Now we know it’s serious. The technical committee of the International Organization of Securities Commissions is meeting in Tokyo – and the international grouping of regulators is not about to let the credit debacle, and ensuing fallout, go unscrutinised.
Iosco, which includes the SEC, the UK’s FSA, and other market watchdogs from Japan, Australia, Canada and Hong Kong, wants to coordinate the regulatory response to recent market events. The group has already been working with other international organisations on a fresh study on the role of the rating agencies.
The body has been one of those banging the drum on the need for greater cross-border regulatory convergence. Michel Prada, chairman of IOSCO’s technical committee, said on Thursday:
The recent events in the credit markets have demonstrated how closely linked the world’s financial centres are and that the issues facing securities regulators can no longer simply be viewed in a national context.
Mr Prada added in his opening speech to the conference:
Although it may be too early to draw lessons on recent events, it appears that this crisis is mainly the consequence of credit mismanagement, together with poorly managed disintermediation… we have seen credit discipline deteriorating seriously, inadequate risk pricing, ambiguous risk transfer, and therefore, when markets participants became conscious of the situation, market paralysis, liquidity crisis and even interbank market disfunctioning.
The planned work will take in the planned review of rating agencies, and pay particular attention to the thorny question of valuation, and the accounting treatment of SPVs. It will also consider whether the current models of risk used by broker-dealers trading structured products are sufficiently robust and whether the information provided by issuers or arrangers of such products provides adequate transparency to allow buyers to assess the quality of what’s for sale.
The laudable aim is to avoid a patchy, adhoc or kneejerk regulatory response to the problems laid bare by the recent turmoil. But with the knock-on effects of the credit squeeze still being played out in the global markets, and the banks’ facing ever larger estimated write-downs, the Iosco taskforce may just struggle to keep pace with events between now and the delivery of its final report, slated for May next year.