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J&A GARRIGUES, S.L.P. on behalf of the Working Group constituted by six management companies of Spanish securititization funds, that represents the 100% of the Spanish management companies that need to be authorized by the Comisión Nacional del Mercado de Valores (the “Management Companies”).

In general, we consider positive the inclusion in the technical standards the ways to comply with the risk retention requirement as they are described in the Commission Delegated Regulation (EU) No. 625/2014, especially the ones regarding Article 6(3)(a) of the STS Regulation.
Notwithstanding the above, regarding some particular issues,
(i) We have the following comments on Article 4.2:
- Our first proposal is to delete such proposal. Risk retention is per se not envisioned as a form of credit enhancement (as there are many instances in which given the options provided -for example, vertical slice retention-, retention would not per se provide any enhancement). Instead, it intends to ensure alignment of interests, i.e. if losses on the securitised assets arise, both investors and originators or sponsors must bear them, which does not mean that the retainer has the financial capacity to cover those losses. There is a non-justified asymmetry between risk retention according to Articles 5 to 9 and risk retention according to Article 4, in which the retainer not only has to suffer the loss but also has to fund its amount when central to the spirit of a contingent risk bearing mechanism is avoiding such funding requirement. Also consider this in relation to Article 12(3) and our comments below, as this would present a contradiction between the requirement to fund the commitment when the retention is contingent (Article 4.2) and the allowance to finance the commitment when the retention is funded (Article 12.3).
- In case of maintaining Article 4.2, the category of entities to be exempt from collateralization should be wider, including, at least, insurers and other financial entities different from credit institutions).
To include technical standards about compliance with the risk retention requirement in the quarterly investor report (Article 7(1)(e) of the STS Regulation could be considered. It could also be interesting to develop the rules of disclosure on an ongoing basis in the private transactions if necessary.
Yes, we consider it necessary.
Yes, we consider it useful and necessary. Consideration of the default of the retainer under the secured funding arrangement seems to point to the artificial argument whereby the retainer would in fact consider triggering its default on such instrument as a way to transfer risk on the collateral portfolio. This argument forgets other costs to such default that would overcompensate any potential gain in the risk transfer.
Also consider that given certain retention mechanisms such as retention option c) (Article 7) whereby the retainer keeps the property (and the risk) of the underlying assets, this would present certain operational difficulties to identifying such exposures if they were not to be used at all. Currently Spanish banks are in fact using as covered bond (Cédulas) collateral, mortgage loans that might have been identified as fulfilling the retention requirement as per such option c).
We have no objection but it shall be clear in the wording that under correct and adequate disclosure by the originator/sponsor/original lender, any quality of exposure can be securitized.
We don't consider it necessary.
Yes, we would consider appropriate to include the reference to revolving securitisations in order to be coherent with that Regulation and to give more clarity to this type of transactions.
We consider important to make clearer this concept that could be applied on a discretionary basis and could result in sanctions for the originators. The situations than can be qualified as significantly" must be more detailed. Besides, in very granular pool the evidence of that fact might be diluted and when analysing few loans there could be some divergences.
In fact, we consider that Article 6.2 is redundant on a 5% risk retention obligation as a measure to align interests between originators, sponsors and investors: it is a wrong way that will produce uncertainty on securitisation (specially as a risk transfer tool) and will discourage its use. In this sense, as much RTS restricts the application of Article 6.2 the better."
Gonzalo García-Fuertes