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For the purposes of this response, GFMA has based its analysis of the US position on the proposed rules which GFMA published in 2011. However, given the extensive comments raised by market participants on the proposed rules and the fact that the relevant US agencies have not yet responded to those comments (via the publication of further proposals or the final rules), it is difficult to comment with certainty on the differences arising between the EU and the US regimes and where the key areas of concern will arise.
Further analysis will be required as more information is made available with respect to the US regime. GFMA respectfully requests that the conclusions drawn by the IOSCO task force on the differences are also qualified in this manner.
While a comparison of the EU retention requirements and the US proposals reveals few points which (on their face) directly conflict, the differences between the regimes are significant. GFMA considers that these differences will affect the ability of market participants to comply in practice with both regimes in the context of various transactions (particularly those transactions which are not well suited to retention via the "base case" holding options, such as via a first loss position or a vertical slice) and will give rise to significant "frictional" issues including uncertainty as to how compliance may be achieved, increased costs and possible barriers to market access.
Following on from this, when considering and comparing the EU regime and the US proposals, GFMA does not consider it to be appropriate to focus only on circumstances where direct conflicts would arise. Instead, when considering the points which give rise to significant differences for these purposes, GFMA encourages IOSCO to take account of points of departure which are likely to result in practice in major compliance difficulties and/or significant additional costs for market participants.
The differences in the exemptions under the regimes are just one example of this and GFMA considers that other points will also give rise to significant compliance challenges in practice. Such other points arise, for example, in circumstances where it is possible to comply with both regimes but this may only be done by using two separate retention methods (i.e. a different method to comply with each regime, each of which will come with its own conditions and costs).
GFMA also wishes to note that its members strongly favour a mutual recognition and acceptance process with respect to risk retention. GFMA regards such a process as necessary to preserve the global nature of the asset-backed market and to enhance global liquidity.