Full response available here.
This document sets out Risk Control’s response to the BCBS-IOSCO consultative document entitled “Criteria for identifying simple, transparent and comparable securitisations”.
We welcome the work of the BCBS-IOSCO taskforce on this topic which we regard as an important part of formulating an appropriate regulatory framework for the securitisation market while also assisting the investment community in identifying high quality securitisations.
In general, we would point to the very heterogeneous nature of the securitisation market. This ranges from complex and opaque structures backed by securities for which little historical performance data has accumulated and issued by lightly regulated entities, to simple transactions with clear structures, highly regulated issuers and asset pools comprising familiar, well understood risks.
The development of regulation in recent years has attempted to devise appropriate capital and liquidity frameworks for these very different types of security, relying only on ratings agency assessments or simple formulae (in the case of capital) and broad asset class distinctions (in the case of liquidity) as the basis for appropriate differentiation.
Empirical evidence provided by Perraudin (2014) suggests that, conditioning on rating, the risk and liquidity properties of European high quality securitisations differ markedly from those of other European securitisations. In particular, the return volatility of High Quality Securitisations (as identified by simple qualitative indicators) has been much lower than that of the rest of the market.
Hence, it appears to us very sensible, both for regulators determining regulatory treatment and for investors selecting portfolios, to differentiate between segments of the securitisation market using indicators of simplicity, transparency and comparability.