Securitisation
The EU Securitisation Regulation lays down a general framework for securitisation and creates a specific framework for simple, transparent and standardised securitisation. Through the Regulation, the Commission aimed to restart high-quality securitisation markets following the 2008 financial crisis. The development of a simple, transparent and standardised securitisation market also constitutes a building block of the Capital Markets Union (CMU) and contributes to the Commission’s priority objective of supporting job creation and a return to sustainable growth.
Securitisation?
Securitisation involves transactions that enable a lender or a creditor – typically a credit institution or a corporation – to refinance a set of loans, exposures or receivables, such as residential loans, auto loans or leases, consumer loans, credit cards or trade receivables, by transforming them into tradable securities. The lender pools and repackages a portfolio of its loans, and organises them into different risk categories for different investors, thus giving investors access to investments in loans and other exposures to which they normally would not have direct access. Returns to investors are generated from the cash flows of the underlying loans. The Nordic countries, including Finland, have not, to date, had a very active securitisation market, unlike the rest of Europe and the USA.
Key content of the Regulation
The Securitisation Regulation lays down a general framework for all securitisation. The Regulation establishes
- due-diligence, risk-retention and transparency requirements for parties involved in securitisations,
- criteria for granting credit,
- requirements for selling securitisations to retail clients,
- a ban on re-securitisation,
- requirements for securitisation special purpose entities (SSPEs) as well as
- conditions and procedures for securitisation repositories.
It also creates a specific framework for simple, transparent and standardised (STS) securitisation. This designation of securitisation can only be used after the European Securities and Markets Authority (ESMA) has been notified how the securitisation meets the criteria laid down in the Regulation. ESMA provides a list of STS securitisations on its website.
Who is affected by the Regulation?
The Securitisation Regulation applies to:
- institutional investors
- securitisation originators
- sponsors
- original lenders and
- securitisation special purpose entities.
The requirements for selling securitisations to retail clients apply to all sellers of securitisation positions.
In addition, with respect to STS securitisation, the Regulation contains authorisation requirements for third parties verifying compliance with the STS criteria.
Application and timetable
The Securitisation Regulation and all lower-level statutes adopted pursuant to it are directly applicable legislation in the EU Member States.
The Securitisation Regulation became applicable on 1 January 2019.
Regulatory links
Further information
EU Commission Securitisation Regulation website
EBA Securitisation and Covered Bonds
ESMA Securitisation