12 February 2019

Euractiv: A new era for securitisation?

While reaching this stage is, in many ways, a considerable achievement, the fact that so much of the underlying technical framework remains incomplete has created considerable uncertainty for the sector. January 2019 was in fact the first January since 2009 without any European ABS issuance.

This somewhat shaky start is a shame given the high levels of ambition for the reforms. In December, European policymakers and regulators hailed the STS reforms as a key element in strengthening Europe’s capital markets, with Vice President Valdis Dombrovskis describing the reforms as “one of the cornerstones” of the Capital Markets Union (CMU) initiative.

Such language demonstrates the significant progress that has been made in rehabilitating the reputation of securitisation and in increasing levels of understanding around the important contribution it makes to well-functioning financial markets.

The European Commission has said it hopes the STS framework will be the catalyst for reigniting issuance and investment. However, while much of the underlying detail supporting the regulation remains to be finalised, this ambition will continue to be unfulfilled. Several critical mandates for technical standards and guidelines are still to be completed, creating considerable uncertainty for the sector.

A certain level of disruption is inevitable whenever significant regulatory reforms are introduced, and in that sense STS securitisation is no different. But in order for the new framework to begin making a positive impact these outstanding issues need to be resolved as rapidly as possible.

Whether, in the long term, the arrival of STS securitisation marks the beginning of a significant recovery for European securitisation is something which only time will tell. Arguably the market can only improve from where it currently is.

What is clear is that over the coming months Europe’s policymakers must “renew their vows” and recommit to creating an environment which helps European securitisation to thrive. Maintaining that focus will be essential if we are to see a vibrant, high quality and dynamic European securitisation market emerge, delivering funding for Europe’s businesses and consumers and adding stability to our banking system.

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