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.
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.
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.
Recent amendments to EU Directive 2006/48/EC require banks to keep on their balance sheet 5% of the receivables they transfer to securitization vehicles. This requirement is expected to boost the securitization market, which has suffered during the economic crisis, and to help to ensure the market's survival.