A new EU securitisation framework came into being on January 17th 2018 with the entry into force of the following Regulations:
- 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”), and
- Regulation (EU) 2017/2401 amending Regulation (EU) 575/2013 (the “CRR Amendment Regulation”).
In our January 2016 Newsletter, we summarised some of the key provisions of the European Commission proposal for the abovementioned Regulations. The final text of those Regulations has changed from that initially proposed by the European Commission following two years of significant negotiation between the European Parliament, the European Council and the European Commission.
The Securitisation Regulation consolidates the applicable rules which will govern securitisations within the EU going forward, replacing the largely fragmented legal framework which has been in place to date. The CRR Amendment Regulation replaces the provisions of the Regulation (EU) 575/2013 (the “Capital Requirements Regulation”) which relate to securitisations.
The Securitisation Regulation applies to institutional investors and to originators, sponsors, original lenders and securitisation special purposes entities. In its final form, in addition to defining securitisation and laying down a general framework for securitisation, the Securitisation Regulation imposes obligations on parties involved in securitisation with respect to due diligence, risk-retention and transparency; it also introduces a ban on re-securitisation subject to certain derogations. To enhance market transparency, the Securitisation Regulation establishes a framework for securitisation repositories to collect reports, primarily on underlying exposures in securitisations and sets forth the conditions and procedures for registration of a securitisation repository. Last, but certainly not least, a specific framework, for simple, transparent and standardised (“STS”) securitisations, has been established. Chapter 4 of the Securitisation Regulation sets out the requirements which must be met to be considered as an STS as well as the STS notification requirements.
In addition to addressing shortcomings of the regulatory capital standards of securitisations (such as the mechanistic reliance on external ratings), the CRR Amendment Regulation amends the regulatory capital requirements laid down in the Capital Requirements Regulation for institutions originating, sponsoring or investing in securitisations in light of the establishment of the framework for STS securitisations under the Securitisation Regulation.
The majority of the provisions of the Securitisation Regulation and CRR Amendment Regulation shall apply from January 1st 2019. In the meantime, we can expect to see the publication of Level 2 legislation such as technical standards, which will provide further details on the implementation of this much anticipated new legislative framework.