The task force will assess whether dealers’ risk management of structured credit products is sufficiently robust, and whether investors and regulators require additional information about such products in future.
“Investors may have relied on the ratings provided by credit rating agencies as not only an assessment of the probability of default by an entity, but also as an assessment of the product’s liquidity,” the agency said in a statement. Given this, the task force will look into alternative valuation methods for structured credit and the idea of Iosco producing principles or best practices for valuation.
Risk management and disclosure surrounding special purpose vehicles, which are the legal framework for many structured credit products, will also be analysed by the taskforce. Additionally, the role of credit rating agencies in the crisis will be considered, as well as whether the existing Iosco code of conduct for rating agencies adequately addresses possible conflicts of interest.
The taskforce will report back to Iosco’s technical committee in May 2008, which comprises 15 of the most influential global financial regulators.
The organisation joins numerous others in picking over the supposed shortfalls of the global financial system in the wake of the crisis, caused by towering delinquencies on US subprime mortgage loans.
Previously on Risk News:
Morgan Stanley and Merrill Lynch reveal billions more subprime damage
Risk USA: Crowded trade increases turmoil again, say CROs
Risk USA: Simpler structured products needed
IIF to draw up best-practice guidelines
Kroszner: “Investors less informed than they originally thought”