16 January 2015

AFME responds to EBA Discussion Paper on simple standard and transparent securitisations

The Discussion Paper states explicitly that securitisations using asset-backed commercial paper ("ABCP") are outside its scope. While the Joint Associations - AFME, the British Bankers' Association (BBA), the International Capital Market Association (ICMA) and the ISDA - understand why this may be the case, and that an analysis of ABCP requires consideration of different factors from those for term securitisation, this is disappointing. 

In the context of statements made by the EBA at the Open Hearing held on 2 December 2014 (the "Open Hearing"), the Associations would like to stress that the ABCP market is a very important – although sometimes unjustifiably neglected - part of the overall securitisation market in Europe as well as being a critical tool in funding the real economy. ABCP is the principal way certain asset classes (e.g. trade receivables) are securitised, predominantly for corporates, making it a significant contributor to working capital supporting trade and business in the European Union.

Although ABCP securitisation is structured differently from term securitisation markets, so that the criteria set out in the DP are not necessarily appropriate for ABCP, the Associations believe that ABCP should be subject to a similar regime to the one described in the DP, but with criteria adapted to suit the specific characteristics of this form of securitisation financing. In this way, ABCP that is simple, standard and transparent can continue to support trade and the real economy.

The members of the Joint Associations would welcome a further consultation on the criteria for ABCP eligibility more specifically, but the Associations would suggest that they should include the following requirements: (i) that the ABCP transaction be sponsored by a credit institution that is subject to the liquidity coverage requirement; (ii) that the sponsoring institution provides full liquidity support to the transaction; and (iii) that the maximum maturity for any instrument be 397 days (or two years with a rate reset within 397 days). More information about the Joint Associations' positions on ABCP is available upon request.

A separate but perhaps related issue is that of managed CLOs which, while not out of scope of the EBA's current consideration, do seem unlikely, on the current proposals, to qualify as simple standard and transparent securitisations. Managed CLOs serve the useful purpose of adding to the supply of credit available to the real economy, including for SMEs, and in many cases they have performed very well through the financial crisis.

The Joint Associations are in favour of a principles-based, not an asset-class based, approach to the definition of SST. The Associations also believe that the definition should be as inclusive as possible (see our comments under point 6 below about avoiding a "gold standard" approach). To the extent therefore that there are structures backed by CLOs or any other asset class which meet these principles then in our view they should qualify.

If not, then another option for managed CLOs would be to address them through a separate regime. A reasonable case can be made that they should be treated differently from "traditional" securitisations. A regime tailored to the specificities of managed CLOs would serve to address the issue without unnecessarily cutting off the benefits provided by this product.

Full AFME response

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