31 January 2019 The ICMA’s AMIC has issued a guide* to due diligence requirements for investing in a securitisation position. The guide is designed as a starting point for new investors who are interested in securitisation to understand the new due diligence requirements which came into effect on 1 January 2019 under the Securitisation Regulation. The guide covers the following aspects:
- Due diligence requirements prior to holding securitisation;
- Where to find the relevant information; and
- Ongoing due diligence and monitoring requirements.
ICMA co-signs industry letter to European Commission on supporting securitisation
ICMA has joined several other leading European trade associations in signing a letter to the European Commission expressing support for the recently agreed simple, transparent and standardised (STS) securitisation framework in Europe. However, the signatories stress that for STS securitisation to be successful, and for the wider securitisation market to recover, it is critical that other pieces of EU legislation are calibrated appropriately to create the right conditions and incentives to support and encourage securitisation. Important calibrations for securitisation investments in Solvency 2 and the Liquidity Coverage Ratio (LCR) do not go far enough in addressing the harsh treatment of securitisation. The associations are concerned that without a more ambitious approach that fully recognises the prudential strength of securitisation in Europe, especially STS securitisations, the new Common Framework and STS Framework may become a missed opportunity.
ICMA joins industry effort to highlight importance of securitisation
ICMA has joined seven other leading European trade associations representing investors, originators, issuers and other market participants in signing a paper highlighting the importance of securitisation for jobs and growth in Europe, and underlining their commitment to supporting a safe and sustainable market that serves the real economy. ICMA, led by an investor working group run by the Asset Management and Investors Council (AMIC), joins the Association for Financial Markets in Europe (AFME), the Dutch Securitisation Association (DSA), Eurofinas, the European Banking Federation (EBF), the European Fund and Asset Management Association (EFAMA), Leaseurope and Pensions Europe in signing the paper and make the following key points:
- Securitisation can support SMEs and households in many different ways;
- A revival of sound securitisation can help diversify risks, thereby making the financial system more stable;
- A well-designed STS framework will deliver “simple”, “transparent” and “standardised” securitisations;
- Transparency and disclosure standards are already robust– further requirements should build on existing infrastructure and be carefully calibrated;
- The lessons of the crisis have been learned and reflected in EU regulations;
- Investor due diligence is important, but unnecessary duplication should be avoided as it disincentivises investment;
- Risk retention is important: the existing rules ensure alignment of interests and sufficient “skin in the game” for those who securitise;
- Tranching is common across all debt markets and is an essential feature of the securitisation technique to meet investors’ needs.
ICMA takes part in joint buy- and sell-side position paper on securitisation
ICMA has joined three buy and sell-side European trade associations representing investors, issuers and other market participants to support the new framework for securitisation regulation. In addition to ICMA, the Association for Financial Markets in Europe (AFME), the European Fund and Asset Management Association (EFAMA), and Insurance Europe have issued a joint paper backing efforts by EU policymakers to develop a robust and successful framework for simple, transparent and standardised (STS) securitisation. In line with the Commission’s Capital Markets Union initiative, the associations believe that a new framework for securitisation could play a pivotal role between banks’ financing and capital markets, enabling much-needed non-bank funding alternatives and providing investors with high-quality fixed income securities and attractive yields. In the joint paper, the organisations affirm that securitisation is an important element of well-functioning financial markets and call for securitisation to be treated on a level playing field with other forms of investment. They highlight their shared views on the key points for the European Parliament to consider in its development of the new framework.
AMIC responds to European Commission consultation on securitisation
ICMA’s AMIC has responded to the European Commission Consultation Document on an EU framework for simple, transparent and standardised securitisation.
AMIC welcomed the European Commission’s consultation on the market for securitisation in Europe and expressed hope that the initiative leads to a coordinated, harmonised and consistent approach to the regulation of securitisation in the EU and preferably globally. AMIC also urged the Commission to consider simple criteria for “qualifying” securitisation and to change the burden of compliance with the EU retention requirement from the investor to the issuer.
To view the response, click here.
Joint trade association response to IOSCO consultation on simple, transparent and comparable securitisations
ICMA, together with the GFMA, the IIF and ISDA, has responded to the BCBS IOSCO Consultative Document on Criteria for identifying simple, transparent and comparable securitisations. AMIC’s Securitisation Working Group were involved in agreeing the joint approach. In addition to answering the specific questions raised and commenting on the criteria the BCBS/IOSCO had proposed to identify simple, transparent and comparable securitisations, the trade associations made the following overall points in their response:
- We are in favour of a holistic, transaction-based (not tranche-based) approach.
- The criteria should bear in mind the needs of investors but not at the cost of the needs of originators.
- Harmonisation of the requirements across jurisdictions should be a key goal.
- We believe synthetic securitisations should be included in the STC criteria, subject to certain conditions.
- We believe the benefits of managed CLOs risk being lost as a result of their exclusion.
- We strongly support the Authorities' modular approach to STC securitisation to ensure the concept is appropriate to each of the circumstances to which it is likely to be applied.
- The Authorities should encourage national authorities to provide a degree of transitional relief.
- Determinations about whether securitisations qualify must be made prior to pricing and must be able to be relied upon by investors.
- Some criteria assume the presence of a party with a fiduciary responsibility and this is not the case in all jurisdictions.
- For private transactions, care should be taken to calibrate disclosure requirements to take into account their particular characteristics.
Joint trade association response to EBA consultation on simple standard and transparent securitisations
ICMA, together with AFME, the BBA and ISDA, has responded to the EBA’s Discussion Paper on simple standard and transparent securitisations. AMIC’s Securitisation Working Group were involved in agreeing the joint approach. In addition to commenting on the criteria the EBA had proposed to identify simple, standard and transparent securitisations, the trade associations made the following points in their response:
- We agree with the need for a holistic, transaction-based (not tranche-based) approach.
- We are disappointed that asset-backed commercial paper is out of scope.
- We believe the benefits of managed CLOs risk being lost as a result of their exclusion.
- It would be helpful to have a better understanding of the effects of being (or not being) a qualifying securitisation.
- Need for a modular approach to qualifying securitisation to ensure the concept is appropriate to each of the circumstances to which it is likely to be applied.
- Criteria are highly detailed and risk inappropriately excluding a large number of securitisations. They should be more principles-based.
- The EBA should provide a degree of transitional relief.
- Determinations about whether securitisations qualify must be made prior to pricing and must be able to be relied upon by investors.
- The criteria should bear in mind the needs of investors but not at the cost of the needs of originators.
