Cross-sector risk transfer regulations should be reviewed, say FSA respondents

The UK's Financial Services Authority (FSA) recently released feedback on responses to Discussion Paper 11, which focused on the effects of risk transfer between the banking industry and the insurance industry via credit derivatives and related products, and how this area should be regulated in the future.

As credit defaults escalated in 2002, regulatory authorities in Europe and the US grew concerned that banks were transferring the less attractive portions of the credit risk in their loan portfolios to the insurance sector via collateralised debt obligations (CDOs). The FSA issued is Discussion Paper 11 in May 2002, and asked for comments from the market.

In the response paper, published in December, respondents suggested five key issues should be addressed more specifically in the review of

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