IOSCO Publishes Recommendations for Securitization Regulation (with Lofchie Comment)

The IOSCO has published a final report on Global Developments in Securitization Regulation, which proposes a series of recommendations aimed at ensuring securitization markets, including cross-border markets, develop on what IOSCO views as a sound and sustainable basis. In addition to making recommendations, the report provides a very broad overview of the state of the securitization markets around the world. (It is fairly remarkable how substantially these markets have shrunk in size.)

The primary recommendations, which start on page 48, relate to risk retention and standardization of disclosures. The other recommendations relate to the following topics: prudential treatment, standardization of products to encourage secondary market trading, sound underwriting practices, guidance on cross-border issues and accounting.

Lofchie Comment: The report provides a lot of interesting information as to the state of the market, and particularly as to how much the market has reduced in size. From an academic standpoint, if I can presume to have such a standpoint, I found disappointing that the report takes it as a given that risk retention is a good idea and further that it was important that each jurisdiction develop consistent rules as to risk retention. Neither assumption seems obvious to me; even assuming risk retention is a good idea (and there are certainly reasonable arguments to the contrary), I don't know why different jurisdictions should not adopt different approaches to this topic.

View report in full here (links externally to IOSCO website). See also: Press Release.