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Harmonised rules for simple, transparent and standardised (STS) securitisation should help to protect investors, make markets more transparent and improve risk management, in order to prevent the resale of bad loans fuelling a financial meltdown. STS safeguards should also help to revive the practice of securitisation, in the EU which declined after the US sub-prime crisis in 2008.
Investment packages for professionals and knowledgeable individuals only
Investing in securitised packages should be restricted, e.g. to professionals and retail investors with sufficient financial knowledge and the ability to take losses, say MEPs. After passing a suitability test, a retail investor with a portfolio of no more than €500,000 would be able to invest up to 10% of that portfolio but at least €10,000.
Aligning interests
To make the market more transparent and avoid moral hazard, MEPs sought to ensure that the interests of securitisation participants converge. Under the new rules, financial institutions will have to retain an interest of not less than 5% in any packaged securities that they sell.