The International Organization of Securities Commissions' (IOSCO) technical committee published its final report on the unregulated financial markets and products.
The final report recommends regulatory actions to assist financial market regulators in introducing greater transparency and oversight with respect to securitization and credit default swaps (CDS) markets, and improving investor confidence, and the quality of these markets.
The report was initiated in November 2008 in response to G-20 calls for a review of the scope of financial markets and in particular unregulated financial market segments and products.
“The overall objective was to recommend ways to redefine the perimeter of regulation in certain OTC markets,” said Kathleen Casey, chairman of IOSCO’s technical committee. “As our recommendations go beyond the traditional remits of regulators, further work is required and is being undertaken by IOSCO to identify the appropriate criteria to be used in redefining the border between what has traditionally been considered regulated and unregulated markets.”
IOSCO said that each jurisdiction should assess the scope of their existing regulatory regimes and decide how the recommendations should be applied to their own specific circumstances.
Among some of the recommendations in the final report are suggestions that originators and/or sponsors retain a long-term economic exposure to the securitization in order to appropriately align interests in the securitization value chain.
The organization also recommended that the market require enhanced transparency through disclosure by issuers to investors of all verification and risk assurance practices that have been performed or undertaken by the underwriter, sponsor, and/or originator.
It suggested that the industry should provide regulatory support for improvements in disclosure by issuers to investors including initial and ongoing information about underlying asset pool performance. Disclosure should also include details of the creditworthiness of the person(s) with direct or indirect liability to the issuer;
The IOSCO also called for the review of investor suitability requirements as well as the definition of sophisticated investor in the relevant market and strengthen these requirements, as appropriate, in the context of the relevant market.