New business opportunities have emerged following recent changes to the Securitisation Law. Until recently, securitisation special purpose vehicles (SPVs) were prohibited from playing an active role in the management of distressed debts which they purchased in the context of a securitisation transaction. The new rules offer securitisation SPVs a wider set of tools and foster the growth of the market for non-performing loans across various asset classes.
Trusts are the most commonly used special purpose vehicle (SPV) in Mexico. Most securitisations involve the use of a trust as the SPV. Trusts are also used for secured loans, and collateral or payment source trusts are often used in Mexican financings to segregate collateral from the debtor. In addition, almost all project finance involves transferring assets to a trust in order for such trust to be the payment vehicle of the transaction. However, a recent court decision may have put these structures at risk.
The new EU Benchmark Regulation will take effect from January 1 2018 and will be directly applicable to EU firms that are benchmark users, administrators or contributors, without the need for national implementing legislation. As the scope of the regulation is much broader than any existing EU framework, securitisation and structured finance market participants should start to consider the increased controls that this will introduce.
The European Banking Authority recently published a report proposing a three-step approach to the harmonisation of covered bond frameworks in the European Union. The report summarises the functioning of – and developments in – national covered bond frameworks and provides recommendations which the European Commission will consider in the process of furthering the Capital Markets Union project.
As part of the EU shadow banking initiatives, the EU Securities Financing Transactions Regulation recently entered into force. It purports to rectify a lack of transparency in both the securities financing markets and the financial markets by enhancing transparency. It has added to the regulatory burden imposed on orphan special purpose vehicles and the costs of setting up and maintaining a securitisation transaction.
The rules on risk retention in the United States and the European Union do not completely align; therefore, securitisations distributed into both the US and EU markets must be careful to comply with both sets of rules. To the extent that transactions already complying with the EU risk retention rules may need to be modified to address the US rules, the European Union has adopted regulatory technical standards which permit the form of retention to be modified in exceptional circumstances.
The final US risk retention rules will soon apply to asset-backed securities with respect to all asset classes other than residential mortgage-backed securitisations (to which they already apply). In light of this, it is timely to examine the exclusion which applies to certain non-US securitisation transactions and the basic US risk retention requirements. Further, some key issues should be considered when determining whether a proposed transaction falls within the 'foreign-related transaction' safe harbour.
Although the recently enacted EU Market Abuse Regulation has not radically overhauled the EU Market Abuse Directive regime that it replaced, many of the procedural requirements under the directive have been clarified or supplemented. Even where the changes are minimal, the regulation serves as a reminder to securities issuers and other market participants of some practical questions.
Recent changes to the transparency and disclosure obligations under European securitisation legislation – in particular, the European Securities and Markets Authority announcement on delays to the establishment of the Structured Finance Instruments reporting website and the impact of the proposed Securitisation Regulation – have caused considerable uncertainty with respect to the compliance of originators, sponsors and issuers.
Marketplace lending platforms act as an alternative to, and compete with, traditional bank lending with the advantages of a lower cost base and no regulatory capital requirements. With the marketplace lending platform securitisation market still in its infancy, this update considers a number of issues that must be addressed in structuring a marketplace lending platform securitisation in Europe.
The government recently published a consultation paper announcing some radical proposals to reform UK law as it applies to insurance-linked securities, demonstrating a genuine commitment to change to encourage more insurance-linked securities transactions in the United Kingdom. Overall, the reforms should address most of the obstacles that have traditionally been seen as preventing the growth of UK insurance-linked securities transactions.
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.