The new EU regulatory regime for securitisation: where are we now?

Regulation (EU) 2017/2402 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation ('the Securitisation Regulation') became directly applicable in all EU member states on 1 January 2019.

The Securitisation Regulation is applicable to securitisation transactions, the securities of which are issued on or after 1 January 2019 and to any securitisation in which a new securitisation position is created on or after 1 January 2019, subject to certain transitional arrangements.

The Securitisation Regulation has created a new cornerstone of the regulatory framework for securitisation in the EU. It has repealed many of the existing EU rules relating to securitisation transactions (eg risk retention, investor due diligence and transparency) and replaced them with a single set of common requirements that are applicable to all institutional investors (including banks, insurers and fund managers).

The Securitisation Regulation has significantly changed the regulatory framework in certain respects. Perhaps the most important development is the introduction of a regime for simple, transparent and standardised (STS) securitisation into EU law. The Securitisation Regulation and supporting EBA guidelines contain detailed criteria that a transaction must satisfy to qualify as STS. Another significant change is the expansion of the scope of the rules beyond EU regulated institutions to include corporate originators. In relation to risk retention, although the 5 per cent. minimum level and methods of risk retention remain unchanged, the Securitisation Regulation imposes risk retention requirements directly on originators, sponsors and original lenders. This means that EU‑established originators and sponsors will need to satisfy the requirements even where there is no requirement from investors to do so, for example, because the investors are all non‑EU entities.

Alongside the Securitisation Regulation, Regulation (EU) 2017/2401 amending Regulation (EU) No. 575/2013 on prudential requirements for credit institutions and investment firms ('the CRR Amendment Regulation') also became applicable on 1 January 2019. The CRR Amendment Regulation has introduced a preferential capital regime for positions held in STS securitisations by credit institutions and investment firms. It has also amended the general framework for regulatory capital treatment of securitisation positions held by credit institutions and investment firms under the CRR to reflect Basel III requirements.

Perhaps the most frustrating aspect of the new regime is that it came into force before any of the technical standards that are required to provide further detail on the provisions of the Securitisation Regulation had received final approval from the European legislators. This has resulted in many uncertainties for market participants which are likely to cause difficulties and delays for new deals coming to market in the next few months.

A key area of concern for market participants is the new disclosure regime. ESMA was required to develop technical standards to specify the information which must be provided to comply with the disclosure requirements contained in Article 7 of the Securitisation Regulation. On 22 August 2018, ESMA submitted its final report on these regulatory technical standards to the European Commission, including proposed reporting templates. Towards the end of 2018, the European Commission asked ESMA to reconsider certain elements of those draft technical standards. On 31 January 2019, ESMA published revised technical standards and reporting templates, together with an initial set of Q&A giving further guidance. Although the revised technical standards contain some helpful proposals, such as an extension in the ability to use ‘no data’ fields, several important questions remain unanswered. For example, much uncertainty remains around the treatment of private transactions. Furthermore, as yet, there is no clear indication of when securitisation transactions will need to be fully compliant with the new disclosure requirements.

Undoubtedly transactions will be done but more certainty from national competent authorities around forbearance in relation to this interim period would be welcome.