From 1 January 2019, the EU Securitisation Regulation will replace the current sector-specific approach to regulating securitisations with a set of rules that will apply to all European securitisations whether public or private and regardless of the ‘investor type’ (the Regulation).
The Regulation also creates a framework for simple, transparent and standardised (STS) securitisations and includes rules covering such matters as due diligence, risk retention and investor disclosures.
Scope of the Regulation
The Regulation will apply to all securitisations issued on or after 1 January 2019 and to legacy securitisations where the STS designation is sought.
The term ‘securitisation’ is largely unchanged and is intended to capture any transaction where the credit risk associated with an exposure or pool of exposures is tranched. Payments under the transaction are dependent upon the performance of the exposure or pool of exposures, and the subordination of tranches determines the
distribution of losses.
The Regulation clarifies that specialised lending exposures established in accordance with article 147(8) of the EU Credit Requirements Regulation (575/2013/EU) are not within scope of the Regulation. Resecuritisation transactions, which are transactions where at least one of the underlying exposures is a securitisation position, are banned under the Regulation (subject to certain exceptions).
Securitisations are considered as “generally not appropriate” for retail investors and certain criteria must be satisfied (as set out in the Regulation) in order for a seller to sell securitisations to retail investors.