This update considers the requirements for compliance with the European Central Bank (ECB) collateral rules relating to asset-backed securities, and some areas where potential issues can arise. The ECB's open market operations allow it to manage liquidity and provide refinancing facilities to the financial sector. The volume of asset-backed securities being repurchased with the ECB has increased in recent years.
If implemented, two draft regulations issued by the European Commission will make major changes to European securitisation rules, including the creation of a simple, transparent and standardised (STS) designation for securitisation. Investments in STS securitisations will benefit from preferential regulatory capital treatment. The draft regulations also consolidate and amend the rules applicable to all types of securitisation.
The Federal Department of Finance recently put forward the first proposals on how gaps in the financial market legislation can be closed. For complex financial products, it is proposed that the issuers will have to produce a key investor document if offered in or from Switzerland. Complex financial products are considered to be products for which the change in value does not rely solely on the credit standing and profitability of the issuer.
Structured notes were first regulated by the Brazilian authorities in late 2013 and began to circulate in the market in January 2014. In the first month of their formal existence, the total amount raised by local banks through Brazilian structured notes has proved significant, demonstrating that the creation and regulation of the product anticipated and met relevant market demand.
The Regulation on Securities Lending and Repurchase Transactions issued by the Financial Market Authority recently entered into force. This regulation contains specific limitations under the Investment Fund Act for management companies entering into securities lending or repurchase transactions on behalf of Austrian undertakings for collective investment in transferable securities.
A recent seminal ruling of the Supreme Court has clarified that banking secrecy rules substantially limit the ability of a credit institution to transfer its loan receivables. These limitations are particularly relevant in relation to securitisation transactions and loan portfolio sales, by which credit institutions may improve their regulatory capital and liquidity structure. Particular care must be taken when structuring such transactions.
The Reserve Bank of India recently issued to all banks its revisions to the Guidelines on the Transfer of Assets through Securitisation and Direct Assignment of Cash Flows, as well as a similar set of guidelines to all non-banking finance companies (NBFCs), revising the existing guidelines on securitisation transactions, as applicable to NBFCs. The new guidelines introduce key changes from the 2006 guidelines.
In order to finance the real estate developments of a Maltese corporate group, 7% secured notes were issued in a private placement. A Maltese public limited company issued a master loan note to a trust, which in turn placed notes representing a participation in the trust property with private investors. The company on-lent the raised funds to two Maltese subsidiaries, which acquired the property and plan to develop it.
The Supreme Court has rejected a claim against the exclusive Hungarian distributor of structured notes issued by Lehman Brothers Treasury Co BV and guaranteed by Lehman Brothers Holding Inc. After the issuers and the guarantor became insolvent, their client initiated a lawsuit against the defendant on various grounds, seeking repayment of the notes' face value and the fee paid to the defendant, plus interest.
A strong demand for residential, commercial and industrial real estate ventures has led the civil construction sector to seek alternative funding options outside of the banking system. In turn, this has led to the securitisation of assets or mortgage-backed securities - a national innovation in the financial market created by economic agents to finance the real estate market without bank intermediation or limits.
Irrespective of certain weaknesses that German restructuring and insolvency law may have, creditors whose claims are secured by land charges can nevertheless choose between several feasible possibilities for realising encumbered real estate. German law tends to be somewhat reluctant to allow creditors to grasp direct control of real estate. As such, the Federal Ministry of Justice's recent proposals should be welcomed.
Securitisation is an essential part of the post-financial crisis environment and a vital component for the re-establishment of lending in the global economy. Due to capital constraints, banks will be unable to sustain lending at anything like pre-credit crunch levels unless there is a live and active primary securitisation market.
Article 27 of the new Royal Decree-Law on Measures to Boost Economic Recovery and Employment has amended existing law to provide that asset securitization funds and mortgage securitization funds can own property resulting from the execution of guarantees ancillary to their collection rights or from the accord and satisfaction of such collection rights.
In three different rulings the Paris Court of Appeal has issued a final judgment - at least for the time being - in Coeur Défense. Given the creditor-friendly nature of the court's rulings, they will be welcomed by participants in the real estate and structured finance markets.
France is examining the creation of a new refinancing instrument for banks: covered bonds based on guaranteed loans instead of mortgages. The draft on the new refinancing instrument is due to be submitted to Parliament in early 2010 and the first issue of covered bonds backed by guaranteed loans is expected in the second quarter of 2010.
Pursuant to several recent royal decrees and other resolutions approved by an inter-ministerial commission, the designation of the company that will manage the Electricity Tariff Deficit Asset Securitization Fund has been announced. Titulización de Activos SGFT SA will be the management company responsible for the fund.
Two landmark developments in securitization and structured finance have recently taken place: an attempt at introducing provisions to facilitate Islamic finance - in particular, sukuk - and developments in litigation concerning commercial mortgage-backed securities.
The Swedish Securities Dealers Association has launched an industry code regulating structured investment products offered to the public, aiming to make it easier for investors to compare and evaluate the products on offer. The code applies to structured investment products which are offered to the public and where a prospectus requirement applies.
The government is looking to enhance Islamic finance and more specifically the issue of sukuk (Islamic asset-backed securities). France has already taken steps in favour of Islamic finance - the stock exchange regulator has published a recommendation on the listing of sukuk on Euronext Paris regarding the set-up and distribution of Islamic financial products, such as Sharia-compliant collective investment schemes.
The Obama administration's plans for overall regulatory reform of the financial system in response to the ongoing financial crisis would dramatically increase the federal government's role in the capital markets, although changes affecting the securitization markets may be less significant than some had anticipated.