Key initiatives
Key initiatives 2006/2007
Here are the key initiatives we have been working on:
Client valuations
This is a thematic review of the valuation policies and controls in place at investment banks for providing formal valuations on clients' positions. We will be publishing the better and weaker practices we observed in an external newsletter in Q4.
Valuation of complex and illiquid products
We have represented the FSA in an IOSCO working group developing 'Principles for the Valuation of Hedge Fund Portfolios' with a particular focus on complex or illiquid instruments. We outlined the background for this work in Regulatory concerns on valuation issues. In March 2007 we published the principles for public consultation which can be found on the IOSCO website. The final paper will be released in November 2007.
Private equity
We published a Feedback Statement in June 2007 based on the responses we received from the public consultation: Private Equity Feedback Statement 07/3. We have completed our thematic review and submitted the evidence collated to the Treasury Select Committee inquiry.
Credit rating agencies
We contributed to the development of European policy on an appropriate regulatory approach to credit rating agencies in March 2005 (CESR documents). This included encouraging credit rating agencies to implement the IOSCO Code of Conduct Fundamentals against which they would be evaluated by CESR. The first review of the credit rating agencies implementation of this Code by CESR in December 2006 can be found at http://www.cesr-eu.org/index.php?page=contenu_groups&id=43&docmore=1#doc.
Joint forum - credit risk transfer
We will be providing technical expertise to help update the Joint Forum Credit Risk Transfer report. We are hosting a series of meetings with a variety of market participants to glean their views on changes to the credit risk transfer market since 2004.
Corporate workouts
We have conducted thematic work on the inherent conflicts of interest between different holders of the capital structure of a corporation which enters restructuring or default.
Key initiatives 2008
Here are the key initiatives we will be working on:
Covered bonds
We are working with the Treasury and industry to implement a UCITS compliant regime in the UK. Consultation on the Treasury's Proposals for a UK recognised Covered Bonds Legislative Framework ended on 15 October 2007. We will consider the comments we receive from the consultation and implement the UK Covered Bonds Regime early 2008. We will publish further information on the new regime on our website in January 2008.
Joint forum: credit risk transfer
The taskforce is due to publish its findings in February 2008.
Islamic finance
With the rise in demand for Islamic finance, we will be analysing the regulatory implications for the FSA.
Credit rating agencies
We are committed to working internationally to achieve an acceptable and proportionate level of oversight of credit rating agencies. In particular, we are working within IOSCO to clarify and update the Code of Conduct Fundamentals, with particular focus on the rating of structured finance, and within CESR to ensure EU oversight of the agencies is appropriate.
Corporate workouts
We will be completing our thematic review and communicating our findings, as appropriate, on the implications of disintermediation in the credit markets for achiving an orderly corporate workout.
Private equity
We will be coordinating regulatory follow up on significant areas of work which are underway, such as the Walker Report and the Treasury Select Committee inquiry. We will also respresent the FSA in further work on private equity in IOSCO.
Market analysis and surveillance
We will carry our analysis on several issues which have arisen from recent market conditions. This will involve expanding out market intelligence network.
Formal valuation statements generated by banks for their clients.
We published our findings from a thematic review of the valuation policies and controls that investment banks operate when providing formal valuation statements for clients' positions. The findings outline the better and weaker practices we observed.
Valuation of complex or illiquid instruments.
We contributed to the development of the IOSCO paper 'Principles for the Valuation of Hedge Fund Portfolios'. We outlined the background for this work in Regulatory concerns on valuation issues. The Principles describe the importance of independent oversight and controls utilised to mitigate the conflicts of interest which may exist between hedge fund managers and the hedge fund. IOSCO published their final report in November 2007.