in 2003, determined that while measurable progress had been made in the regulatory and institutional aspects of supervision of securities markets, the underlying legal framework was somewhat inadequate. In addition, the supervisory authority--the Securities Commission (CDVM)--lacked important inspection and enforcement powers. Supervision over the Casablanca Stock Exchange (CSE) and the Central Depository (Maroclear) was also weak. Finally, the IMF pointed out that the Ministry of Economy and Finance's influence over the CDVM undermined its operational independence. The World Bank launched a program in 2005 to address the outstanding legal issues to incorporate all International Organization of Securities Commissions' (IOSCO) Objectives and Principles of Securities Regulation. In the accompanying 2005 report, the World Bank asserted that the legal framework in the area of securities market regulation and supervision is "broadly in line with international standards." The World Bank partially attributed this to the adoption of six new laws as well as the CDVM's expanded authority over the CSE and Maroclear and the reinforcement of its surveillance and investigative powers. A greater range of penalties and sanctions for violations of regulations have also been established. A 2007 Working Paper by Tahari et al. indicates that there has been "continued convergence" of Moroccan financial regulation norms with international standards, as defined by IOSCO. The IMF's 2008 FSSA Update concludes that good progress has been made since the 2003 assessment with regards to the legal and regulatory framework. In July 2008, the Moroccan authorities announced several planned measures to strengthen financial sector supervision, including granting full independence to the CDVM, in line with the recommendations of the 2008 FSSA Update.

General Overview

In July 2003, the International Monetary Fund (IMF) conducted a Financial System Stability Assessment (FSSA) of Morocco, including an assessment of the country's observance of the International Organization of Securities Commissions' (IOSCO) Objectives and Principles of Securities Regulation. The FSSA is based on the work of the Financial Sector Assessment Program (FSAP) team, which visited Morocco during January-February and May 2002. The report found that measurable progress had been made in the regulatory and institutional aspects of supervision of securities markets, but cautioned that the underlying legal framework was somewhat inadequate, and should be subject to substantive improvement. The report noted that, in the years preceding the assessment, the supervisor--the Securities Commission (CDVM)--had issued a solid set of regulations for the capital market. However, the IMF identified major weaknesses regarding the capabilities of the CDVM. In particular the CDVM lacked "certain key inspection and enforcement powers, partially compromising the ultimate impact of its efforts to fully supervise the market" (p. 53). In addition, due to the lack of legislative harmonization, the supervisory authority of the CDVM over the Casablanca Stock Exchange (CSE) and the Central Depository (Maroclear) was weak. Finally, the IMF pointed out that the CDVM remained under the influence of the Ministry of Economy and Finance (MoF), and hence lacked full independence.

The Moroccan authorities welcomed the IMF assessment in 2003 and started implementing the IMF recommendations through a government financial sector reform program that is supported by the World Bank. In a 2005 report, the World Bank indicated that it had approved a Financial Sector Development Policy Loan to Morocco in order to "strengthen the enabling legal and institutional environment for financial intermediation and risk management, and to increase private sector role and participation in the provision of financial services" (p. i). The same report added that the legal framework in the area of securities market regulation and supervision was "broadly in line with international standards, especially following the recent adoption of six new laws" (p. 13). The World Bank program objective is therefore to address the outstanding legal issues to incorporate all IOSCO principles. According to the World Bank report, the authority of the CDVM has been expanded to include the CSE and the Maroclear, and its surveillance and investigative powers have been reinforced. A greater range of penalties and sanctions for violations of regulations have also been established. The World Bank noted that the CDVM's institutional status still prevented it from having full autonomy in budget execution. It was recommended that the staffing and technology capacities of the CDVM be further increased.

A 2007 Working Paper published by Amor Tahari et al. for the IMF indicates that financial market transparency has considerably improved through the "continued convergence of Moroccan financial regulation norms with international standards, as defined by the [IOSCO]" (p. 37). In October 2008, the IMF conducted an update of its FSSA, and concluded that good progress has been achieved in developing the capital market since the 2002 FSAP with regards to the legal and regulatory framework. The authority, mission and operations of the CDVM have been clarified through the adoption of the 2004 Decree No. 1-04-18, amending the Law on Stock Exchanges No. 1-93-211, as well as the approval in 2008 of the Stock Exchange General Statute. Furthermore, the CDVM's inspection and oversight powers over the CSE, the Maroclear, brokers, and other market operators have been strengthened. However, the IMF points out that "many of the powers granted are relatively new or are not fully operational" (p. 19). The CDVM needs to maintain a balance between accountability and independence. In July 2008, as reported in the IMF's 2008 Article IV Consultation report, the Moroccan authorities announced several planned measures to strengthen financial sector supervision, including granting full independence to the capital market regulatory authority, in line with the recommendations of the 2008 FSSA Update.

The CSE was founded in 1929, and re-launched as a private institution in 1993. The 2007 report by Tahari et al. indicates that the CSE is the largest stock exchange in the Maghreb region, and one of the largest in North Africa, with market capitalization at 98 percent of GDP in 2007. The securities market, however, remains concentrated and limited. The U.S. Department of Commerce's (DoC) 2009 Country Commercial Guide points out that approximately 30 percent of the CSE's total market capitalization is held by foreigners. The CSE prospered during the early 1990s, but suffered a long, severe bear market with a near collapse in liquidity from late 1998 through 2002, including markedly reduced trading volumes, a decline in listings to approximately 50 companies, and a reduction of market capitalization. The market recovered from 2003-2007, but weakened again in 2008, according to the U.S. DoC. At the end of 2008, the CDVM recommended that management of the CSE be dismissed amid strong rumors of insider dealing and market manipulation within the stock exchange.

The IOSCO multilateral memorandum of understanding (MMoU) is based on the thirty IOSCO Principles adopted in 1998 and the experience gathered by securities regulators in using bilateral Memoranda of Understanding (MoUs). The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU. Morocco's CDVM is a signatory to the MMoU and an ordinary member of IOSCO.

The Principles

1. The responsibilities of the regulator should be clear and objectively stated.

II

The CDVM was established in 1993, pursuant to Law on the Securities Commission No.1-93-212, as the supervisor for the securities market responsible for protecting investors. The CDVM ensures the application of disclosure laws and regulations for corporations. The MEF, on the other hand, is responsible for regulating the securities market, and must in particular approve the specifications of the CSE, the statutes of the Central Depository (Maroclear), and general regulations of both entities. The MEF is also responsible for licensing securities market intermediaries. The World Bank's 2005 report indicates that the authority of the CDVM has been expanded to include the CSE and Maroclear with an emphasis on ensuring their compliance with norms and operational rules. However, there is insufficient information publicly available addressing Morocco's compliance with this principle.

2. The regulator should be operationally independent and accountable in the exercise of its functions and powers.

II

The IMF's 2003 FSSA identified major weaknesses regarding the capabilities of the CDVM. Furthermore, the CDVM remained under the influence of the MEF, and hence lacked full independence. The World Bank's 2005 report reiterated that the CDVM's institutional status prevented it from having full autonomy in budget execution. According to the IMF's 2008 FSSA Update, the CDVM should maintain a balance between accountability and independence. In July 2008, as reported in the IMF's 2008 Article IV Consultation report, the Moroccan authorities announced several planned measures to strengthen financial sector supervision, including granting full independence to the capital market regulatory authority, in line with the recommendations of the 2008 FSSA Update.

Nevertheless, the available assessments do not explicitly address Morocco's compliance with this principle.

3. The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers.

II

The IMF's 2003 FSSA identified major weaknesses regarding the capabilities of the CDVM. The World Bank's 2005 report, as part of the financial sector reform program in Morocco, recommended increasing the staffing and technology capacities of the CDVM. The IMF's 2008 FSSA Update indicates that the authority, mission and operations of the CDVM have been clarified through the adoption of the 2004 Decree No. 1-04-18, amending the Law on Stock Exchanges No. 1-93-211, as well as the approval in 2008 of the Stock Exchange General Statute. Nevertheless, the available assessments do not explicitly address Morocco's compliance with this principle.

4. The regulator should adopt clear and consistent regulatory processes.

II

There is insufficient information publicly available addressing Morocco's compliance with this principle.

5. The staff of the regulator should observe the highest professional standards, including appropriate standards of confidentiality.

II

There is insufficient information publicly available addressing Morocco's compliance with this principle.

6. The regulatory regime should make appropriate use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, to the extent appropriate to the size and complexity of the markets.

NC

The regulatory regime in Morocco does not currently make use of self-regulatory organizations (SROs). The 2003 IMF assessment recommended undertaking "a thorough analysis of the possible delegation of the supervisory powers to self-regulatory bodies" (p. 54). SROs could possibly include the CSE, Maroclear, and other professional associations.

7. SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities.

NC

See Principle 6.

8. The regulator should have comprehensive inspection, investigation and surveillance powers.

II

The IMF's 2003 FSSA identified major weaknesses regarding the capabilities of the CDVM. In particular the CDVM lacked "certain key inspection and enforcement powers, partially compromising the ultimate impact of its efforts to fully supervise the market" (p. 53). In addition, due to the lack of legislative harmonization, the supervisory authority of the CDVM over the CSE and Maroclear was weak. The World Bank's 2005 report indicates that, as part of the financial sector reform program in Morocco, the authority of the CDVM has been expanded to include the CSE and Maroclear, and its surveillance and investigative powers have been reinforced. A greater range of penalties and sanctions for violations of regulations have also been established. The IMF's 2008 FSSA Update confirms that the CDVM's inspection and oversight powers over the CSE, Maroclear, brokers, and other market operators have been strengthened. However, the IMF points out that "many of the powers granted are relatively new or are not fully operational" (p. 19). Despite the information provided above, the available assessments do not explicitly address Morocco's compliance with this principle.

9. The regulator should have comprehensive enforcement powers.

II

See Principle 8.

10. The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program.

II

See Principle 8.

11. The regulator should have authority to share both public and non-public information with domestic and foreign counterparts.

EN

The 2003 IMF assessment identified a substantial gap of domestic coordination, despite the CDVM's ability to share information and collaborate with foreign regulators. The 2006 report by Oxford Analytica points out that, pursuant to the new Banking Law in 2006 (Decree No. 1-05-178 Promulgating the Law Related to the Establishment of Credit Institutions and Affiliated Organizations No. 34-03), the Commission for the Coordination of Institutions in Charge of the Financial Sector was established for the coordination of institutions in charge of financial sector supervision. The Commission is composed of the CDVM, the Central Bank of Morocco, and the Insurance and Social Welfare Directorate, established under the MEF.

The CDVM is a signatory to the MMoU, and an ordinary member of IOSCO. The IOSCO MMoU is based on the thirty IOSCO Principles adopted in 1998 and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU. Morocco has signed the IOSCO MMoU, implying that the IOSCO screening committee considered that the Moroccan legal framework complies with Principles 11, 12, and 13.

12. Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts.

EN

See Principle 11.

13. The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers.

EN

See Principle 11.

14. There should be full, timely and accurate disclosure of financial results and other information that is material to investors’ decisions.

II

According to Oxford Analytica's 2006 report, the 2006 Law on Credit Institutions has reinforced the role of the CDVM, enabling it to focus on the quality of data published by listed companies in Morocco. Furthermore, the 2007 report by Tahari et al. indicates that financial market transparency has considerably improved through the "continued convergence of Moroccan financial regulation norms with international standards, as defined by the [IOSCO]" (p. 37). Nevertheless, the available assessments do not explicitly address Morocco's compliance with this principle.

15. Holders of securities in a company should be treated in a fair and equitable manner.

II

A 2003 paper by the Middle East and North Africa Regional Corporate Governance Workshop states that provisions under company or securities law in Morocco provide for the protection of minority shareholders. The World Bank's 2005 report goes on to note that the protection of minority shareholders has been strengthened through the adoption of the 2004 Decree No. 1-04-21 Promulgating the Law Related to Public Offerings No. 26-03. In addition, the 2007 report by Tahari et al. indicates that corporate governance in the Maghreb region as a whole, and particularly in Morocco, has improved with respect to higher standards for managerial accountability and shareholders' rights. Nevertheless, the available assessments do not explicitly address Morocco's compliance with this principle.

16. Accounting and auditing standards should be of a high and internationally acceptable quality.

II

At the time of the World Bank's 2002 Report on the Observance of Standards and Codes on Accounting and Auditing, the CDVM did not enforce accounting requirements effectively due to the lack of necessary authority to oversee financial information, ineffective system of fines, inadequate information gathering system and human resources. The World Bank added that the Moroccan Generally Accepted Accounting Principles (GAAP) were conceptually different from the International Financial Reporting Standards (IFRSs). In line with the World Bank's recommendations, Moroccan authorities and other stakeholders developed an action plan to improve the financial reporting framework. Starting January 1, 2008, per the February 2009 update available from the Deloitte & Touche IAS Plus website, the 2004 Decree No. 1-04-18, amending the Law on Stock Exchanges No. 1-93-211 allows all companies listed on the CSE, other than banks and similar financial institutions, to choose between IFRSs and Moroccan GAAP. Despite the information provided above, the available assessments do not explicitly address Morocco's compliance with this principle.

17. The regulatory system should set standards for the eligibility and the regulation of those who wish to market or operate a collective investment scheme.

II

The 2003 IMF assessment recommended updating the mechanism for licensing mutual fund managers (OPCVMs) so that such authorization includes approval of the company and the individuals who will promote and manage the mutual fund product. The licenses should also not require prior approval by the MEF, and mutual fund management companies should handle both open-ended and closed-ended mutual funds. However, the assessment does not explicitly address Morocco's compliance with this principle.

18. The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets.

II

See Principle 17.

19. Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investor’s interest in the scheme.

II

See Principle 17.

20. Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme.

II

The 2003 IMF assessment recommended improving the valuation of certain assets held by OPCVMs. This is especially true for non-liquid securities as well as those for which recent market values cannot be established. Furthermore, a more frequent calculation of the net asset value of OPCVMs was urged by the IMF. However, the assessment does not explicitly address Morocco's compliance with this principle.

21. Regulation should provide for minimum entry standards for market intermediaries.

II

The 2003 IMF assessment recommended improving the licensing of market intermediaries via establishing entry conditions with clearer and more comprehensive eligibility criteria. In addition, the IMF recommended that individuals employed by brokerage firms be certified professionally. However, the assessment does not explicitly address Morocco's compliance with this principle.

22. There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake.

II

See Principle 22.

23. Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts primary responsibility for these matters.

II

See Principle 22.

24. There should be procedures for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk.

II

The IMF's 2003 FSSA recommended turning over the management of the guarantee fund for default of intermediaries from the CDVM to the CSE, or the market intermediaries themselves. However, the assessment does not explicitly address Morocco's compliance with this principle.

25. The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight.

II

The 2003 IMF assessment recommended that the CDVM be empowered to supervise the CSE's compliance with legal and regulatory provisions, especially those contained in its General Regulations. The World Bank's 2005 report indicates that the authority of the CDVM has been expanded to include the CSE and the Central Depository (Maroclear) with an emphasis on ensuring their compliance with norms and operational rules. Nevertheless, the available assessments do not directly address Morocco's compliance with this principle.

26. There should be ongoing regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants.

II

The 2003 IMF assessment recommended that the CDVM have the power to ensure that transactions are conducted in accordance with transparent and ethical rules and that the systems and technical means used in the secondary market are consistent with standards of security and fairness. However, the assessment does not explicitly address Morocco's compliance with this principle.

27. Regulation should promote transparency of trading.

II

See Principle 26.

28. Regulation should be designed to detect and deter manipulation and other unfair trading practices.

II

There is insufficient information publicly available addressing Morocco's compliance with this principle.

29. Regulation should aim to ensure the proper management of large exposures, default risk and market disruption.

II

There is insufficient information publicly available addressing Morocco's compliance with this principle.

30. Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk.

II

Following the introduction of a system for simultaneous delivery and payment of securities and a system to guarantee completion of transactions, the secondary market should be in compliance with IOSCO principles, states the IMF's 2003 FSSA. The key factor still outstanding is the CDVM's lack of supervisory power over institutions responsible for clearing and settlement. The IMF recommended that the CDVM be given powers "to verify the central depository's compliance with legal and regulatory provisions, particularly those contained in its General Regulations" (p. 56). As mentioned above, the World Bank's 2005 report indicates that the authority of the CDVM has been expanded to include the Central Depository, Maroclear with an emphasis on ensuring their compliance with norms and operational rules. However, the assessment does not explicitly address Morocco's compliance with this principle.