Digital Assets Report


Like this article?

Sign up to our free newsletter

Iosco to probe market turbulence sparked by sub-prime crisis

Related Topics

The International Organisation of Securities Commissions has announced at its technical committee conference in Tokyo the establishment of a dedicated task force on the sub-prime crisis to

The International Organisation of Securities Commissions has announced at its technical committee conference in Tokyo the establishment of a dedicated task force on the sub-prime crisis to review the issues facing securities regulators following recent events in the global credit markets.

The task force will conduct a preliminary review of the issues raised by the events to identify any implications for securities regulators that could be addressed through current and future Iosco work. The review will complement work being undertaken by other regulatory and governmental bodies in assessing how markets have reacted to the credit market turbulence. One objective of the task force will be to ensure that the implications for securities regulation are reviewed in a systematic manner.

‘In pursuing its role of developing international principles, Iosco has established a task force to review recent events,’ says the committee’s chairman Michel Prada, who also heads France’s Autorité des Marchés Financiers. ‘The group will engage with securities regulators and the financial services industry to examine how they have responded to the recent crisis, the lessons that can be learned, and what further work may be needed by Iosco.

‘The recent events in the credit markets have demonstrated how closely linked the world’s financial centres are and that the issues facing securities regulators can no longer simply be viewed in a national context. This reinforces the need for regulators to develop and implement international principles of regulation.’

The task force will concentrate its work on areas including risk management and prudential supervision, transparency and due diligence, valuation of assets and accounting issues, including the role of credit rating agencies.

Given the involvement of broker dealer firms involvement in the trading of structured products, it will examine their risk assessment processes and assess whether their current models of risk management are sufficiently robust.

Regarding transparency and due diligence, the task force will analyse what types of data investors, and in particular mutual funds, rely on for investing in structured products, whether the information provided by issuers and arrangers of structured products to their clients is sufficient to assess the quality of the product, and whether additional information would benefit market efficiency and stability. It will also assess whether regulators receive sufficient information regarding the structured product markets to protect investors in and ensure the efficiency and stability of public securities markets.

Given that investors may have relied on the ratings provided by credit rating agencies as not only an assessment of the probability of default by an entity, but also as an assessment of the product’s liquidity, the task force will assess whether alternative models of valuation are needed and whether Iosco should develop valuation principles or best practices in this area.

To evaluate potential problems raised by the accounting treatment of structured products, the task force may revisit last year’s report on special-purpose vehicles in order to better analyse the mechanisms under which SPVs are kept on the balance sheet and the possible implications in terms of risk measurement and information to investors where listed companies are involved.

It will also co-ordinate with the credit rating agencies task force to analyse questions raised by the role of agencies and how they relate to the sub-prime crisis, and whether the Iosco credit rating agency code of conduct adequately addresses any conflicts of interest that may be relevant.

The task force will take into account the progress made by Iosco in its dialogue on co-operation with industry and consider the ongoing work of the technical committee on improving disclosure and transparency to investors. It is expected present its final report to the committee in May next year during Iosco’s annual conference in Paris.

Iosco’s membership regulates more than more than one hundred jurisdictions and 90 per cent of the world’s securities markets and the organisation is the world’s most important international co-operative forum for securities regulatory agencies.

The technical committee, a specialised working group established by Iosco’s executive committee, is made up of 15 agencies that regulate some of the world’s larger, more developed and internationalised markets, and reviews major regulatory issues related to international securities and futures transactions and to coordinate practical responses to these concerns. It currently has task forces working on the areas of corporate governance, credit rating agencies, private equity and audit services.

Like this article? Sign up to our free newsletter

Most Popular

Further Reading