Operational risk a major concern in structured finance market, says S&P's
The majority of securitization professionals cite operational risk as a leading concern in structured finance transactions, trailing only traditional credit risk as the overriding factor potentially affecting a deal's health, according to the results of Standard & Poor's Ratings Services' recent Structured Finance Market Opinion study.
The survey shows that more than two-thirds of respondents chose operational risk as one of the top-three most important areas of risk in the market, surpassing other highly touted forms of exposure, such as legal (40%), modeling (39%), interest rate (27%), regulatory (24%), and correlation risk (9%) by a sizable margin. In fact, only credit risk received more votes, with 79% of market players choosing it as one of the most significant factors. Furthermore, a majority of respondents (78%) identified servicer quality as the most critical element of a transaction's operational risk profile, followed by transaction structure. The inherent serviceability of a particular receivable was in third place, followed closely by deal administration, which includes the work of the trustee and the general level of a transaction's disclosure.
Market participants generally suggested increased or tighter reporting standards and controls as a primary mitigant to operational risks, including "third-party audits of operations," according to one participant.