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ECB says HQS rules must match up

By Graham Bippart
17 Jun 2015

The eurosystem should prioritise harmonising regulatory frameworks for securitizations to meet standards of high quality, said the European Central Bank’s head of risk strategy in a keynote address at Global ABS on Wednesday.

The criteria for qualifying ABS should be applied across regulatory frameworks including Solvency II, the liquidity coverage ratio, capital requirements regulation and elsewhere, said Fernando González during his speech during the conference's first morning slot on Wednesday. 

“For example, at the moment, the criteria for Solvency II are different than they are for LCR, which are in turn different from the criteria developed by the European Banking Authority,” he said.

The ECB's increasing involvement in the ABS market — and the view that regulation is lagging the central bank's pro-securitization stance — has been a key topic of debate at the conference, as the market continues to grapple with what many view as contradictory and overly restrictive rules.

Fast-track call

González added that he understands the European Commission will address this issue “in a comprehensive package for a renewed framework including qualifying securitizations, and I can only applaud this endeavour.” He said he hoped the measures would be fast-tracked through the European Parliament and the Council.

His statements meshed with industry participants' statements at the conference, with the central banker saying that “capital requirements for securitizations must accurately reflect their risks,” and that “risk sensitivity should be consistently applied across banks, insurers and other market participants who are relevant.”

He added later that, while the ECB is not Europe’s ABS regulator, it does, about seven months into the ABS purchase programme, feel it has gained a greater understanding of the asset class.

That may be the most significant outcome of the ABSPP in the long term, said Baker & McKenzie partner Vincent Keavey during the following session. Greater understanding should lead to a lifting of the negative stigma still tainting the sector in the eyes of many investors, he said.

“For example the eurosystem is now better able to contribute to regulatory discussions on simple, standard and transparent ABS,” González said. 

Residual value

González, taking time out from his vacation to speak at the conference, briefly addressed the exclusion of auto ABS containing residual value receivables from eligibility for repo with the ECB. The central bank felt such collateral exposed it not to credit risk, but to the market risk of having to sell cars at any given time, he said.

He also urged issuers not yet taking part in loan-level data disclosure to begin doing so, saying that “for those that do not provide basic fields [of data requested], this creates more doubt about your ability to create healthy ABS,” and adding that the resulting doubt would harm efficient execution more than the one-off cost of providing the data.

González called for issuers to make the jobs of investors easier by standardising documents and providing loan-level data, saying that the most affective way for regulations to be implemented is via the self-attestation of originators, combined with regulatory oversight and investor due diligence. 

However, he added that investor diligence “should not translate into unnecessary burdens".

By Graham Bippart
17 Jun 2015