Produced by Mayer Brown on December 19, 2018.
On January 1, 2019, the next phase of the European Union’s new regulatory regime for securitizations will take effect. The Securitization Regulation consolidates existing EU rules applying to securitizations, specifically affecting risk retention and disclosure and credit-granting. The revised regulation also introduces a ban on resecuritization. The EU does not mandate compliance by United States entities involved in securitization transactions, but the regulation may indirectly force securitization originators, sponsors, and special purpose entities to provide additional disclosure in their dealings with EU institutional investors.
The revisions will significantly expand due diligence requirements for EU institutional investors, particularly in their engagement with United States financial entities. To invest in a securitization transaction with a US originator or sponsor, EU institutional investors must comply with the due diligence requirements of the Securitization Regulation. EU investors will need to consider risk characteristics and material structural features before investing in securitization transactions. Institutional investors should also comply with EU credit granting standards, risk retention requirements, and, where applicable, the transparency requirements of Article 7 of the Securitization Regulation.
Some ambiguity remains as to whether the revised transparency requirements of Article 7 will compel EU institutional investors to request significant additional information from US sponsors in securitization transactions. Though the revisions do not impose obligations on US entities, the regulation’s extensive due diligence requirements could lead EU investors to require the information regardless of an explicit mandate. The extent to which EU institutional investors will be affected by EU revisions remains to be seen.
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