Today (Thursday), the European Parliament voted in favour of the final agreement to introduce new rules for the EU’s Securitisation market. Brian Hayes MEP said that this agreement could give a major boost to Ireland’s financial services industry given its activity in the securitisation market. Securitisation is a process whereby assets, such as mortgages, auto loans or consumer credit, are packaged together and sold on to investors as bonds.
“Today’s agreement on the EU’s Securitisation Regulation is a milestone in the EU’s Capital Markets Union project. This new regulation has the chance to revitalise a struggling securitisation industry in Europe.
“There are of course legacy issues from the crisis in relation to securitisation. Due to the irresponsible activity around mortgage-backed securities in the US, securitisation has become a dirty word. The securitisation industry in Europe, however, is completely different to that of the US. Throughout the crisis, EU securitisation products suffered relatively small reductions in value compared to US securitisations.
“The Commission in 2015 rightly saw that the EU Securitisation market needed to be revived. The new regulation now creates a specific EU brand of securitisation under the title “Simple, Transparent and Standardised (STS) Securitisations”. This branding is intended to give investors’ confidence and stimulate activity in the sector.
“Dublin’s financial services industry is poised to reap the benefits from this agreement. We have almost 800 Irish domiciled securitisation vehicles, valued at about €415 billion. Over 10% of responses to the Commission’s original consultation on the Securitisation Regulation came from Ireland. I am confident that the new framework will boost the securitisation industry all across the EU and we need to be ready in Ireland to capitalise.
“Brexit poses many challenges and opportunities for the EU securitisation industry. The City of London is the biggest EU destination for securitisation. When the UK leaves the EU, they will no longer have direct access to the securitisation market and the EU passporting regime, thus leaving a huge gap in the market. This gives Ireland a great opportunity to attract special purpose securitisation vehicles.
“The major sticking point on this file was the level of risk retention that should be applied to EU securitisations – the stake that the originator assumes. International practice states that the originator should assume 5% risk retention for securitisation. But the Parliament negotiators were pushing for a higher level which would have drastically impacted the industry. Ultimately, reason prevailed in the end and the final agreement settles on 5% risk retention.”