December 11, 2014 Alert - BCBS, IOSCO Consult on Simple, Transparent, and Comparable Securitizations
The Basel Committee on Banking Supervision (“BCBS”) and International Organization of Securities Commissions (“IOSCO”) released their long-anticipated consultative document on Criteria for identifying simple, transparent and comparable securitisations. As stated in a joint press release from the international standard-setting bodies, the purpose of the criteria is to identify and assist with the development of such structures, as well as help parties to a transaction better evaluate the risks associated with a particular transaction. According to IOSCO Chairman Greg Medcraft, “Investors' confidence in securitisations has diminished since the onset of the financial crisis. Securitisations are perceived as too complex and insufficient information is available to investors to perform their risk assessments. The proposed criteria in this paper try to address some of these issues."

The BCBS and IOSCO offer the following definitions for the criteria under their proposed framework:
  • Criteria promoting simplicity refer to the homogeneity of underlying assets with simple characteristics, and a transaction structure that is not overly complex.

  • Criteria on transparency provide investors with sufficient information on the underlying assets, the structure of the transaction and the parties involved in the transaction, thereby promoting a more thorough understanding of the risks involved. The manner in which the information is available should not hinder transparency, but instead it should support investors in their assessment.

  • Criteria promoting comparability could assist investors in their understanding of such investments and enable more straightforward comparison between securitization products within an asset class.

BCBS and IOSCO note that this criteria may be supplemented or expanded upon as needed, though issues related to implementation, including potential impact on regulation, is not within the scope of their consultation. Comments are due on February 13, 2015.

The proposal parallels work undertaken by the European Central Bank and Bank of England last summer, which SFIG commented on, and a consultation currently underway at the European Banking Authority ("EBA") to establish criteria for high quality securitizations. SFIG will comment on both the EBA and BCBS-IOSCO consultations through its High Quality Securitization Task Force, and members interested in participating should email Amanda.Bateman@sfindustry.org
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