Regulation (EU) 2017/2402 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation

What it is

to restart a sustainable securitisation market that will improve the financing of the EU economy, while ensuring financial stability and investor protection. PROPOSED ACT: Regulation of the European Parliament and of the Council. ROLE OF THE EUROPEAN PARLIAMENT: the European Parliament decides in accordance with the ordinary legislative procedure on an equal footing with the Council. BACKGROUND: securitisation involves transactions that enable a lender – typically a credit institution – to refinance a set of loans or exposures such as loans for immovable property, auto leases, consumer loans or credit cards, by transforming them into tradable securities. The Committee on Economic and Monetary Affairs adopted the report by Paul TANG (S&D, NL) on the proposal for a regulation of the European Parliament and of the Council laying down common rules on securitisation and creating a European framework for simple, transparent and standardised securitisation and amending Directives 2009/65/EC, 2009/138/EC, 2011/61/EU and Regulations (EC) No 1060/2009 and (EU) No 648/2012. The committee recommended that the European Parliament’s position adopted at first reading following the ordinary legislative procedure should amend the Commission proposal as follows: Aim : the Regulation aims to strengthen the legislative framework implemented after the financial crisis to address the risks inherent in highly complex, opaque and risky securitisation. Members added that for that purpose, this Regulation should introduce a ban on re-securitisation and enhance the conditions for complying with the risk retention obligations . The amended Regulation stipulated that investors in securitisation shall be institutional investors, other than the originator, sponsor or original lender of a securitisation, or institutions of third countries and territories, whose supervisory and regulatory requirements are considered equivalent to the requirements of the Union. The Securitisation Special Purpose Entity (SSPEs) shall not be established in a third country if the third country promotes itself as an off-shore financial centre; there is a lack of effective exchange of information with foreign tax authorities; there is a lack of transparency with regard to legislative, judicial or administrative provisions. Risk retention : the amended text stipulated that the originator, sponsor or the original lender of a securitisation shall retain on an ongoing basis a material net economic interest in the securitisation of not less than 5 % or 10 % depending on the retention modality chosen. Moreover, the securitised exposures should not deliver a performance that would be significantly different from exposures that have not been securitised The European Banking Authority (EBA) in close cooperation with the European Systemic Risk Board (ESRB) shall take a reasoned decision on required retention rates of up to 20 % in light of market circumstances Transparency requirements : the originator, sponsor and SSPE of a securitisation shall make at least the following information available to holders of a securitisation position, investors prior to them being exposed to a securitisation…

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