Report on the Seminar to discuss: Should issuer-supplied Liabilities Waterfall Models be
Ref. Ares(2017)3025174 - 16/06/2017
a transparency requirement for ‘qualifying‘ securitisations?
Held at Laytons Solicitors, 2 More London Riverside, London SE1 2AP at 2pm on Monday 27 April 2015
Attended by interested global securitisation industry participants under the Chatham House Rule
1 Some Definitions
Issuer Supplied Liabilities Waterfall Model
Liabilities Waterfall Model
ISLWMs would be required to be disclosed as one of several criteria for
and BCBS/IOSCO co
2 A set of benefits was agreed:
1. The Requirement would facilitate a useful formal and transparent process for checking the liabilities waterfall
and to flush out errors and problems – which have occurred and do occur from time to time.
2. The Requirement would incentivise issuers to ensure the liabilities waterfall is correct because of potential
3. The Requirement would need to specify the need for a full set and full disclosure of input opportunities for the
user to control that would cater for every eventuality the liabilities waterfall states consequences for – and
would be of particular use and importance if the transaction became distressed.
4. ISLWMs would be useful in the event of a dispute between issuer and investor over the liabilities waterfall
where ambiguity was found to exist in the documentation.
There was general agreement that a publicly available LWM showing all possible inputs would be beneficial. 3 A set of key points and arguments was raised:
3.1 The Requirement would be more useful for more complex transactions that would not
On the one hand:
ISLWMs should not make or break whether a transaction is ‘qualifying’ or not – more complex transactions
should be caught and forced out of scope by ‘other criteria’
ISLWMs would provide more value for transactions that fall outside the ‘qualifying’ requirements
But to counter:
Both Consultation Documents are ‘light touch’ and high level with regard to liabilities waterfall complexity
restrictions so the rationale for inclusion of a requirement for ISLWMs is at least in part:
To give issuers as free a hand as possible to structure the liabilities waterfall as they feel necessary, but
Disclose how the waterfall works in practice in an ISLWM
The implicit alternative would be to further regulate, which might create ‘cliff effects’ – which it is understood that the
industry would like to avoid. 3.2 Reliance by investors on ISLWMs
There was a robust argument on both sides with a conclusion that if the Requirement is a good idea and
introduced, investors are entitled to rely on it.
It was accepted that consideration of investor due diligence requirements was not in scope.
3.3 Additional burden to the issuer
In any event, the issuance process necessarily requires the issuer or agent of the issuer to model the transaction. The
Requirement could result in additional cost to the issuer. This was discussed in the meeting and not considered to be a
high or prohibitive additional cost, neither was the task to meet the Requirement considered to be onerous. 3.4 Existence of more than one LWM could be confusing
It was argued that the existence of multiple LWMs would be confusing. i.e. Which one is correct and why? However, it
was counter-argued that more than one LWM could be helpful. The implementation of a LWM is an objective task.
Therefore each LWM for the same transaction, if correct, should yield identical results given identical inputs. Multiple
LWMs could be checked against each other, identifying any inconsistencies and help flush out errors and differences in
interpretation. 4 The following questions remain unanswered
4.1 Is the Requirement a good idea or would it be better to tighten or employ additional criteria
to restrict liabilities waterfall complexity?
4.2 Should the issuer be responsible for supplying the LWM or is there an alternative