Global watchdog sets up task force on credit crisis

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TOKYO, Nov 8 (Reuters) Global market regulators said on Thursday they will study whether to change how they oversee complex financial products at the heart of the U.S. subprime mortage related crisis that has unnerved investors since August.

IOSCO, the International Organization of Securities Commissions, said it had set up a task force to undertake the review which will take several months.

''The group will engage with securities regulators and the financial services industry to examine how they have responded to the recent crisis, the lessons that can be learned and what further work may be needed by IOSCO,'' said Michel Prada, head of IOSCO's technical committee.

The structured products linked to mortgages given to Americans with poor credit histories have turned sour as people struggle to repay their home loans.

The resulting credit squeeze triggered big losses and claimed top scalps at investment banks such as UBS , Citigroup and Merrill Lynch .

It has also shone a spotlight on how banks repackage assets and whether credit rating agencies were slow to warn investors.

''The recent events in credit markets have demonstrated how closely linked the world's financial centres are and that the issues facing securities regulators can no longer simply be viewed in a national context,'' Prada said.

''This reinforces the need for regulators to develop and implement international principles of regulation,'' said Prada, who is also chairman of the French market regulator AMF.

Group of Seven leaders met in Washington last month where they agreed a timetable stretching well into 2008 to review financial market transparency and supervision. Thursday's move by IOSCO complements that initiative.

STRUCTURED PRODUCTS IOSCO said the work will focus on the following areas: -- examine the risk assessment processes at broker dealers in trading structured products to see whether their current models of risk management are robust enough -- analyse what types of data investors, particularly mutual funds, rely on for investing in structured products -- to see whether the information issuers and arrangers of structured products give enough information to clients to assess the quality of the products -- whether regulators get enough information about structured products to protect investors -- whether alternative models for evaluating structured products are needed as investors may have relied on ratings from credit rating agencies not only to assess probability of default but also the product's liquidity -- IOSCO may also reopen its report from last year on special purpose vehicles to better analyse the way they are kept on the balance sheet and the risks to investors.

-- to see whether IOSCO's code of conduct used by credit rating agencies handles conflicts of interest properly and the role of agencies in the recent subprime crisis The task force is expected to present its final report to the technical committee in May 2008 during IOSCO's annual conference in Paris.

IOSCO is made up of the top national market supervisors from over 100 countries, including the European Union and United States, and is meeting in Tokyo.

IOSCO appointed a task force in April to study a potential conflict of interest when rating agencies help structure debt products for companies and then rate them.

REUTERS BJR GC1922

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