Chile's Financial Market Commission (CMF) released new regulations on Monday designed to reduce regulatory friction in the country's repo and securitization markets.
According to the regulator, the move aims to create incentives to increase liquidity and depth within the national fixed-income market. The measure is part of a market development agenda outlined by the institution's board.
Regarding repo operations, the new rule refines Basel III standards within the country. The adjustment simplifies the regulatory treatment used to determine capital requirements for credit risk.
According to the CMF, operations conducted under a framework agreement with the Central Bank of Chile could see risk weights as low as 10%. These could even drop to 0% when conducted with key counterparties or through recognized Central Counterparties (CCPs).
New criteria for securitizations
Regarding securitizations, the regulation introduces the concept of "significant risk transfer" for the first time. This allows for the establishment of clear criteria for calculating capital requirements on underlying assets or retained instruments.
The CMF highlighted the removal of the 1,250% credit risk weighting on retained securitized instruments. Additionally, the regulator will streamline the registration of self-securitizations in its Securities Registry.
The regulation also eases requirements for issuing endorsable mortgage pools. The goal is to use these instruments as vehicles to revitalize the securitization market.
The regulator expects these adjustments to promote greater competition and lower credit costs. By removing barriers, direct incentives are created for the growth of these strategic segments for the banking sector.
Finally, the CMF noted that these modifications respond to recommendations made by the International Monetary Fund (IMF) in 2021. This aligns local regulation with international best practices.
