Market Comments on IOSCO Paper

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There are around 15 to 20 comment letters that have been submitted to the International Organization of Securities Commission's (IOSCO) consultation report titled Global Developments in Securitization Regulation. The report was prepared at the request of the Financial Stability Board (FSB) as part of the its efforts to strengthen the shadow banking system's oversight and regulation.

In its response, the Global Financial Markets Association (GFMA) said that it supports IOSCO's efforts to analyze industry initiatives on risk retention, transparency and disclosure standardization. However, among these three, GFMA emphasized its support for IOSCO's push to identify and address material differences in relevant risk retention initiatives. GFMA agrees with IOSCO's acknowledgment of the possible problems that might arise in cross-border securitizations where there are considerable variations in the retention requirements under the European Union and U.S. regimes.

IOSCO's consultation report draws partly on the European Commission's (EC)/Securities and Exchange Commission's (SEC) staff analysis and refers to a concept of "material incompatibilities." The previous analysis by the EC and SEC was on whether market participants can comply with both regimes without points of direct conflict. "We do not consider that such a threshold provides the most appropriate measure of the key differences from a perspective of market participants," GFMA said in its response. Instead, the association said that it is also important that the IOSCO focuses on the differences that would cause major compliance difficulties and added costs for market players, and not just on where direct conflicts between the two regimes occur.

Other key variations in the two regimes should also be factored in, such as when market participants are limited only to options and methods that work under both regimes, so they will effectively not be able to rely on large portions of each regime, AFME said. This is more pronounced in securitization types where the retention holding model is not typical, such as in ABCP programs, master trust deals, certain CMBS and managed CLOs, GFMA said.

Meanwhile, in its comment letter, the Institute of International Finance (IIF) said that the consultation report would be far stronger if it treated securitization not as a single activity happening in the same way in all jurisdictions but as a set of activities involving various obligations such as RMBS, CMBS and student loans, among other asset classes, in different jurisdictions.

IIF said that the IOSCO should make more of a distinction between bilateral and multilateral deals. The organization explained that there should be strong rules for the latter, but the former should be excluded from any IOSCO approach offered where it is clear that there is no onward distribution of the securitized assets. The reason for this is that it is up to the two parties to agree to the level of risk retention and the data provided, and for the purchaser to satisfy themselves that they have sufficient data to come to an effective decision. - KS

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