IOSCO publishes final report on loan funds survey

IOSCO has published the findings of its survey on loan funds as part of its effort to build a sustainable system of market-based finance. The report describes how the market for loan funds has evolved in different jurisdictions and sets out how regulators are addressing the risks associated with these funds.

The report identifies two types of loan funds. Loan originating funds can grant, restructure and acquire loans, while loan participating funds can acquire and restructure partially or entirely existing loans originated by banks and other institutions, either directly from the lender or on secondary markets.

The report identifies the following risks associated with loan funds:

• liquidity risk: loans are hard to value and, since they are also hard to trade, are very illiquid assets;
   
• credit risks: the risk of a default of the borrower;
   
• systemic risks from excessive credit growth; and
   
• regulatory arbitrage.

Many jurisdictions consider their general rules for funds to be sufficient to address the risks associated with loan funds, and so the report concludes that further work on loan funds is not warranted at this stage. Considering the specific risks identified in the report, IOSCO will continue to monitor the issue with a view to possibly revisiting it for future work should it be called for by market developments.