A key consideration for any investor or rating agency is the insolvency analysis of a securitisation transaction. In this context, the insolvency remoteness of the special purpose vehicle is a decisive element. Another important consideration are the circumstances under which a securitisation transaction may be set aside in the context of an insolvency proceeding. This article focuses on the avoidance actions set out in the federal Debt Enforcement and Bankruptcy Act.
Decree-Law 34 of 30 April 2019 introduced important amendments to the Italian securitisation framework. Securitisation special purpose vehicles can now play a more active role in the context of non-performing or unlikely-to-pay exposures. Further, a new breed of securitisation has been introduced, where the issuer's obligations are backed by real estate properties (or registered moveable assets) and related cash flows, as opposed to a portfolio of monetary claims.
The government recently extended the duration of the guarantee on the securitisation of non-performing loans, subject to European Commission clearance. The extension represents a welcome measure to strengthen the stability of the Italian banking system and support, without interruption, the process of reducing the stock of non-performing loans and developing a secondary market for them.
Switzerland has no specific securitisation legislation. Therefore, securitisation transactions are subject to the general legal framework that applies to all other financial transactions with respect to, among others, both corporate law and regulatory matters. This article provides a short overview of certain company-related aspects to consider when setting up a special purpose vehicle structure for a securitisation transaction in Switzerland.
Parliament recently approved Law 145/2018 within the context of the Budget Law 2019 and introduced some notable changes to the Italian securitisation framework. Among other things, Law 145/2018 allows the securitisation of proceeds that arise from the ownership of real estate or registered movable assets, as well as other ancillary rights. The amendments are effective as of 1 January 2019 and aim to further develop Italy's securitisation market by offering new tools and refining existing ones.
The Swiss securitisation market is highly active and attractive for both issuers and investors. However, Switzerland has not enacted any specific securitisation legislation. Therefore, securitisation transactions are subject to the general legal framework that applies to any other type of financial transaction. This article provides a short overview of several regulatory aspects to consider when setting up a securitisation transaction in Switzerland.
The Swiss securitisation market has developed steadily and successfully in recent years, attracting various issuers for both private and public transactions. Many of these issuers have become constant issuers on the Swiss market, which remains active and driven by the still low (or negative) interest environment. Specifically, recent notable activity has concerned auto-lease assets and credit cards, mortgage assets and the asset-backed security market environment.
New business opportunities have emerged following recent changes to the Securitisation Law. Until recently, securitisation special purpose vehicles (SPVs) were prohibited from playing an active role in the management of distressed debts which they purchased in the context of a securitisation transaction. The new rules offer securitisation SPVs a wider set of tools and foster the growth of the market for non-performing loans across various asset classes.
Trusts are the most commonly used special purpose vehicle (SPV) in Mexico. Most securitisations involve the use of a trust as the SPV. Trusts are also used for secured loans, and collateral or payment source trusts are often used in Mexican financings to segregate collateral from the debtor. In addition, almost all project finance involves transferring assets to a trust in order for such trust to be the payment vehicle of the transaction. However, a recent court decision may have put these structures at risk.
The new EU Benchmark Regulation will take effect from January 1 2018 and will be directly applicable to EU firms that are benchmark users, administrators or contributors, without the need for national implementing legislation. As the scope of the regulation is much broader than any existing EU framework, securitisation and structured finance market participants should start to consider the increased controls that this will introduce.
The European Banking Authority recently published a report proposing a three-step approach to the harmonisation of covered bond frameworks in the European Union. The report summarises the functioning of – and developments in – national covered bond frameworks and provides recommendations which the European Commission will consider in the process of furthering the Capital Markets Union project.
As part of the EU shadow banking initiatives, the EU Securities Financing Transactions Regulation recently entered into force. It purports to rectify a lack of transparency in both the securities financing markets and the financial markets by enhancing transparency. It has added to the regulatory burden imposed on orphan special purpose vehicles and the costs of setting up and maintaining a securitisation transaction.
The rules on risk retention in the United States and the European Union do not completely align; therefore, securitisations distributed into both the US and EU markets must be careful to comply with both sets of rules. To the extent that transactions already complying with the EU risk retention rules may need to be modified to address the US rules, the European Union has adopted regulatory technical standards which permit the form of retention to be modified in exceptional circumstances.
The final US risk retention rules will soon apply to asset-backed securities with respect to all asset classes other than residential mortgage-backed securitisations (to which they already apply). In light of this, it is timely to examine the exclusion which applies to certain non-US securitisation transactions and the basic US risk retention requirements. Further, some key issues should be considered when determining whether a proposed transaction falls within the 'foreign-related transaction' safe harbour.
Although the recently enacted EU Market Abuse Regulation has not radically overhauled the EU Market Abuse Directive regime that it replaced, many of the procedural requirements under the directive have been clarified or supplemented. Even where the changes are minimal, the regulation serves as a reminder to securities issuers and other market participants of some practical questions.
Recent changes to the transparency and disclosure obligations under European securitisation legislation – in particular, the European Securities and Markets Authority announcement on delays to the establishment of the Structured Finance Instruments reporting website and the impact of the proposed Securitisation Regulation – have caused considerable uncertainty with respect to the compliance of originators, sponsors and issuers.
Marketplace lending platforms act as an alternative to, and compete with, traditional bank lending with the advantages of a lower cost base and no regulatory capital requirements. With the marketplace lending platform securitisation market still in its infancy, this update considers a number of issues that must be addressed in structuring a marketplace lending platform securitisation in Europe.
The government recently published a consultation paper announcing some radical proposals to reform UK law as it applies to insurance-linked securities, demonstrating a genuine commitment to change to encourage more insurance-linked securities transactions in the United Kingdom. Overall, the reforms should address most of the obstacles that have traditionally been seen as preventing the growth of UK insurance-linked securities transactions.
This update considers the requirements for compliance with the European Central Bank (ECB) collateral rules relating to asset-backed securities, and some areas where potential issues can arise. The ECB's open market operations allow it to manage liquidity and provide refinancing facilities to the financial sector. The volume of asset-backed securities being repurchased with the ECB has increased in recent years.
If implemented, two draft regulations issued by the European Commission will make major changes to European securitisation rules, including the creation of a simple, transparent and standardised (STS) designation for securitisation. Investments in STS securitisations will benefit from preferential regulatory capital treatment. The draft regulations also consolidate and amend the rules applicable to all types of securitisation.