IOSCO launches se­cu­ri­ti­sa­tion reg­u­la­tion rec­om­men­da­tions

The Pak Banker - - Front Page -

MADRID

The In­ter­na­tional Or­ga­ni­za­tion of Se­cu­ri­ties Or­ga­ni­za­tions (IOSCO) has pub­lished to­day a fi­nal report on Global De­vel­op­ments in Se­cu­ri­ti­sa­tion Reg­u­la­tion, which pro­poses a se­ries of rec­om­men­da­tions aimed at en­sur­ing se­cu­ri­ti­sa­tion mar­kets de­velop, but on a sound and sus­tain­able ba­sis. When func­tion­ing prop­erly, se­cu­ri­ti­sa­tion is a valu­able fi­nanc­ing tool that con­trib­utes to eco­nomic growth and the ef­fi­cient di­ver­si­fi­ca­tion of risk. How­ever, the Global Fi­nan­cial Cri­sis is recog­nised as hav­ing dam­aged in­vestor in­ter­est and con­fi­dence in th­ese mar­kets. Since the out­break of the Cri­sis, global se­cu­ri­ti­sa­tion mar­kets ac­tiv­ity has suf­fered a sig­nif­i­cant down­turn. The Fi­nan­cial Sta­bil­ity Board (FSB) is in the process of re­view­ing re­forms of se­cu­ri­ti­sa­tion mar­kets, as part of its on­go­ing work for the G20 on the shadow bank­ing sec­tor. In this con­text, the FSB re­quested that IOSCO con­duct a stock-tak­ing ex­er­cise on cer­tain as­pects of se­cu­ri­ti­sa­tion, in­clud­ing risk re­ten­tion, trans­parency and stan­dard­i­s­a­tion, and de­velop pol­icy rec­om­men­da­tions as nec­es­sary.

The Fi­nal Report on se­cu­ri­ti­sa­tion builds on ear­lier IOSCO work aimed at sup­port­ing sus­tain­able growth of se­cu­ri­ti­sa­tion mar­kets, in­clud­ing a Round Ta­ble with in­dus­try par­tic­i­pants and re­sponses to a Con­sul­ta­tion Pa­per on Global De­vel­op­ments in Se­cu­ri­ti­za­tion Reg­u­la­tion, pub­lished in June 2012. IOSCO has worked on the premise that reg­u­la­tion can con­trib­ute to a restora­tion of con­fi­dence and trust by set­ting stan­dards mar­ket par­tic­i­pants must meet to ad­dress is­sues that sur­faced through the Cri­sis. Th­ese in­clude se­cu­ri­ti­sa­tion prac­tices and struc­tures that cre­ated mis­aligned or wrong in­cen­tives and en­cour­aged in­ad­e­quate risk man­age­ment prac­tices. IOSCO con­sid­ers that risk re­ten­tion re­quire­ments and en­hanced dis­clo­sure re­quire­ments have an im­por­tant role to play in ad­dress­ing th­ese is­sues.

IOSCO has an­a­lysed the var­i­ous stan- dards be­ing im­ple­mented, and has con­sid­ered the ex­tent to which dif­fer­ent ap­proaches to reg­u­la­tory re­form might re­sult in im­ped­i­ments to cross bor­der ac­tiv­ity. Based on this anal­y­sis, IOSCO iden­ti­fies in its report a se­ries of rec­om­men­da­tions for con­sid­er­a­tion by reg­u­la­tors and pol­icy mak­ers. The Fi­nal Report on se­cu­ri­ti­sa­tion builds on ear­lier IOSCO work aimed at sup­port­ing sus­tain­able growth of se­cu­ri­ti­sa­tion mar­kets, in­clud­ing a Round Ta­ble with in­dus­try par­tic­i­pants and re­sponses to a Con­sul­ta­tion Pa­per on Global De­vel­op­ments in Se­cu­ri­ti­za­tion Reg­u­la­tion, pub­lished in June 2012. IOSCO has worked on the premise that reg­u­la­tion can con­trib­ute to a restora­tion of con­fi­dence and trust by set­ting stan­dards mar­ket par­tic­i­pants must meet to ad­dress is­sues that sur­faced through the Cri­sis. Th­ese in­clude se­cu­ri­ti­sa­tion prac­tices and struc­tures that cre­ated mis­aligned or wrong in­cen­tives and en­cour­aged in­ad­e­quate risk man­age­ment prac­tices. IOSCO con­sid­ers that risk re­ten­tion re­quire­ments and en­hanced dis­clo­sure re­quire­ments have an im­por­tant role to play in ad­dress­ing th­ese is­sues.

Th­ese rec­om­men­da­tions cover a roadmap to­ward con­ver­gence and im­ple­men­ta­tion of ap­proaches to in­cen­tive align­ment, in par­tic­u­lar re­gard­ing risk re­ten­tion re­quire­ments. They build on re­cent de­vel­op­ments in stan­dard­ised tem- plates for as­set level dis­clo­sure and other dis­clo­sure-re­lated ini­tia­tives to as­sist in­formed in­vest­ment de­ci­sions. The report also sets out fur­ther is­sues for con­sid­er­a­tion to sup­port sound reg­u­la­tion of sus­tain­able se­cu­ri­ti­sa­tion mar­kets.

Risk re­ten­tion re­quire­ments bet­ter align the in­cen­tives of the sup­pli­ers of se­cu­ri­ti­sa­tion prod­ucts (e.g. orig­i­na­tors/spon­sors etc.) and, in par­tic­u­lar, in­vestors. En­hanced dis­clo­sure re­quire­ments about the un­der­ly­ing as­sets, flow of funds or wa­ter­fall and per­for­mance of se­cu­ri­ti­sa­tion struc­tures will help in­form in­vestors, and have the po­ten­tial to re-build in­vestor con­fi­dence in the se­cu­ri­ti­sa­tion mar­ket.

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