22 August 2013

EBF response to the EBA consultation on securitisation retention

EBF attaches great importance to regulatory proposals in the scope of securitisation, as it represents a central part of the EU financial system. Securitisations should be duly regulated and safely backed with capital requirements. Yet securitisations should still make economic sense for banks.

EBF understands that the mandate of EBA to conduct an impact assessment of the proposed regulatory technical standards may be circumscribed to the effects of the RTS on the EU securitisation market. However the key question, whether securitisations make economic sense under the proposed regulatory framework, will remain unanswered until the Basel Committee revision of the securitisation framework is taken into account.

Regarding the content of the proposed RTS, the following aspects should deserve further consideration in the EBA’s final text:

The impact on existing transactions due to the absence of grandfathering clauses

The EBF urges the EBA to smoothen the impact on transactions that have been structured in good faith to avoid penalising investors. Grandfathering clauses or similar arrangements would prevent from a quick liquidation of exposures.

The removal of the flexibility regarding the holder of the retention should be carefully assessed to consider the cases of other specific entities. Likewise the definition of sponsor

The previous guidelines and the Q&A allow the collateral manager or an involved subordinated investor to satisfy the retention requirement. The RTS draft proposal departs from the current guidance which provides flexibility for an entity other than the originator, sponsor or original lender to satisfy the retention requirements in certain circumstances.

Nevertheless, according to the article 4(1) of the draft RTS the retention must be fulfilled in full by the originator, the sponsor or the original lender, with no exceptions. Therefore, an involved subordinated investor such as a third party investor in a CLO, under some specific cases, will no longer satisfy the retention requirement and only collateral managers subject to the requirements of the MiFID can satisfy the retention requirement.

The definition of investment firm

Article 4(43) of the CRR stipulates that a sponsor is either a credit institution or an investment firm (compliant with the MiFID definition), “other than an originator institution that establishes and manages another securitisation scheme that purchases exposures from third party entities”. The new reference to investment firms in the sponsor definition does not provide the expected flexibility in the identification of an eligible retaining entity in some specific cases (including the context of managed CLOs) because of the MiFID investment firm’s definition technical constraints. For example, while the definition of “investment firm” picks up MIFID regulated asset managers, it excludes MIFID firms not authorised to undertake certain services and which are not allowed to hold client monies.

Further, EU alternative asset managers authorised under the Alternative Investment Fund Managers Directive (AIFMD) do not fall within the definition of “investment firm”. Many collateral managers currently regulated under MIFID will be obliged to be re-authorised under AIMFD in July 2013 and, consequently, will cease to be regulated under MIFID (a firm is not permitted to hold both authorisations).

Also, a clarification should be made as to the definition of consolidated group where the retention requirement must be satisfied

The removal of the former guidelines and the Q&A leads to a situation where only those institutions in a group whose regulatory capital requirements are supervised on a consolidated basis may satisfy requirements on a consolidated basis. The guidelines and the Q&A allow the retention requirement to be met by the parent or affiliate of the collateral manager. The draft RTS is silent on this issue, while, in EBF’sview, it requires clarification.

Therefore, there is a concern that satisfying the retention requirement on a consolidated rather than solo basis may be granted to entities under regulatory capital supervision and to assets sourced from entities under regulatory capital supervision on a consolidated basis. This conservative approach would put the group assessment option at risk by limiting the scope for cases where all the exposures are originated by a single group, potentially limiting its application to balance sheet securitisations.

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