Market urged to ‘raise your voice’ with European Commission

The Securitisation Regulation came into force in January but there is still room for market participants to influence the details of the rules – and the European Commission is still receptive to feedback, if only the industry will “raise its voice”, said Alexandre Linden of BNP Paribas.

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“I’d encourage everyone who has an issue with the way the templates are at the moment, either for ABCP or non-ABCP products, to raise their voice, either directly or through industry associations,” said Linden, credit portfolio manager in the securitised products group at BNP Paribas. “The authorities need this feedback to make it work.”

Linden pointed to pressure from the industry late last year, which helped avert a potential disaster for the ABCP market. Details in the disclosure templates of the Securitisation Regulation were impossible for certain ABCP transactions to comply with, and because ABCP is issued so frequently, these transactions would not have been grandfathered from the previous regime.

Fortunately, European policymakers listened to the industry, which warned of an abrupt stop to the functioning of conduits in Europe and a big drawdown on liquidity, and scrambled to put a fix in place.

Though disaster was averted, Linden pointed to several issues which still needed solving.

Private deals which are partly funded by conduits and partly directly on balance sheet — common when several banks are in a single borrowing facility for a client — mean that even the banks funding through their balance sheet must use the same templates as for the conduit banks, which Linden called “not at all convenient”.

He also flagged challenges associated with using the templates for significant risk transfer deals.

Template troubles

Another panelist in the same discussion, Merryn Craske, a partner at Mayer Brown, said that trade receivables securitizations would benefit from more regulatory certainty as well.

Craske explained that it was not clear whether these deals should use templates designed for corporate exposures, which do not appear to fit the trade receivables asset class well, or the templates for esoteric assets, which are also inappropriate as the deals are routine and rarely considered “esoteric”.

“The article seven requirements don’t set out exactly what has to be provided and how that should be done,” said Craske. “So we’re seeing the originators find this quite challenging.”

European authorities are working hard to give the market more certainty. The Commission is expected to approve technical standards on homogeneity, capital standards for purchased receivables, and risk retention, in the next few weeks.

However, because of the progress of European politics, which has seen a new parliament recently elected and will see a new Commission appointed later this year, these are unlikely to be published in the “official journal”, making them law, until the fourth quarter of this year.