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IOSCO report calls for further work on securitisation vehicles

Nov 19, 2012

The International Organization of Securities Commissions (IOSCO) has released a report 'Global Developments in Securitisation Regulation', which includes in its recommendations that the Financial Stability Board, International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) should work toward further harmonisation of approaches to consolidation of securitisation special purpose vehicles (SPVs).

As part of its ongoing work into the 'shadow banking' sector, the Financial Stability Board (FSB) is undertaking a process of reviewing reforms of securitisation markets, an important alternative source of funding for the banking sector which can play a role in supporting economic growth. As part of this process, the FSB requested that IOSCO conduct a stock-taking exercise on certain aspects of securitisation and develop policy recommendations as necessary.

The report covers a broad range of topics and recommendations focused on the core topic of securitisation markets, such as information provided to investors, standardisation and convergence of regulation and terminology, and the prudential treatment of securitisation arrangements.

In discussing accounting issues, the report notes the current deleveraging occurring in the banking sector, and the contrast with the need for consolidation "to avoid any form of shadow financing".  In developing the recommendations around accounting, the report goes on to say:

Besides in a context where Basel III is going to phase in the introduction of a mandatory leverage ratio requirement for all Basel Committee on Banking Supervision member jurisdictions in the midterm, accounting, and differentiated impacts that may result from differences in accounting regimes, balance sheet presentation, and domestic regulatory adjustments can have significant impact. Accounting regimes and in particular, the use of International Financial Reporting Standards and the use of U.S. generally accepted accounting Principles can lead to large variations if a level playing field is not maintained. Thus IOSCO would urge standard setters and authorities to work closely together to ensure that from accounting and prudential perspectives that the combination of rules for consolidation of SPVs shown on the balance sheet and subsequent prudential treatment applied on this basis achieve consistent and similar outcomes.

Click for access to the full report (link to IOSCO website).