29 October 2015
EBA framework for securitisation within CMU
European Commission published its proposals on securitisation within the Capital Markets Union (CMU) project.
The European Banking Authority (EBA) recently advised the European Commission on a framework for qualifying securitisation. In its report, EBA proposed criteria for qualifying securitisations and a more risk-sensitive regulatory treatment for long-term securitisation instruments as well as for asset-backed-commercial papers. Qualifying securitisation could be defined as the presence of, on one hand, criteria ensuring simplicity, standardisation and transparency, and on the other, criteria ensuring a minimum credit quality of the underlying exposures.
EBA added that regulatory capital rules should still be followed in respect of the newly published revision of the Basel securitisation framework - this considers that capital charges foreseen by the framework can be lowered for qualifying securitisations to reflect their relative lower risk.
As part of the CMU action plan, the Commission's securitisation team wanted to go further and introduce a clear set of criteria to identify simple, standardised and transparent securitisation. This initiative, completed by the end of September, also aimed to make securitisation sustainable to improve the financing of the EU economy, while ensuring financial stability and investor protection.
Thus, two legislative proposals was made:
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A securitisation regulation laying down common rules on securitisation; including due diligence, risk retention and transparent rules together with the criteria for Simple, Transparent and Standardised (STS) securitisation.
All these changes promote securitisation operations and the Grand Duchy of Luxembourg, which has clear advantages for all promoters and investors in this area, thanks to the Law on securitisation dated on 22 March 2004 .
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