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Spain: New securitisation regulation

The European Parliament recently passed a new regulation on securitisation, which is part of the capital markets union action plan. Regulation (EU) 2017/2402 of the European Parliament and Council, of December 12 2017 (the Securitisation Regulation), establishes a general framework for securitisation and creates a specific framework for simple, transparent and standardised securitisation. Its aim is to promote a safe and liquid market for securitisation. An amendment was also implemented relating to the regulation on capital requirements. Its purpose is to make the capital treatment of securitisations for banks and investment firms more risk-sensitive and to reflect the specific features of simple, transparent and standardised securitisations.

According to the European Banking Authority, these rules aim to re-establish a safe market in Europe by distinguishing between simple, transparent and standardised securitisation products, and more opaque and complex ones.

Although the Securitisation Regulation requires further development in terms of regulatory technical standards, it outlines a general framework for all securitisations within the EU, even though some securitisations may or may not be considered simple, transparent or standardised.

The new regulation, which applies to all securitisations, will impose additional obligations on originators, sponsors, original lenders and institutional investors investing in securitisation positions. Before acquiring a securitisation position, investors should perform due diligence and must verify several specific issues related to the origination procedures of the loans and the underlying loans.

Originators, sponsors or original lenders must retain an economic risk in the securitisation throughout all stages of the transaction. Several transparency obligations have also been imposed on originators, sponsors and original lenders, as they must make specific information available to (i) holders of securitisation positions; (ii) the competent authorities; and, (iii) potential investors.

The regulation has also created a specific framework for simple, transparent and standardised securitisations, the so-called STS securitisations. To be considered STS securitisations, certain requirements under the regulation must be met.

The Securitisation Regulation establishes a more risk-sensitive and prudential framework for STS securitisations (that is, true sale securitisations that meet a number of requirements), provided the originator, the sponsors or the special purpose entity has notified the investors, the competent authorities and the European Securities and Markets Authority of the STS securitisation designation.

Under the new regulation, originators, sponsors and original lenders must apply to securitised exposures the same well-defined criteria for credit granting that they apply to non-securitised exposures.

The Securitisation Regulation will apply to securitisations issued on or after January 1 2019. Although European regulations are directly applicable to European member states, in the case of Spanish securitisation legislation, it is likely that Act 5/2015 will need to be amended to bring it in line with European regulation.

We will soon be able to determine the effect of the new regulation on future transactions and whether securitisations issued after January 1 2019, will be considered STS securitisations. In my opinion, the investors will decide on whether to request for a securitisation to be considered STS, and this decision will depend on the impact their investment will have on their capital treatment. A different approach would apply to investors that were not considered institutional investors under the regulation, as they are not subject to prudential supervision. In such transactions, there would be no incentive for investors of the securitisation to be considered STS.

Jaime de la Torre

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