On 14 June, the Association for Financial Markets in Europe (AFME) published a new report identifying the key challenges relating to compliance with investor due-diligence requirements under Article 5 of the Securitisation Regulation in the EU and UK and suggesting potential strategies to overcome such challenges.
AFME's report finds that, under Article 5, investors are likely to interpret ambiguous provisions conservatively and in doing so will assume disproportionately high costs to the business.
In addition, the report says that the regulation substantially reduces agility and flexibility in the investment process, thereby materially reducing investment opportunities for new investors, regardless of the credit risk, which in turn, impacts liquidity in the secondary markets and results in a less efficient market for all.
These factors have the unintended effect of creating such high barriers to entry, even for seasoned credit investors, that it becomes challenging to build a business case to participate in the ABS market.
The report also annexes the joint associations’ letter (of which the Australian Securitisation Forum was a signatory) “Request for guidance to national competent authorities to use enforcement powers in a proportionate and risk-based manner” which highlights the difficulty of compliance with the requirements in Article 5(1)(e) of the EU Securitisation Regulation in relation to third country transactions.
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Download AFME Article 5 Issues Report >