AFME: Hang together, or we'll all hang separately
Industry practitioners from all parts of the market need to unify in order to protect its regeneration from onerous regulations, said AFME members at Global ABS in Barcelona.
Years after the European crisis, the securitisation industry is slowly regaining the trust it lost from regulators and politicians who are now calling for industry participation in conversations over future regulations.
But - as recently evidenced by calls for risk retention requirements to be raised from 5% to 15% by some members of the European Parliament on Tuesday - the industry needs to remain unified or it risks losing its momentum, said speakers at the “Speaking up for Securitisation” panel.
“If we don't commit the time...we won’t have a market,” said Rob Ford, portfolio manager at TwentyFour Asset Management.
“When I started as an investor…I was telling my clients there was $2tr in the securitisation market. Now its $600bn,” he said, later adding that there is a risk that the market dwindles to a point where it is too insignificant to rebuild.
The American market, which has made a resounding comeback since the crisis, benefitted from several factors, including a homogenous infrastructure between operations in different locations, an investor base with a longer history of credit investment and a greater reliance by banks on securitization as a means of diversifying funding sources.
But in Europe, where ABS performed well through the crisis, banks operations differ between countries with different sets of laws, said Jason Kravitt, partner at Mayer Brown. And, added Steve Gandy, head of DCM solutions at Santander Global Banking and Markets, “a lot of investors were investing based on rating and name.”
Those attributes add friction to the market’s recovery, combined with rules that were written when the public perception of securitization was still highly negative. Panellists said that regulators and politicians are now more amenable to hearing industry arguments regarding regulations.
But more needs to be done to continue gaining their trust, said Kevin Ingram, partner at Clifford Chance: “It remains a concern [for regulators] that people will game the rules.”