On Monday 31 March, the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA) issued recommendations for the revision of EU rules governing financial securitisation, while the European Commission has undertaken to present a legislative initiative in the second quarter aimed at simplifying due diligence and transparency requirements.
The European authorities recommend, firstly, the introduction of a general provision to clarify the scope of the Securitisation Regulation 2017/2402. In their view, the Regulation should apply if at least one party to the securitisation (sell-side or buy-side) is established in the EU, thereby ensuring the competence of EU supervisory authorities.
With regard to due diligence which is perceived as “disproportionate” by investors, the three authorities are proposing a more balanced approach that ensures a meaningful assessment of risks by investors while reducing the cost of compliance.
It is suggested that a simplified approach be introduced, applicable to all institutional investors, regardless of the type of transaction or the location of the seller (inside or outside the EU). This approach would allow for a degree of flexibility in the format of the information provided without jeopardising the relevant assessment of the risks. Furthermore, the introduction of an equivalence regime for third-country securitisations would only be necessary if EU investors demand preferential prudential treatment.
The European Regulation requires the seller of a securitised product to retain a significant economic interest in the moral hazard risk. The three European authorities recommend clearer guidance on risk retention to limit interpretation difficulties, particularly for collateralised loan obligations.
To see the report by the three European financial supervisory authorities: https://aeur.eu/f/g98 (Original version in French by Mathieu Bion)