Recommendations for Securitisation Regulation
To assist in harmonisation, IOSCO proposes in its recommendations a roadmap intended to support incentive alignment in global securitisation markets, particularly through risk retention requirements, while reducing the risk that potential barriers to cross border securitisation markets may emerge. It is essential to give investors the means to assess issuer disclosure regarding a securitisation structure's performance, in particular by receiving from the issuer a comprehensive set of data on the structure and its underlying risks. Hence, IOSCO recommends that investors should: receive information in relation to the base case and risk/reward profile of a product; be provided with modelling tools that enable investors to conduct cash flow analyses of a given securitisation transaction through its life; and receive any relevant documents and relevant data provided to Credit Rating Agencies (CRAs) that is necessary to analyse a product's creditworthiness, consistent with applicable privacy, confidentiality, and other laws. IOSCO notes that the revival of confidence in the securitisation markets depends on a number of complex factors. Aside from risk retention and disclosure reforms, there are prudential reforms underway which may have a significant impact on the future performance of securitisation markets, such as reforms to the capital treatment of securitisation. IOSCO especially draws attention to:
- the relative prudential treatment of securitisation products;
- accounting issues, especially regarding consolidation and retention;
- developing guidance on possible measures that could eliminate or reduce the potentially negative effects of differences in securitisation regulation and terminology on cross border transactions;
- encouraging standardisation to increase liquidity in secondary markets; and
- encouraging sound mortgage underwriting practices (e.g. through implementation of FSB's Principles for sound residential mortgage underwriting practices).