The Joint Forum, a group of senior financial sector supervisors from the Basel Committee on Banking Supervision, the International Organization of Securities Commissions, and the International Association of Insurance Supervisors (IAIS), has released its Report on Asset Securitisation Incentives (report). The report was based on an extensive literature review, and interviews with securitisation practitioners and investors in Europe, the US and Australia.  

The report has three main outputs. First, it analyses the incentives of market participants to engage in securitisation before the financial crisis, distortions created by misalignments and conflicts of interests, and the operation of participants’ incentives after the crisis. A key finding in relation to this output is that the key incentives which drove participation in securitisation markets before the crisis remain; originators continue to view securitisation as a source of funding while investors continue to see securitisation as a source of high credit quality assets, portfolio diversification and attractive risk-adjusted yield.

Second, the report examines why there has yet to be a meaningful recovery in securitisation activity. These reasons include macro-economic conditions, and participants’ concerns about the credit quality of the securitised exposures and pending regulation.

Third, the report outlines several recommendations that regulators can use to promote a sustainable and responsible securitisation framework. These relate to building a regulatory and supervisory framework which addresses participants’ misaligned incentives and conflicts of interest and which supports enhanced disclosure and transparency for investors.