New Basel rules on securitization out

MANILA, Philippines - The Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) has released a consultative document on criteria for identifying simple, transparent and comparable securitizations.

The purpose of these criteria is to identify _ and to assist the financial industry’s development of securitizations structures, as well as to help parties involved in a transaction evaluate the risks of a particular securitization as part of their due diligence on securitizations.

IOSCO Board and Australian Securities and Investments Commission chairman Greg Medcraft said that investors’ confidence in securitizations has diminished since the onset of the financial crisis.

“Securitizations 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,” Medcraft added.

Criteria promoting simplicity refer to the homo-geneity 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.

The proposed criteria have been mapped to key types of risk in the securitization process: (i) generic criteria relating to the underlying asset pool (asset risk); (ii) transparency around the securitization structure (structural risk); and (iii) governance of key parties to the securitization process (fiduciary and servicer risk).

The proposed approach is a modular one.

The new criteria may be supplemented or expanded based on specific needs and applications, such as investor mandates, regulatory applications or central bank collateral frameworks.

The implementation of such criteria, including its potential impact on regulation, is not within the scope of this consultation.