Ref. Ares(2017)3025174 - 16/06/2017
Association for Financial Markets in Europe
Securitisation STS and CRR proposals:
Position Paper for Trilogue discussions
The European Parliament and Council texts on the STS and CRR proposals include a number of
improvements to the original proposals. We welcome in particular (among other points):
The broad alignment of views between the co-legislators on the CRR hierarchy of approaches –
though we stress the importance of our comments below on conditions of feasibility for use of
SEC-IRBA and determination of Kirb;
The support in principle for the introduction of a regime for third country STS securitisations
Changes to the maturity caps on underlying assets of the ABCP programme (Council).
However, several new proposals introduced during the debate, together with some unaddressed issues,
which we discuss below, run counter to the objective to revive securitisation markets. Our members –
investors and issuers - are deeply concerned that if certain provisions are not corrected in Trilogues
then all securitisation – not just STS securitisation - could become prohibitively burdensome in Europe.
For the new STS securitisation framework to succeed, it is vital that the provisions are carefully
designed to ensure securitisation remains not only possible but also sufficiently attractive for both
issuers and investors. It is important to look at the package of initiatives that impact on securitisation
as a whole: a disproportionate or punitive requirement in one area will not be compensated by more
flexibility in other areas. Picking apart individual components without considering their effect more
generally will negatively impact the ability of both issuers and investors to restore the market.
Our comments below focus on priority issues identified by AFME members.
Restrictions on permitted market participants (Art. 2a and Art. 2b in the European
Art. 2a and Art. 2b in the European Parliament text are extremely problematic. Permitting only
regulated entities to undertake securitisation will reduce rather than expand the use of this
technique and exclude from the market many real economy corporates such as auto loan “captive”
issuers leasing companies and other corporate groups undertaking trade receivable securitisation.
Also, allowing only institutional investors to participate will concentrate, not diversify, risk – this
runs counter to financial stability objectives. If restrictions are considered necessary at all, then a
better approach would be to exclude direct investment by certain types of investors, for example
MiFID retail investors . (Such an exclusion should not apply to indirect investment via funds.)
The proposal in Art. 2a in the European Parliament’s text is problematic for a range of
securitisations, for example it would prevent most ABCP conduits established in the EU from issuing
US ABCP - unless the EU accepts that the US investor is subject to an equivalent regulatory regime,
a process involving many uncertainties. Currently, access to the deep US ABCP market is essential
for European ABCP conduits to function. Indeed, the ability of European issuers of ABCP to source
funds from the US has been of critical importance during recent periods of market stress, when the
US was the only market available. See further our comments below under third country issues.
Proposed changes to the risk retention regime in the European Parliament text affect all
securitisations, not just STS. The changes will make it more inefficient for corporates such as auto
loan manufacturers and leasing companies to fund themselves directly. Indirectly, they will make it
more difficult for banks to transfer risk, thereby reducing their ability to lend to the real economy.
We believe that the retention level should remain at 5% and the proposed changes should be
abandoned since the existing regime has been reviewed many times over the years by many
respected institutions, and has been shown to work well. No evidence has been produced or impact
assessment undertaken to support a change to the current regime and deviation from the global 5%
standard would create major challenges We have addressed our concerns regarding risk retention
in more detail in a separate paper.
Standards of disclosure in European securitisation are already very good and much better than for
other fixed income products. The market is not failing to revive because of shortcomings in
disclosure. It is vital that any transparency regime for public
transactions (i.e. those subject to a
Prospectus Directive requirements) also allows for an appropriate, principles-based disclosure
standard for private
transactions, including adjustments to the application of the loan-level
reporting requirement. This is now particularly important in the context of the proposed
establishment of a European Securitisation Data Repository (ESDR). In addition, while the
European Parliament’s Recital 13a refers to “non-public” securitisations it is important that
appropriate provisions are included also to reflect confidentiality aspects relevant to them.
Proposals for public disclosure of information listing the names of investors in securitisation
transactions, the characteristics of their investment and their ultimate beneficial owners are highly
problematic. They will further stigmatise securitisation compared with other asset classes, and
drive investors away.
Further, the provision for ESMA's transparency overview (Art. 5(2a)) as well as the information
required under Article 5(1a) (i.e. the investor name give-up information) suggest that the
information would still need to disclosed to ESMA and the ESDR. Here we question the practical
feasibility of such requirement for investors in the secondary market; by definition these investors
are unknown to the issuer and the originator, or for the ABCP.
Overall, we once again stress the importance of a level playing field with other fixed income
products, where investor name give-up is not required.
Existing/legacy transactions and grandfathering
The lack of provision for an adjusted standard for existing/legacy transactions, as well
grandfathering provisions, would cause many problems. These transactions, established before the
publication of the STS proposals, have performed well but cannot easily be “retro-fitted” to comply
with the new rules. They comprise around €320 billion or 40% of all European RMBS / consumer
/ SME ABS outstanding1. The exclusion of a large section of the market would further damage
investor confidence and liquidity in a market which is already fragile. It would risk a highly
damaging impact on existing investor holdings as they would be subject to harsher capital
requirements, LCR ineligibility, harsher NSFR treatment, and other disadvantages as compared with
STS transactions. Far from encouraging new investors to enter the market, this adverse treatment
would likely dry up any liquidity in the secondary market which in turn would further damage the
A number of provisions need to be adjusted to accommodate existing/legacy transactions and
grandfathering. AFME will be pleased to share more detailed feedback.
Third country issues
We support the introduction of the regime for third country STS securitisation, however the lack of
clear provisions on the access of third country entities to the EU market remains problematic. We
further note that the list of equivalent countries accepted should not be restrictive and should
include all countries that have investors in European ABS, be they sovereign wealth funds or
We are concerned by the introduction by Council of a provision that originator, sponsor and SSPE
be established in the EU for a securitisation to the eligible for STS categorisation. Such
limitations would be particularly problematic for ABCP programmes, which often involve multiple
jurisdictions, as well as limiting EU investors’ and companies’ access to third-country issued
securitisations thereby reducing activity in the EU. Excluding non-EU securitisation from STS
recognition (and consequent reduced capital requirements) would also result in securitisation
exposures with similar levels of credit risk - which could otherwise be STS-compliant - being treated
differently for regulatory capital purposes. We have addressed these concerns in more detail in
1 As of late 2015.
ABCP maturity limitations
Particularly in light of the reduced limit of 1 year (instead of 2 years as originally proposed by the
Commission) for the WAL of assets in each ABCP transaction, the adjusted requirement proposed
by the Parliament in Article 12 for auto loans, auto leases and equipment leases should also be
extended to consumer loans, credit cards and SME loans. This would be a natural extension and
would allow ABCP conduits to continue supporting the real funding needs of consumers and SMEs.
Sanctions: negligence/omission standard should apply
We believe that penalties should apply only in the case of negligence or deliberate misconduct. The
provisions to which sanctions could apply are numerous, new, and unclear. Given the range of STS
criteria and the potential for draconian sanctions if honest mistakes occur, market participants may
decide that on balance it is not worth engaging in securitisation transactions. Participants are likely
to restrict their use of securitisation or postpone the use of the STS label until there is more clarity
on the interpretation of the rules. We stress again the importance of a level playing field with other
fixed income products which do not feature an unduly harsh sanctions regime.
Conditions for use of SEC-IRBA and determination of Kirb (Art.255)
A key objective of the CRR Amendment is to revive the securitisation market by broadening the use
of the SEC-IRBA, which will only be possible once European banks will be allowed to apply the
advanced securitisation approach where they have not originated the pool. In such situations, it
would be unreasonable to expect that banks do a loan by loan analysis of the pool, especially for
granular assets. Therefore, banks need permission to use a “top down” approach under which the
performance of the pool is assessed at the aggregate level provided that there is sufficient historical
data available on the pool. Banks can also complement such analysis by using data from similar
pools. This is in fact very similar to what the CRR already allows for pools of purchased receivables
under Article 179. Thus, we believe that it is essential that this CRR Amendment includes provisions
for the EBA to develop RTS for the use of such data which should be more accurately described as a
“purchased receivables approach”.
Senior positions in SME Securitisation (Art. 270)
Unfortunately, the European Parliament did not adopt an amendment to Article 270, paragraph 1
letter (e) introduced during Parliament’s discussions which allowed banks to use the same
regulatory capital treatment of STS securitisation for the senior tranche of their SME securitisations
even where the guarantee was provided by private investors through cash collateral. This is
extremely penalising since the vast majority of SMEs securitisations in Europe are guaranteed in
Significant risk transfer and implicit support
We oppose the Parliament’s changes to the definitions of significant risk transfer and other
operational conditions as well as changes proposed in relation to implicit support. We believe that
the definition of mezzanine securitisation for purposes of the significant risk transfer test has been
settled for some time and should not be changed except to the extent necessary to adapt to other
changes in the securitisation framework. We support the Council's provisions in this area.
With issuance in Europe as low as EUR40.2bn in Q3 2016, of which only EUR16bn was placed with
investors, the European securitisation market remains moribund – largely because of the lack of a level
playing field with similar fixed income products created by punitive regulation which does not
recognise the strong performance of European securitisation through and since the financial crisis. With
regulatory costs for holding securitisation paper several times higher than other similarly-rated
products, participants continue to leave the market. Securitisation is already one of the most – if not the
most – heavily regulated of fixed income products/financial tools, with the most conservative
The STS framework represents a unique opportunity to design a framework that benefits the economy
and incorporates lessons from the financial crisis. In its proposal “laying down common rules on
securitisation and creating a European framework for STS securitisation” the European Commission
The development of a simple, transparent and standardized securitisation market constitutes a building
block of the CMU and contributes to the Commission’s priority objective to support job creation and a
return to sustainable growth. A high quality framework for EU securitisation can promote integration of
EU financial markets, help diversify funding sources and unlock capital, making it easier for credit
institutions and lenders to lend to households and businesses.
We urge policymakers to consider amendments against these policy objectives. Provisions should be
evaluated against their propensity to make a successful STS regime and a revived European
securitisation market more, rather than less, likely.
Association for Financial Markets in Europe
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