Home > Securitisation > News on Securitisation > IOSCO Paper on Simple, Transparent and Comparable (STC) securitization

The Basel Committee on Banking Supervision (BCBS) and the Board of the International Organisation of Security Commissions (IOSCO) had set up a joint task force to review the developments in the securitization market, identify factors hindering development of sustainable securitization market and also identify criteria for development of simple and transparent securitization structures.

Post the crisis the term securitization issuances had declined drastically. One of the concerns for securitization was the complexity in the structures. It was opined that the investors at large could not decipher the risks in these complex structures before making investments and suffered losses. The intent of developing these criteria was to create a sustainable securitization market.

Based on the observations of the Task Force on Securitization Markets (TSFM), BSBS and IOSCO have developed 14 criteria for simple, transparent and comparable securitization which is issued by way of a consultative document[1] on Criteria for identifying transparent and comparable securitization on 11th December, 2014. The consultative paper also clearly mentions that the focus of STC securitization is towards term securitization and not short term securitization. The authorities have placed the paper for comments from interested parties till 13th February, 2015.

These criteria are not exhaustive and are non-binding in nature.

Impediments to sustainable securitization market:

Post the 2007-08 crisis, the securitization volumes had globally contracted. A large part of this was because the key constituents of securitization investors’ base had collapsed. The issuance volumes recovered bleakly but could not attain the pre-crisis volumes.

TSFM identified several impediments to the development of sustainable securitization market and some of these are:

  1. Investors’ confidence in securitization as an investment class eroded as losses in mortgage-related securitization and CDO transactions mounted during the financial crisis of 2007.
  2. Securitization was too complex and subject to too many conflicts of interest and asymmetry of information among securitisers, originators and investors.
  3. Regulatory uncertainty also deterred market participants from coming out with issuances.
  4. Lack of availability of information for assessing the underlying credit risk.
  5. The complex structure of the transactions leads to lack in transparency and hence loss of confidence.
  6. Lack of information and expertise makes investment in securitization a costly affair.

Suggested Criteria:

The consultative document aims at assisting and identifying the financial industry’s development of simple, straightforward, transparent and comparable securitization structures. Sustainable securitization market has three factors and also explains what each of these entail. The three factors are:

a. Simplicity – homogenous pool of underlying assets and the structure not being complex.

b. Transparency – Investors to be well informed about the underlying assets, transaction structures, parties involved in the transaction and thorough detailing on the risks involved. The information should be provided to the investors in such a manner that it enables them to assess the risks in investment and make informed decisions on investments.

c. Comparability – Securitization products within an asset class should be such that they assist comparison within an asset class.

With the underlying mandate being clear, to be able to promote STC securitization, the consultative paper sets the 14 criteria for creating the enabling environment. The criteria have been classified based on the risks in the securitization process and are intended to tackle the identified impediments.

The table below as reproduced from the consultative paper, outlines the 14 STC criteria that seek to help identify asset risk, structural risk and fiduciary and servicer risk, noting their purpose with respect to simplicity, transparency and/or comparability.


Criteria summary


A. Asset risk

1.   Nature of the assets

2.   Asset performance history

3.   Payment status

4.   Consistency of underwriting

5.   Asset selection and transfer

6.   Initial and ongoing data

S, T, C

T, C

S, T, C

S ,C

S, T, C

S, T, C

B. Structural risk

7.    Redemption cash flows

8.    Currency and interest rate asset and liability mismatches

9.    Payment priorities and observability

10.  Voting and enforcement rights

11.  Documentation disclosure and legal review

12.  Alignment of interests


S, C

S, T, C

S, T, C

T, C

S, C

C. Fiduciary and servicer risk

    13. Fiduciary and contractual responsibilities

    14. Transparency to investors

T, C

T, C

*S = simplicity; T = transparency; C = comparability

* The criteria summary has been discussed in details in the consultation paper.



Significance of securitization and its revival have been dealt with in research papers. While the global financial crisis may be a thing of the past but the burns from the crisis continue to create concerns in the market. Hopefully the perception of securitization will be more enabling amongst the market participants for the instrument to flourish.



Reported by: Nidhi Bothra

Date: 30th December, 2014

[1] http://www.iosco.org/library/pubdocs/pdf/IOSCOPD467.pdf