Produced by Merryn Craske for Mayer Brown in June 2019.
The EU “Securitisation Regulation” addresses two industry questions. First, it consolidates and develops all rules previously applied to regulated entities in securitization. These provisions include requirements for securitization special purpose entities (“SSPEs”), due diligence, risk retention and transparency obligations, credit-granting standards and a ban on re-securitization, compiling all relevant definitions.
Second, the regulation introduces provisions dealing with sanctions and penalties for non-compliance and supervision by regulatory authorities, applied whenever securitizations issued before January 1, 2019 fall within its regulatory scope and transitional arrangements. Published at the end of December 2017, the EU’s “Securitisation Regulation” represents a comprehensive revision of the regulatory framework for the European securitization industry.
The regulation revised the main securitization-related definitions set out in the precursory CRR Amending Regulation, making amendments to such terms as “securitization,” “tranche,” “originator,” and more. The scope of the regulation is clearly defined, applying to institutional investors, originators, sponsors, original lenders, and SSPEs. The regulation sets out standards of due diligence, risk retention, asset selection, transparency, re-securitization bans, STS securitization, transitional provisions, and administrative sanctions. Risk retention requirements are largely unchanged, but an additional burden will be levied on securitization transaction, particularly with regard to transparency requirements.
There are many outstanding questions on proper practical interpretations of the regulation, and many of the mandated secondary regulations are yet to be adopted. Market participants are gradually working through these challenges and adjusting their practices to the revised regulatory system.
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