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Document 32017R2402

Simpler, more transparent and more standardised securitisation

Date of last review:
18/03/2019
Initial creation date:
17/05/2019
Summarised document(s):
Author:
Publications Office of the European Union
Responsible entity(ies):
Directorate-General for Financial Stability, Financial Services and Capital Markets Union

Simpler, more transparent and more standardised securitisation

 

SUMMARY OF:

Regulation (EU) 2017/2402 — general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation

WHAT IS THE AIM OF THE REGULATION?

It aims to restart a high quality securitisation* 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 diligence*, risk-retention*, transparency and credit-granting criteria;
  • requirements for the sale of securitisations to retail clients;
  • a ban on resecuritisation*;
  • rules for securitisation special purpose entities* (SSPEs) and securitisation repositories*;
  • 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 position* 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 1 January 2021, 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 2 January 2020, 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 1 January 2022, 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 1 January 2019.

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:

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 12 December 2017 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, 28.12.2017, pp. 35-80)

RELATED DOCUMENT

Regulation (EU) 2017/2401 of the European Parliament and of the Council of 12 December 2017 amending Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms (OJ L 347, 28.12.2017, pp. 1-34)

last update 18.03.2019

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