Securities regulators have more work to do to ensure that the incentives for issuers in the securitization market are better aligned with investors’ interests, according to a new report published by the International Organization of Securities Commissions (IOSCO) on Thursday.
The report examines the status of the implementation of IOSCO’s recommendations for improving the alignment of incentives in securitization markets. Those recommendations followed from the events of the financial crisis, which revealed that a lack of “skin in the game” allowed issuers to shift credit risks to investors in ways that were not well understood.
Among other things, the recommendations, which were released in November 2012, call on national regulators to evaluate incentive structures and adopt approaches to better align incentives, including measures to ensure that firms involved in securitization retain some of the risk of their transactions; and, to minimize differences that could harm cross-border securitizations.
IOSCO’s review, which aimed to measure the progress towards the implementation of the recommendations among 25 jurisdictions (including Ontario and Quebec), found “mixed progress” at adopting the recommendations in rules and legislative changes. Five countries have completed the implementation of the recommendations, the report notes. Eleven jurisdictions have taken steps to implement the recommendations, but the measures are either not yet complete or were not yet fully in force. Six jurisdictions haven’t addressed the recommendations at all, and the others have made limited progress.
The report notes that the U.S. and the European Union have generally gone further at implementing reforms than many of the smaller jurisdictions, the report notes.
It also found that: regulators are taking different approaches, from those that are imposing new requirements directly on issuers to those that focus largely on investors; some jurisdictions are relying primarily on disclosure; and there are divergent approaches to exemptions from the requirements. The review also notes that little has been done to address possible cross border impacts.
The IOSCO Board has approved a follow up review in this area for 2016, which will only examine jurisdictions that had not fully implemented reforms accordion to this current review.