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Oliver Roethig, UNI Finance Head of department, says: “We welcome the fact that regulators are finally addressing issues that UNI-Europa Finance identified as important to make regulation of financial markets more effective”.



Important issues will be tackled by regulators, including transparency, credit rating agencies, supervision, and rules on capital adequacy.



“All parts of financial transactions much be covered by new regulation”, adds Roethig. “Adaptable and far-sighted regulatory frameworks, as well as a hands-on global system of supervision, are neccessary, taking into account the innovativeness of the actors on the financial market and its global nature”.



At the European level, the Economic and Financial Affairs Council (ECOFIN) has agreed on a list of actions that will be undertaken in 2008. Areas of work include:

- Improving transparency in the market, notably as concerns banks’ exposures relating to securitisation and off-balance sheet items.

- Improving valuation standards to respond to problems arising from the valuation of illiquid or complex assets.

- Improving the prudential framework for the banking sector, in particular with respect to the treatment of large exposures, banks’ exposures to securitisation as well as liquidity risk management.

- Reviewing the role or credit rating agencies, the due diligence process of investors and the underpinnings of the “originate and distribute” banking model.



In addition, international regulators are announcing that they will take actions to increase the stability of the international finance system.



The Financial Stability Forum (FSF) presented on 12 April its recommendations for enhancing the resilience of markets and financial institutions. The recommendations target the following issues:

- Strengthening prudential oversight of capital, liquidity and risk management, in particular for securitisation and off-balance sheet activities.

- Enhancing transparency and valuation in order to increase the market confidence of reliable valuations and useful disclosures of the risks associated with structured credit products and off-balance sheet entities.

- Changes in the role and use of credit ratings, by improving the quality of their rating process.

- Strengthening the authorities’ responsiveness to risks, for example through increased cooperation among authorities.

- Robust arrangements for dealing with stress in the financial system.



On 16 April, the Basel Committee on Banking Supervision announced a series of measures that are in support of FSF’s recommendations. These include:

- Establishing higher capital requirements for certain complex structured credit products, such as collateralised debt obligations.

- Strengthening the capital treatment of liquidity facilities extended to support off-balance sheet vehicles such as the asset-backed commercial paper conduits.

- Strengthening the capital requirements of banks’ trading books.

- Strengthening risk management and supervisory practices (banks’ stress testing practices, capital planning processes, management of off-balance sheet exposures, risk managements practices relating to securitisation activities, etc.)

- Enhancing disclosures relating to complex securitisation exposures, asset-backed commercial paper conduits and the sponsorship of off-balance sheet vehicles.



At the same time the International Accounting Standards Board (IASB) is looking at requiring lenders to disclose their off-balance sheet interests in a strict form in a move to improve the transparency of banks’ accounts. Off-balance sheet vehicles – a form of funding that avoids placing equity, liabilities or assets on the bank’s balance sheet – was one of the shortcomings identified by the financial crisis.



The forecasted changes are likely to limit the complex techniques banks use to transfer risks.



See also UNI-Europa Finance Statement on Demands on regulation of financial markets: