EUROPEAN UNION: New Securitisation Regulation Now in Force

Thursday February 1 2018

It has been reported that on 17 January 2018, two Regulations which, together, establish a new framework for European securitisations came into force.

Regulation (EU) 2017/2402 (the STS Regulation) which lays down a general framework for securitisation. It establishes due- diligence, risk-retention and transparency requirements for securitisations and conditions for securitisation repositories. It creates a specific framework for simple, transparent and standardised (STS) securitisations.

Regulation (EU) 2017/2401 (the Securitisation Prudential Regulation) which replaces the provisions of the Capital Requirements Regulation  so as to make the capital treatment of securitisations for banks and investment firms more risk-sensitive and reflective of the specific features of STS securitisations.

Key issues for Irish AIFMs and UCITS and their service providers are:

• Provisions apply from 1 January, 2019.
• The European Supervisory Authorities are consulting on implementing measures which need to be in place by the time that most provisions apply on 1 January, 2019.
• The AIFMD and the UCITS Directives will be amended as of 1 January 2019 to align with the new regime.
• Article 17 of AIFMD will be replaced with a new provision that where AIFMs are exposed to securitisation positions which do not meet the requirements, the AIFM shall, the best interest of the investors in the relevant AIFs, act and take corrective action, if appropriate.
• Article 50a of the UCITS Directive will be replaced with a new provision that where UCITS are exposed to securitisation positions which do not meet the requirements, they shall, in the best interest of the investors in the relevant UCITS, act and take corrective action, if appropriate. The anomaly whereby UCITS were not subject to due diligence, transparency and risk retention requirements for investments in securitisations will be corrected.
• Existing sector-specific due diligence, transparency and risk retention requirements are replaced by new harmonised due diligence obligations which institutional investors (including AIFMs, UCITS and self- managed UCITS) will be required to meet both before investing in securitisations and on an on-going basis. The extent to which these obligations will be eased in practice for investments in STS securitisations remains to be seen.
• The risk retention rules have been changed but the requirement that the originator / sponsor / lender retain an economic interest of not less than 5% in the securitisation has been retained.
• There are transitional provisions for securitisations issued prior to 1 January 2019.