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Deregulation high on Global ABS agenda

Montjuic cable car, Barcelona, Spain

Keynote speaker Jonathan Hill to call for 'proper discussion about risk' in Europe

Jonathan Hill will use his keynote speech at Global ABS to urge European regulators to take a less cautious approach in order to facilitate growth.

“Europe needs to have a proper discussion about risk,” the former EU commissioner will say, according to quotes published by AFME. “It is 15 years since the Great Financial Crash, yet it still seems to dominate our thinking.”

Many in the market feel the time is ripe to press for less stringent rulemaking.

“I think the main difference this year is there’s a big expectation for what central funding withdrawal will mean for securitization and whether or not regulators are going to look at things differently than they have since the financial crisis,” said Matthew Jones, commercial head of EMEA structured finance at S&P.

Hill will add that the current regulatory approach to securitization is slowing economic growth in Europe.

“For me, the biggest risk we face today is lack of growth, but we pursue regulatory approaches that make growth more difficult,” he will say. “We need to be honest about the trade-offs involved and ask ourselves whether we have struck the right balance, particularly when our international competitors are striking that balance in a different, more growth-friendly place.”

Desire for reform

The topic of regulation could be high on the agenda for Global ABS this year.

“There’s pretty much always a panel about regulation, but it will be interesting to see how animated people are this year,” Andrew South, head of EMEA structured finance research at S&P, told GlobalCapital. “There’s been a lot of noise around it in the last six months.”

Janet Oram, head of ABS at USS, told GlobalCapital that the market’s performance after the UK mini-budget in September 2022 was far better than expected, and many will be keen to use that as evidence that rules can be eased in discussions with regulators.

“If you’d asked me a year ago whether $10bn-$15bn of sales in a three week period was feasible for the market to absorb I’d have said very unlikely,” she said. “I think there will be a discussion about whether we’ve just proved the market works.

“There are different views on why the market worked and how much we should read into it, but the reality is a lot of stuff got traded. I’d be very surprised if there wasn’t a discussion around saying to the regulators, ‘Look we’ve been through a test. The market performed really well. Please can we now look at recalibrating Solvency II and the various other capital requirements.’”

Growth requires change

AFME published figures contrasting the size of Europe’s securitization market with other economies. In the 15 years up to 2022, EU issuance volume was just 0.3% of the size of GDP, while in the UK it was just 0.9%. In the US and Australia, issuance compared to GDP is significantly larger, at 1.4% and 2.8% respectively. Even in China, where the market only opened in 2012, issuance volume stood at 1.8% of GDP in 2022.

In a press release, the AFME warned that Europe’s securitization market will not grow unless there are regulatory changes.

“In order to unlock the unprecedented amount of capital required to finance the green and digital transitions in the years to come, the EU and UK will need to use securitization to their advantage, especially in order to compete with global peers,” the press release said. “This will not happen without policy action to revive the EU and UK securitization markets.”