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Simpler, more transparent and more standardised securitisation
SUMMARY OF:
WHAT IS THE AIM OF THE REGULATION?
It aims to restart a high quality securitisation1 market that will:
- improve the financing of the EU’s real economy;
- enhance private risk sharing; and
- ensure investor protection.
It creates a general system to simplify rules for all securitisations and to identify simple, transparent and standardised securitisations. This includes:
- common definitions for all key concepts in a securitisation;
- requirements for due diligence2, risk-retention3, transparency and credit-granting criteria;
- requirements for the sale of securitisations to retail clients;
- a ban on resecuritisation4;
- rules for securitisation special purpose entities5 (SSPEs) and securitisation repositories6;
- a structure for simple, transparent and standardised (STS) securitisation;
- a system for administrative sanctions and remedial measures in cases of non-compliance.
KEY POINTS
- Investors in a securitisation position7 must first carry out certain tests to:
- assess all the risks involved before taking on the responsibility (due diligence);
- ensure the product is suitable for the client before selling it on.
- Issuers of a securitisation must:
- retain a net economic interest of at least 5% of its value (risk-retention);
- provide detailed information and underlying documents to holders of a securitisation position, the relevant authorities and, if asked, potential investors so they understand the transaction (transparency);
- apply the same sound and well-defined criteria for granting credit as they do for non-securitised products.
- Securitisation special purpose entities must not be based in a high-risk non-EU country.
- Securitisation repositories must:
- register with the European Securities and Markets Authority which has powers to withdraw their licence;
- collect and keep all details of the securitisation and make these available free of charge to investors and competent authorities.
- Issuers may use the term STS (simple, transparent and standardised) when the securitisation, whether short- or long-term, meets a clear set of criteria. This is to distinguish it from more complex and opaque ones and enables some institutional investors to apply a more risk-sensitive capital treatment.
- Various European and national authorities, with powers to investigate and apply administrative and criminal penalties, supervise implementation of the legislation and work closely together.
- By , and then every 3 years, the Joint Committee of the European Supervisory Authorities publishes a report on experiences with the regulation.
- The European Commission:
- by , on the basis of a report published by the European Banking Authority, presents a report to the European Parliament and the Council on the feasibility of creating an STS framework for synthetic securitisations;
- by , presents a report to the European Parliament and the Council on the legislation with proposals for amendments if necessary;
- has the power to adopt delegated acts to amend non-essential elements of the regulation.
FROM WHEN DOES THE REGULATION APPLY?
It has applied since .
BACKGROUND
- Securitisation products played a significant role in the US subprime mortgage crisis beginning in 2007. The market in the EU has been slow to recover since.
- The legislation, which also amends the capital requirements regulation (Regulation (EU) 2017/2401), is designed to remedy this by introducing clear and effective rules to restore market confidence.
- A framework for securitisation is the first major building block of the EU’s plan, launched in 2015, to develop a fully functioning capital markets union by the end of 2019. Developing a securitisation market helps create new investment possibilities and provide an additional source of finance, especially for small- and medium-sized enterprises and start-ups.
- For more information, see:
- Securitisation (European Commission)
- A European framework for simple and transparent securitisation — Fact sheet (European Commission).
KEY TERMS
- Securitisation: a transaction that enables a lender — often a bank — to refinance a set of loans/assets (e.g. mortgages, car leases, consumer loans, credit cards) by converting them into securities that others can invest in.
- Due diligence: an institutional investor should be able to show that the necessary verifications of the due-diligence requirements laid down in detail in Article 5 of the regulation have been met.
- Risk-retention: planned acceptance of losses where some, but not all, risk is consciously retained rather than transferred.
- Resecuritisation: securitisation where at least one of the underlying exposures is a securitisation position.
- Securitisation special purpose entities: a body carrying out one or more securitisations and whose structure is intended to isolate the SSPE’s obligations from those involved in the original agreement.
- Securitisation repositories: centrally collect and maintain records on securitisations to help improve transparency in the market.
- Securitisation position: exposure to a securitisation.
MAIN DOCUMENT
Regulation (EU) 2017/2402 of the European Parliament and of the Council of laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation, and amending Directives 2009/65/EC, 2009/138/EC and 2011/61/EU and Regulations (EC) No 1060/2009 and (EU) No 648/2012 (OJ L 347, , pp. 35-80)
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