Following long and difficult negotiations, the Maltese Presidency of the Council of the EU and the representatives of the European Parliament on Tuesday 30 May concluded a political agreement on the legislative proposal to breathe new life into the markets for securitised financial products.
This inter-institutional agreement came a few hours after the one to stimulate investments in venture capital and social entrepreneurship funds, marking “another big step towards the creation of the Capital Markets Union”, said the European Commissioner for Financial Services, Valdis Dombrovskis.
Readers may recall that securitisation is a controversial technique, as it was partly responsible for catalysing the credit risk in the ‘sub-prime’ financial crisis of 2008. “We have made a poison into a medicine”, the shadow rapporteur on the dossier, Othmar Karas (EPP, Austria), told a press conference held on Wednesday 31 May.
The future regulation supplies criteria for ‘simple, transparent and standardised’ (STS) securitised products. Amongst other things, the institutions agreed on preferential treatment of capital for STS securitisations and a new hierarchy of risk calculation methods.
On the risk retention threshold, the final text contains an obligation for the issuer of the securitised asset to retain at least 5% of its credit portfolio, a provision contained in the Commission’s initial text and also recommended by the European Banking Authority.
The European Systemic Risk Board (ESRB) will monitor the accumulation of excessive risks on the market and may issue warnings and recommendations to competent authorities in question, including possible changes to the risk retention level.
The compromise prohibits re-securitisation (securitisation of instruments already securitised) for new transactions issued after the regulation enters into force, laying down certain clearly-defined exemptions to be subjected to the approval of the competent authority concerned (see EUROPE 11787).
Finally, the agreement restricts the issuance of STS securitisations to entities established within the EU. When asked about this point with regard to Brexit, the chair of Parliament's economic and monetary affairs committee, Roberto Gualtieri (S&D, Italy), replied by stating that the provisions on third countries should be dealt with transversally and within the framework laid down for negotiations with the UK.
Commissioner Valdis Dombrovskis said that at the moment, there is no framework comparable to the STS model in third countries. The agreement does, however, provide for a revision clause, allowing the matter to be reviewed within three years.
Although the institutions welcomed the compromise, the first reactions of the stakeholders are more mixed.
The Association for Financial Markets in Europe (AFME) welcomed the agreement, but said that the financial markets must be given time to prepare.
The NGO Finance Watch, however, feels that the retention threshold is too low and that certain types of securitisation should not be authorised within the STS framework. “We note that the policy response to the lessons of the crisis has been mainly carrot and very little stick”, said Frédéric Hache, Finance Watch’s Head of Policy Analysis.
The technical work on the text is now underway within the services of the three institutions. The regulation is scheduled to enter into force in 2018. (Original version in French by Marion Fontana)