IOSCO Members Discuss Priority Issues Facing Securities Regulators

By Regulatory News

May 30, 2019

IOSCO published a summary of its annual meeting, during which members discussed priority issues facing securities market regulators and supervisors. The meeting was hosted by the Australian Securities and Investments Commission (ASIC) in Sydney. At this meeting, the IOSCO members discussed the aspects of its priority work, including margin requirements for non-centrally cleared derivatives, report to be published by Cyber Task Force, work related to crypto-assets trading platforms, report on sustainable finance in emerging markets, and work in the area of fintech. The IOSCO Board considered next steps for important priority topics, which are consistent with the IOSCO work plan for 2019, which was published on March 25, 2019.

The information to be provided by a third party seeking authorization to assess the compliance of securitizations with the STS criteria provided for in Securitization Regulation should enable a competent authority to evaluate whether and, to what extent, the applicant meets the conditions of Article 28(1) of the Securitization Regulation. An authorized third party will be able to provide STS assessment services across EU. The application for authorization should, therefore, comprehensively identify that third party, any group to which this third party belongs, and the scope of its activities. With regard to the STS assessment services to be provided, the application should include the envisaged scope of the services to be provided as well as their geographical scope, particularly the following:

To facilitate effective use of the authorization resources of a competent authority, each application for authorization should include a table clearly identifying each submitted document and its relevance to the conditions that must be met for authorization.
To enable the competent authority to assess whether the fees charged by the third party are non-discriminatory and are sufficient and appropriate to cover the costs for the provision of the STS assessment services, as required by Article 28(1)(a) of Securitization Regulation, the third party should provide comprehensive information on pricing policies, pricing criteria, fee structures, and fee schedules.
To enable the competent authority to assess whether the third party is able to ensure the integrity and independence of the STS assessment process, that third party should provide information on the structure of those internal controls. Furthermore, the third party should provide comprehensive information on the composition of the management body and on the qualifications and repute of each of its members.
To enable the competent authority to assess whether the third party has sufficient operational safeguards and internal processes to assess STS compliance, the third party should provide information on its procedures relating to the required qualification of its staff. The third party should also demonstrate that its STS assessment methodology is sensitive to the type of securitization and that specifies separate procedures and safeguards for asset-backed commercial paper (ABCP) transactions/programs and non-ABCP securitizations.

The use of outsourcing arrangements and a reliance on the use of external experts can raise concerns about the robustness of operational safeguards and internal processes. The application should, therefore, contain specific information about the nature and scope of any such outsourcing arrangements or use of external experts as well as the third party's governance over those arrangements. Regulation (EU) 2019/885 is based on the draft regulatory technical standards submitted by ESMA to EC.

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Effective Date: June 18, 2019

Press Release

Proposed Rule 1

Proposed Rule 2

Proposed Rule 3

Presentation on Regulatory Framework (PDF)

Presentation on Resolution Plan Rules (PDF)

The key discussed priorities areas include the following:

Margin requirements. The Board analyzed issues around the final implementation phase of the BCBS-IOSCO margin requirements for non-centrally cleared derivatives. It discussed key issues related to the preparedness of more counterparties coming into scope on or after September 01, 2020, when the final margin requirements go into effect.
Cyber Task Force. The Board agreed to publish a Task Force report that examines how IOSCO members are applying existing cyber standards or guidance in their respective regulatory regimes and identifies potential gaps in the application of these standards that may need to be addressed.
Crypto-assets. The Board members agreed to publish a consultation report on crypto-asset trading platforms, in response to a G20 request. Additionally, on May 06, IOSCO launched an Emerging Digital Threats (EDT) portal to enable sharing of enforcement-related information on emerging digital threats, including those arising from crypto-assets.
Sustainable finance. The Board discussed the work of the IOSCO Sustainable Finance network, which was created last year to focus on the role of regulators in sustainable finance and the relevant international initiatives taken by other organizations. The Board noted a report on sustainable finance in emerging markets that the Global Emerging Markets (GEM) Committee plans to publish.
Standards implementation. The Board approved the IOSCO Assessment Committee’s workplan for 2019-2020 and proposed to conduct an IOSCO Standards Implementation Monitoring (ISIM) project on IOSCO’s Principles Relating to the Regulator.
Fintech network. The discussions covered the work of the IOSCO Fintech network, which was established in May 2018 to facilitate the sharing of knowledge and experiences among IOSCO members. The Board deliberated on next steps for the four workstreams: distributed ledger technology, ethics in artificial intelligence and machine learning, regtech, and encouraging of innovation. Members also discussed how IOSCO could assist emerging markets with fintech matters.
Market fragmentation. The Board agreed to publish a report on market fragmentation and cross-border regulation, in response to a G20 request. The report will analyze how some financial markets may have experienced fragmentation in whole or in part due to regulation.
Asset management. The Board discussed the public consultation (by IOSCO) on proposals to measure leverage in investment funds and to collect data based on the metrics it develops. The work is part of the IOSCO follow up to the FSB recommendations to address potential structural vulnerabilities in asset management activities.

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Keywords: International, Banking, Securities, Crypto-Assets, Fintech, Work Plan, OTC Derivatives, Margin Requirements, Cyber Risk, Sustainable Finance, IOSCO

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