The International Organization of Securities Commissions’ policymaking body has published its’ interim recommendations for regulatory changes designed to deal with unregulated financial markets and products.

On Tuesday, IOSCO’s Technical Committee published a consultation report prepared by its’ Task Force on Unregulated Financial Markets and Products. The report contains interim recommendations for regulatory action designed to improve confidence in the securitisation process and the market for credit default swaps.

The recommendations target issues related to securitized products, including asset-backed securities, asset-backed commercial paper, and structured credit products such as collateralized debt obligations, synthetic CDOs, and collateralized loan obligations, as well as credit default swaps.

The task force has focused on these particular areas “due to the significance of securitization and CDS to credit availability in the real economy, their contribution to the management of individual and systemic risks, their recent rapid growth and the important role they play in global markets,” explained Kathleen Casey, chairman of the Technical Committee.

The report includes a number of recommendations to address problems such as: improper incentives, inadequate risk management practices, regulatory structure and oversight issues, and, in the CDS market particularly, counterparty risk and the lack of transparency.

“In proposing these interim recommendations IOSCO believes that a measured regulatory response is required, taking into account industry initiatives, to strengthen the operation of the securitisation and CDS markets,” Casey said, adding that IOSCO believes that implementing these regulatory actions may assist in restoring confidence, and promoting the fairness, efficiency and stability of international financial markets.

The deadline for responses to the report is June 15. The task force was established by the Technical Committee in November 2008 in response to concerns expressed by the G20 regarding the crisis and the role that certain unregulated market segments and products played in the crisis. It is co-chaired by the Australian Securities and Investments Commission and the Autorité des Marchés Financiers of France.

IE