The impact of these new regulations is not isolated to the EU securitization market, however. The requirements on EU investors apply regardless of whether the issuer itself is subject to EU jurisdiction.
Consequently, the regulations impact securitizations issued by US sponsors as well as all other non-EU issuers. For example, without additional clarity or modification to the regulations, there will be consequences on US securitization originators, sponsors and SSPEs as a result of these regulations – with the requirement to provide additional disclosure in order for EU institutional investors to be able to purchase US securitization transactions.
“Given the current difference in the rules that apply to originators/issuers of securitised assets in the US and other non-EU countries versus the EU (in particular with regards to the risk retention requirements), it is unlikely that a UCITS Management Company will be able to meet the EU SR due diligence rules with respect to non-EU securitisations. As a result, for those in scope securitisations issued on or after January 1, 2019, until such time as non-EU securitisation markets, in particular the U.S., evolve to support the EU due diligence requirements, J.P. Morgan Asset Management will not purchase non-EU securitisations for its UCITS funds.” – J.P. Morgan Asset Management
Likewise, asset classes that are fully exempted or have differing risk retention requirements in the US, like CMBS and CLOs, respectively, would be required to comply with the 5% EU requirement in order to sell to EU investors.
The Association’s recently formed task force on this subject provides market participants a forum to discuss how the industry is interpreting and implementing these new regulation; and, if deemed necessary, engage with the EU regulators to seek additional guidance and/or rule modifications.
As part of this effort, The Association is facilitating communication between European regulators and US issuers and investors to help drive forward a better understanding of differences in regulations.