Background
Regulation (EU) 2017/2402 of 12 December 2017 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation (the “Securitisation Regulation”) establishes a new European legal and regulatory framework for securitisation. Its purpose is twofold: firstly, it harmonises the existing fragmented sectoral regulation of securitisation in areas such as banking, insurance or credit rating. Secondly, it introduces new rules for simple, transparent and standardised securitisations (“STS”) in response to the excesses that led to the financial crises of 2008.
The Securitisation Regulation is a cornerstone of the European Union’s efforts to establish a capital markets union. It is a testimony to the EU’s recognition that securitisation plays an important role in the diversification of funding sources and allows a broader distribution of financial-sector risk, among other things.
The Securitisation Regulation is applicable from January 1st 2019.
Rules applicable to STS securitisations
Investors in STS securitisations will benefit from a more favourable prudential treatment compared to non STS securitisations.
The designation “STS securitisation” applies only to securitisations that meet all the (numerous) requirements related to:
- “simplicity” (Article 20),
- “standardisation” (Article 21) and
- “transparency” (Article 22).
Due diligence, risk retention and transparency requirements applicable to all securitisations
The Securitisation Regulation sets out various obligations applicable to institutional investors exposed to a securitisation as well as to the originators and sponsors.
Institutional investors are required pursuant to Article 5 to carry out an extensive due diligence to assess the risks involved in a securitisation prior to acquiring a position and after acquiring a position they must monitor its performance on an ongoing basis.
Originators and sponsors are obliged under Article 6 to retain a material net economic interest in the securitisation of not less than 5%. The same entities, as well as the securitisation vehicles, are obliged to follow transparency requirements under Article 7 by making information available to investors, potential investors and the relevant regulators.
The Luxembourg angle
The Luxembourg law of March 22nd 2004 on securitisation, as amended, (the “Luxembourg Securitisation Law”) provides sufficient flexibility to accommodate the changes introduced by the Securitisation Regulation. In particular, the definition of securitisation in the Luxembourg Securitisation Law is broad enough to encompass most, if not all, transactions that qualify as securitisation under the Securitisation Regulation.
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