Regulation: Regulators watch their backs
As the structured finance market struggles to reinvent itself, the orgy of recrimination among constituents is intensifying.
The regulators, having attracted their fair share of criticism over the structural weaknesses that were exposed by the liquidity freeze last year, are now scrambling to be seen to be addressing the market’s problems. Not surprisingly, the rating agencies have been first in the firing line. In late May, the International Organization of Securities Commissions (Iosco) set out its voluntary code of conduct for the rating agencies, and in June the US SEC outlined its proposed rules on addressing the conflicts of interest inherent in the rating agency model. The Financial Stability Forum also delivered a report in April calling for action across five areas of the market. The various proposals have, not surprisingly, met with howls of protest in some quarters but the need for the authorities to be seen to be doing something seems likely to prevail.
In a letter to the European Commission in February, the securitization industry committed itself to deliver improved transparency. But the EU’s Ecofin Council has given the industry until just the end of June to get its house in order. And there is much to do: in a keynote address at the Global ABS conference in June, Michel Prada, chairman of Iosco, stated that the market needs harmonized disclosure, differentiation by rating, more robust pricing mechanisms, incentives for better due diligence and more clarity in accounting mechanisms.