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Tag: IOSCO

  • IOSCO reviews effects of storage warehouses on price formation

    IOSCO reviews effects of storage warehouses on price formation

    The International Organization of Securities Commissions (IOSCO) has launched a research into the potential effects of storage infrastructure on the integrity of the price formation process of commodity derivatives in member jurisdictions.

    IOSCO is asking its members to respond to the questionnaire and to encourage other relevant entities in their jurisdictions-storage and market infrastructure providers, market participants and end users, to do so as well. There are no restrictions on who can answer the questionnaire.

    IOSCO believes that the questionnaire is a fundamental part of its work in this area, as it will inform its thinking going forward.

    IOSCO had recently also set up a work agenda to strengthen and foster the roles of capital markets as trusted sources of capital with a view to encouraging greater use of capital markets as financing channels for transactions.

    The board of IOSCO, which met recently in Madrid, discussed progress on a number of key initiatives to support the G20-FSB efforts to restore stability in the global financial system and build economic growth.

    The board, which included Nigeria’s Securities and Exchange Commission (SEC), also looked into methodologies for identifying non-bank global systemically important financial institutions or activities in the areas of asset management and market intermediaries.

    IOSCO also discussed the role capital markets and securities regulators can play in supporting long-term finance, including infrastructure investment and small and medium enterprises (SME )financing.

    The meeting also considered the implementation of IOSCO Principles on Financial Benchmarks, the IOSCO Principles for Oil Price Reporting Agencies and the IOSCO Principles for the Regulation and Supervision of Commodity Derivatives Markets.

     

     

     

     

     

    Chairman, International Organization of Securities Commissions (IOSCO), Greg Medcraft said capital markets are emerging as a key source of the finance needed across the globe to drive economic growth.

    “Through a work agenda focused on fostering markets as a trusted source of capital, IOSCO is playing an important role in supporting that growth,” Medcraft noted.

    The IOSCO board also discussed audit quality and important initiatives to build confidence in global securities markets and to reduce the reliance of asset managers and market intermediaries on credit ratings as well as promote effective credible deterrence as a key element in improving investor protection and confidence in markets.

    Members discussed the results of the IOSCO research department´s latest market survey on market trends, which emphasizes the growing leverage in securities markets, the impact of cross-border capital flows on emerging markets, financial risk disclosure, collateral management, and potential counterparty risk in central clearing houses.

    Board members also examined policy measures aimed at building capacity in emerging markets and supporting the creation of strong regulatory frameworks for sustaining growth in both emerging and developed markets.

     

     

  • IOSCO intensifies efforts to strengthen capital markets

    The International Organization of Securities Commissions (IOSCO) has set up a work agenda to strengthen and foster the roles of capital markets as trusted sources of capital with a view to encouraging greater use of capital markets as financing channels for transactions.

    The board of IOSCO, which met in Madrid, discussed progress on a number of key initiatives to support the G20-FSB efforts to restore stability in the global financial system and build economic growth.

    The board, which included Nigeria’s Securities and Exchange Commission (SEC), also looked into methodologies for identifying non-bank global systemically important financial institutions or activities in the areas of asset management and market intermediaries.

    IOSCO also discussed the role capital markets and securities regulators can play in supporting long-term finance, including infrastructure investment and small and medium enterprises (SME )financing.

    The meeting also considered the implementation of IOSCO Principles on Financial Benchmarks, the IOSCO Principles for Oil Price Reporting Agencies and the IOSCO Principles for the Regulation and Supervision of Commodity Derivatives Markets.

    Chairman, International Organization of Securities Commissions (IOSCO), Greg Medcraft said capital markets are emerging as a key source of the finance needed across the globe to drive economic growth.

    “Through a work agenda focused on fostering markets as a trusted source of capital, IOSCO is playing an important role in supporting that growth,” Medcraft noted.

    The IOSCO board also discussed audit quality and important initiatives to build confidence in global securities markets and to reduce the reliance of asset managers and market intermediaries on credit ratings as well as promote effective credible deterrence as a key element in improving investor protection and confidence in markets.

    Members discussed the results of the IOSCO research department´s latest market survey on market trends, which emphasizes the growing leverage in securities markets, the impact of cross-border capital flows on emerging markets, financial risk disclosure, collateral management, and potential counterparty risk in central clearing houses.

    Board members also examined policy measures aimed at building capacity in emerging markets and supporting the creation of strong regulatory frameworks for sustaining growth in both emerging and developed markets.

     

     

    The meeting also discussed possible capacity building projects and agreed to a proposal for a one-off fee from permanent Board members next year to start off the program.

    IOSCO also agreed to move forward on an IOSCO Global Certificate Programme for securities regulators.

    The meeting was preceded by a round table attended by the board and four external experts on corporate governance from the financial industry and academia. Participants discussed the need for regulators to work towards restoring the social legitimacy of financial institutions, as a key step to safer financial markets and renewed trust in the financial system. The discussion highlighted the benefits to IOSCO and its members of co-operation and engagement with its members and industry.

    In another related development, the Comisión Nacional de Valores of Argentina became the 103rd signatory of the Multilateral Memorandum of Understanding on cooperation and exchange of information, during a signing ceremony in Madrid.

    IOSCO is the leading international policy forum for securities regulators and is recognised as the global standard setter for securities regulation.  The organization’s membership regulates more than 95 per cent of the world’s securities markets in 115 jurisdictions and its membership continues to expand.

    Nigeria is a member of the board of IOSCO, the governing and standard-setting organ of IOSCO. IOSCO board consists of 32 securities regulators including securities regulatory authorities of Argentina, Australia, Belgium, Brazil, Chile, China, France, Germany, Hong Kong, India, Italy, Japan, Korea, Malaysia, Mexico, Morocco, the Netherlands, Ontario, Pakistan, Portugal, Quebec, Romania, Singapore, South Africa, Spain, Switzerland, Trinidad and Tobago, United Kingdom and the United States.

  • IOSCO reviews reliance on credit rating agencies

    IOSCO reviews reliance on credit rating agencies

    The International Organization of Securities Commissions is reviewing the extent to which asset managers, investors and other parties should rely on credit rating agencies (CRAs) in their asset management.

    The global body of securities regulators has published a consultation report on Good Practices on Reducing Reliance on Credit Rating Agencies (CRAs) in asset management with the aim of gathering the views and practices of investment managers, institutional investors and other interested parties on the subject.

    It will subsequently develop a set of good practices on reducing over reliance on external credit rating in the asset management space.

    IOSCO noted that CRAs play a prominent role in today’s global financial markets pointing out that while approaches may differ across jurisdictions, investment managers often use the services of CRAs to form an opinion on the creditworthiness of a particular issuer before purchasing securities, selecting counterparties, or choosing the best collateral to secure transactions.

    It added that investors often refer to CRA ratings before buying shares of a fund, or when guiding investment managers on the basis of a tailored investment mandate.

    IOSCO pointed out that the role of CRAs has come under regulatory scrutiny, mainly as a result of the over-reliance of market participants, including investment managers and institutional investors, on CRA ratings in their assessments of both financial instruments and issuers in the run-up to the 2007-2008 financial crisis.

    According to IOSCO, the good practices that result the consultation paper will be addressed to national regulators, investment managers, and investors, where applicable while IOSCO has also launched a separate project to identify the good practices of intermediaries with regard to the use of alternatives to credit ratings to assess creditworthiness.

    The report stresses the importance for asset managers to have the appropriate expertise and processes in place to assess and manage the credit risk associated with their investment decisions. Recognizing the utility of external ratings, the report mentions that they can be used as an input among others to complement a manager’s internal credit analysis and provide an independent opinion as to the quality of the portfolio constituents. However, in order to avoid the over-reliance on external ratings, the report lists some possible good practices that managers may consider when resorting to external ratings.

    Some of the good practices undergoing consultation include that investment managers make their own determinations as to the credit quality of a financial instrument before investing and throughout the holding period. While external credit ratings may form one element, among others, of the internal assessment process but it should not constitute the sole factor supporting the credit analysis.

    Also, there should be an internal assessment process that is commensurate with the type and proportion of debt instruments the investment manager may invest in, and a brief summary description of which is made available to investors, as appropriate.

  • Commission mulls five-year strategic plan

    Commission mulls five-year strategic plan

    The International Organisation of Securities Commissions (IOSCO) is developing a strategic plan that will cover between 2015 and 2020.

    IOSCO is the leading international policy forum for securities regulators and is recognised as the global standard setter for securities regulation.  The organisation’s membership regulates more than 95 per cent of the world’s securities markets in more than 115 jurisdictions. Nigeria is a member of the 32-member board of IOSCO.

    The global body is undertaking a review to develop the strategic plan, which will define the outcomes IOSCO wants to achieve by 2020; develop a strategic plan for IOSCO and the IOSCO secretariat to achieve those outcomes and determine funding and resourcing needs of the IOSCO secretariat to implement the strategic plan and annual business plans.

    The review will also develop a financing plan to meet the funding and resourcing needs.

    IOSCO said that it is seeking inputs from key stakeholders to benchmark IOSCO’s performance against its Strategic Plan for 2010 to 2015 and stakeholders’ engagement with the IOSCO General Secretariat and other forms of contact with IOSCO.

    The review will also look at the key challenges, which will impact regulated markets and activities and the role of IOSCO in addressing these challenges over the next five years.

    Members of the IOSCO Board are the securities regulatory authorities of Argentina, Australia, Belgium, Brazil, Chile, China, France, Germany, Hong Kong, India, Italy, Japan, Korea, Malaysia, Mexico, Morocco, the Netherlands, Nigeria, Ontario, Pakistan, Portugal, Quebec, Romania, Saudi Arabia, Singapore, South Africa, Spain, Switzerland, Trinidad and Tobago, United Kingdom and the United States.

    The Growth and Emerging Markets Committee, with Nigeria as a member, is the largest committee within IOSCO, representing 75 per cent of the IOSCO membership. Mr. Ranjit Ajit Singh, Chairman, Securities Commission, Malaysia, and Vice Chair of the IOSCO Board, is the Chair of the GEM. The Committee endeavors to promote the development and greater efficiency of emerging securities and futures markets by establishing principles and minimum standards, providing training programs and technical assistance for members and facilitating the exchange of information and transfer of technology and expertise.

  • IOSCO consults on investor education, financial literacy

    The International Organization of Securities Commissions (IOSCO) is developing a strategic framework for investor education and financial literacy, which describes IOSCO’s role in promoting investor education and financial literacy and its strategic approach to both.

    IOSCO yesterday published a consultation report on the strategic framework, seeking inputs from all stakeholders. IOSCO is the leading international policy forum for securities regulators and is recognized as the global standard setter for securities regulation.  The organization’s membership regulates more than 95 per cent of the world’s securities markets in more than 115 jurisdictions

    IOSCO stated that it has long recognised investor education as a key strategy for enhancing investor protection, promoting investor confidence and fostering investor engagement in financial planning and decision-making.

    “Investor education is complementary to the traditional tools of regulation, supervision and enforcement, and is included in IOSCO´s Principles for securities regulation. The organization believes the need for investor education and financial literacy has never been greater than today,” IOSCO stated.

    According to the global body of securities regulators, as the financial marketplace continues to evolve and innovate, investment products are becoming increasingly complex and financial services increasingly diverse.

    It noted that greater understanding of key financial concepts is required on the part of retail investors to understand and evaluate the choices available to them and to avoid financial fraud adding that strengthening investor education and financial literacy programmes also is essential at a time when responsibility for saving and investing for retirement is shifting from the employer to the individual in many jurisdictions.

  • IOSCO prepares new code of conduct for credit rating agencies

    IOSCO prepares new code of conduct for credit rating agencies

    International Organisation of Securities Commissions (IOSCO) is proposing significant revisions and updates to its current code of conduct fundamentals for credit rating agencies, IOSCO CRA Code.

    IOSCO is the leading international policy forum for securities regulators and is recognised as the global standard setter for securities regulation. The organization’s membership regulates more than 95 per cent of the world’s securities markets in 115 jurisdictions and its membership continues to expand.

    Nigeria is a member of the board of IOSCO, the governing and standard-setting organ of IOSCO. IOSCO board consists of 32 securities regulators including securities regulatory authorities of Argentina, Australia, Belgium, Brazil, Chile, China, France, Germany, Hong Kong, India, Italy, Japan, Korea, Malaysia, Mexico, Morocco, the Netherlands, Ontario, Pakistan, Portugal, Quebec, Romania, Singapore, South Africa, Spain, Switzerland, Trinidad and Tobago, United Kingdom and the United States.

    IOSCO has sent the draft revisions and updates to stakeholders for their comments on or before March 28, 2014.

    According to IOSCO, the proposed revisions result, in part, from the experience of IOSCO members in supervising credit rating agencies (CRAs).

    “They also are informed by IOSCO´s previous work on CRAs, including a survey report describing the key risk controls established by CRAs to promote the integrity of the credit rating process and the procedures established to manage conflicts of interest,” IOSCO stated.

    The global securities body outlined that the proposed revisions are designed to strengthen the IOSCO CRA Code by enhancing provisions regarding protecting the integrity of the credit rating process, managing conflicts of interest, providing transparency, and safeguarding non-public information; adding measures regarding governance, training, and risk management; and seeking to improve the clarity of the IOSCO CRA Code.

    “The IOSCO CRA Code is intended to offer a set of robust, practical measures as a guide to and a framework for CRAs with respect to protecting the integrity of the rating process, ensuring that issuers and users of credit ratings, including investors, are treated fairly, and safeguarding confidential material information provided them by issuers,” IOSCO stated.

    The IOSCO CRA Code was first published in 2004 when few jurisdictions had laws governing activities of CRAs. It was later revised in 2008 after the outbreak of the global financial crisis to include significant disclosure provisions that addressed concerns regarding the quality of information that CRAs relied on, suggestions that CRAs were too slow to review existing ratings and make downgrades as appropriate, and the possible conflict of interest arising from CRAs advising issuers on how to design structured finance products.

  • ‘$1. 94tr hedge funds target equities’

    ‘$1. 94tr hedge funds target equities’

    A survey by the International Organisation of Securities Commissions (IOSCO) has found that the single most represented strategy among active hedge funds globally is equity-oriented.

    The Second IOSCO Hedge Fund Survey, released on Monday, gathered data on 1,044 qualifying hedge funds with assets under management of about $1.94 trillion.

    According to the report, although several hedge funds had significant macro-oriented and multi-strategy investment strategies, the single most-represented investment strategy was equity-oriented.

    The United States and United Kingdom (UK) are the two predominant regions where hedge fund managers advisers are located while funds are usually domiciled in offshore jurisdictions in order to benefit from more favorable tax and regulatory regimes. The Cayman Islands have been the predominant domicile for these funds.

    The report described the comprehensive and global effort by relevant regulators to better understand the hedge fund industry and its salient features and it aimed to gather data from hedge fund managers and advisers about the markets in which they operate, their trading activities, leverage, funding and counterparty information.

    The report is part of IOSCO’s efforts to support the G 0 initiative to mitigate risk associated with hedge fund trading and traditional opacity.

    IOSCO noted that in spite of some limitations, the survey has proven to be a useful tool for examining the hedge funds segment of the market, particularly considering the limited amount of publicly available hedge fund data.

    “As hedge funds tend to operate across multiple jurisdictions, this initiative offers a unique perspective on the global nature of these funds,” IOSCO stated.

    The report found that financial leverage was used by firms to increase their market exposure, a situation that was at the core of the systemic risk analysis that regulators aim to better understand and capture.

    The survey also indicated that under current market conditions few funds actually need to restrict investor liquidity, underlining the liquidity risk, a key measure by which regulators try to gauge a fund’s propensity to experience financial distress.

    According to the report, the survey also seeks to facilitate the exchange of consistent and comparable data among relevant regulators for the purpose of facilitating international cooperation regarding possible systemic risks in this sector; providing a forum for the discussion of potential regulatory options if these are required; and gaining a better insight into the global hedge fund industry.

    Secretary General, International Organization of Securities Commissions (IOSCO), David Wright, said the survey was an essential building block to develop a more transparent and open global financial system. “It is essential that regulators have the full picture of all parts of the market from which to make appropriate policy judgments,” Wright stated.

    However, the report acknowledged the limitations involved in the data collection exercise, which prevented definitive conclusions to be reached on the risk to the financial system. Going forward, IOSCO will continue to promote the collection of comparable hedge fund data among regulators with the aim of fostering an internationally consistent approach to measuring risks and improving data quality and reliability.

    IOSCO expects to conduct its next survey with a data collection as of September 2014.

    IOSCO is the leading international policy forum for securities regulators and is recognised as the global standard setter for securities regulation. The organisation’s membership regulates more than 95 per cent of the world’s securities markets in more than 115 jurisdictions, including Nigeria.

    Nigeria is a member of 32-member IOSCO Board, the governing and standard-setting body of global body. Other members included securities regulatory authorities of Argentina, Australia, Belgium, Brazil, Chile, China, France, Germany, Hong Kong, India, Italy, Japan, Korea, Malaysia, Mexico, Morocco, the Netherlands, Nigeria, Ontario, Pakistan, Portugal, Quebec, Romania, Saudi Arabia, Singapore, South Africa, Spain, Switzerland, Trinidad and Tobago, United Kingdom and the United States.

     

  • IOSCO publishes framework for traded funds

    The International Organisation of Securities Commissions (IOSCO) has published its final report on Principles for the Regulation of Exchange Traded Funds (ETFs) as part of efforts to tighten regulations for the fast-growing segment of the capital market.

    The new regulatory framework contains nine principles intended to guide the regulation of ETFs and foster industry best practices. There is only one ETF- the NewGold Exchange Traded Fund on the Nigerian Stock Exchange.

    IOSCO underscored the importance of effective regulation for ETFs pointing out that investors’ interest in ETFs has increased worldwide as evidenced by the sharp increase in funds invested in these types of products.

    According to IOSCO, assets managed under ETF structures totaled almost $1.9 trillion at the end of January, this year, representing some seven per cent of the global mutual fund market.

    “This dynamic growth in ETFs has gradually attracted the attention of regulators, concerned about the potential impact of ETFs on investors and on the broader marketplace, as the industry has continued to evolve through diversification and the launch of new innovative products,” IOSCO noted.

    The global body of securities regulators noted that the final report on ETF was a result of numerous consultations among IOSCO’s member regulators and their repeated engagements with representatives of the global ETF industry.

    “As such, it reflects a shared consensus within the regulatory community as to how the regulation of ETFs should be approached. Taking into account the comments expressed during the consultation process, IOSCO has focused its final recommendations on features that are specific to ETFs. The principles address ETFs that are organized as Collective Investment Schemes (CIS) and do not apply to other, non-CIS, Exchange-Traded Products (ETPs),” IOSCO stated.

    It outlined that the report was structured into two main sections with the first section detailing ETF classification and relevant disclosures for investors, including principles intended to clearly differentiate ETFs from other non-CIS ETPs, as well as from other CIS.

    According to IOSCO, it is important that investors are able to appreciate both the similarities and differences of ETFs with other competing products, as well as the way ETFs achieve their investment objective and the quality of their performance typically vis-à-vis a reference index.

    Principles under the first segment also encourage the disclosure of related fees and expenses, including the eventual impact of securities lending on these, as well as complete, accurate and understandable disclosure to address the types of risks investors may be exposed to particularly through ETFs using complex strategies that may involve the use of leverage or reverse leverage.

    In the second section, the framework addressed concerns tied to the structuring of ETFs including the management of potential inherent conflicts of interest and of counterparty risks arising from the two main types of replication methods: physical and synthetic.

    “IOSCO encourages regulators to consider imposing requirements to ensure that ETFs appropriately address risks raised by counterparty exposure and collateral management,” it stated.

    The conclusive section of the report addressed ETFs in a broader market context, underscoring the importance of intermediaries’ disclosure and conduct requirements particularly in terms of product suitability and referring to other work that may be relevant.

  • IOSCO lists countries inhibiting global regulatory cooperation

    TheInternational Organisation of Securities Commissions (IOSCO) has listed 30 countries that still pose challenges to global securities regulation by not conforming and signing on to the Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information.

    Established in May 2002, the MMoU is the instrument used by securities regulators around the world to combat the cross-border fraud and misconduct that can weaken global markets and undermine investor confidence. Nigeria is a signatory to the MMoU.

    Ghana looms large among African countries that are yet to sign the MMoU. Other African non-signatories included Algeria, Uganda and Zambia.

    Other non-signatories included Argentina, Armenia, Bangladesh, Barbados, Bolivia, Brunei, Chile, Costa Rica, Dominican Republic, Ecuador, Gibraltar, Honduras, Indonesia, Kazakhstan, Kyrgyz Republic, Mongolia, Panama, Papua New Guinea, Philippines, Russia, Trinidad and Tobago, Ukraine, Uzbekistan, Venezuela and Vietnam.

    The 93 members who are signatories represent approximately 95 per cent of global securities markets. Of the 30 members who are not yet signatories, 25 are on the Appendix B— the list of members who have expressed their commitment to seek the legislative and administrative changes necessary for achieving MMoU compliance.

    In a statement, IOSCO noted that the increase in the number of signatories over the last decade has led to a sharp upsurge in cross-border cooperation, enabling regulators to investigate a growing number of insider traders, fraudsters and other offenders.

    In 2006, a total of 520 requests for assistance were made pursuant to the MMoU; the year figure increased to 1,600 in 2010 and to 2090 in 2011. Last year, the MMoU was used by signatories to solicit the exchange of information during the LIBOR scandal.

    IOSCO stated that by publishing the list of the non-signatories, it seeks to encourage its non-signatory members to take the measures needed for them to sign the MMoU, as part of its commitment to eradicate potential safe havens for wrong doers.

    It noted that new signatories to the MMoU also contribute to strengthening IOSCO´s international enforcement network.

    Chairman, IOSCO Committee 4 on Enforcement and the Exchange of Information and Co-chair of the MMoU Screening Group, Georgina Philippou, said publishing the list of non-signatories to the MMoU was an important step that was not taken lightly.

    “The MMoU is an essential tool in the fight against cross border market misconduct and IOSCO wants all its members to reach the high standards of enforcement and international cooperation required to sign the MMoU so that those who commit market misconduct have nowhere to hide,” Philippou said.

    The MMoU provides a mechanism through which securities regulators share with each other essential investigative material, such as beneficial ownership information, and securities and derivatives transaction records, including bank and brokerage information. It sets out specific requirements for the exchange of information, ensuring that no domestic banking secrecy, blocking laws or regulations prevent the provision of enforcement information among securities regulators.

    IOSCO noted that majority of requests made under the MMoU are for information related to insider dealing, market manipulation, misrepresentation of material information and other fraudulent or manipulative practices.

    “Cross-border cases of wrong doing that could not have been investigated ten years ago can now be investigated and brought before the relevant courts and tribunals,” IOSCO stated.

    It pointed out that it had in 2010 asked all its members to become signatories by January 1, 2013 and it had approved a resolution in May 2012 that allows it to take tougher measures to encourage compliance by it non-signatories.

    The resolution called for the IOSCO Board to evaluate at its first meeting in 2013 the implementation of the MMoU by member jurisdictions and to determine what additional measures might be required to attain further compliance. These issues will be considered at the IOSCO Board meeting in Sydney later this month.

  • Global securities regulators issue new rules on securitisation

    The International Organisation of Securities Organisations (IOSCO) has released some recommendations aimed at ensuring that securitisation markets develop on a sound and sustainable basis.

    The recommendations, contained in the global body’s final report on Global Developments in Securitisation Regulation, would ensure that securitisation becomes more valuable financing tool that contributes to economic growth and the efficient diversification of risk.

    IOSCO is the umbrella body for securities regulators. The organisation’s membership, which included Nigeria, regulates more than 95 per cent of the world’s securities markets in 115 jurisdictions. Nigeria is a member of IOSCO board, the governing and standard-setting council of the global body. There are also 31 other countries on IOSCO board including securities regulatory authorities of Argentina, Australia, Belgium, Brazil, Chile, China, France, Germany, Hong Kong, India, Italy, Japan, Korea, Malaysia, Mexico, Morocco, the Netherlands, Ontario, Pakistan, Portugal, Quebec, Romania, Singapore, South Africa, Spain, Switzerland, Trinidad and Tobago, Turkey, United Kingdom and the United States.

    The new set of rules comes as part of ongoing efforts by the Financial Stability Board (FSB) to review the reforms of securitisation markets, in line with ongoing work for the G20 on the shadow banking sector. FSB had requested that IOSCO conduct a stock-taking exercise on certain aspects of securitisation, including risk retention, transparency and standardization, and to provide necessary policy recommendations.

    In a statement made available to The Nation, IOSCO stated that the final report on securitisation was another step in its efforts to support sustainable growth of securitisation markets. It had in June 2012 published the report of a round table with industry participants and responses to a consultation paper on global developments in securitisation regulation.

    “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 stated.

    IOSCO said the new regulatory recommendations on securitisation were based on its analysis of the various standards being implemented and extent to which different approaches to regulatory reform might result in impediments to cross border activity.

    According to the global standard-setting body, the new regulatory recommendations cover a roadmap toward convergence and implementation of approaches to incentive alignment, in particular regarding risk retention requirements.

    “Risk retention requirements better align the incentives of the suppliers of securitisation products 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. The greater availability of information will also help reduce the reliance on credit ratings agencies,” IOSCO noted.

    It noted that the newly recommended rules built on recent developments in standardised templates for asset level disclosure and other disclosure-related initiatives to assist informed investment decisions.

    The final report also contained several useful observations about the role sound securitisation markets can play in supporting economic growth and the role regulation can play in reducing systemic risk and restoring investor trust and confidence while it also summarised key themes, observations and issues coming out of the responses to the consultation paper in relation to approaches to risk retention, transparency and standardization.