Europe reaches agreement on STS for securitisation

On 28 June 2017, the EU co-legislators reached a political agreement on the new EU securitisation framework law together with related amendments to the Capital Requirements Regulation.  

This framework has been approved by COREPER (The Committee of the Permanent Representatives in the European Union) but still has to be ‘rubber stamped’ by the full Parliamentary Economic and Monetary Affairs Committee, expected in mid-July.  

The full implementation of the new securitisation law is likely to be delayed until 1 January 2019 (six months later than the original proposed implementation date) so that all regulatory technical standards enabling its implementation are finalised by the respective regulatory agencies of the EU.

Although the texts of the new securitisation framework have not yet been published, it is understood that the aspects of the agreement include:

  • the maintenance of the existing risk retention requirement of 5% for all retention methods, 
  • no requirement for investors in securitisations to be EU regulated institutional investors (allowing US investors and post Brexit UK investors to invest in securitisations originated in the EU), and  
  • surprisingly no equivalence mechanism allowing entities established in third countries with equivalent STS (“simple, transparent and standardised”) regulation to participate in EU STS securitisations, thereby not benefiting from favourable capital treatment for EU regulated firms.

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