Response to discussion on simple standard and transparent securitisations
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One example is securitisations of bank loan receivables. Here applicable bank secrecy, data protection and privacy laws prevent the bank from transferring the loans to an SPV. Contractual arrangements that would explicitly authorise the bank to assign and transfer loan receivables to a third party ( so-called “asset trading clauses”) may be common in some markets like large caps or auto financing; they are not used in consumer loans and loans to small and medium-size entities (SME). Consumer and SMEs view lending as a sensitive relationship and would normally not accept to face a third party as servicer. Banks use synthetic securitisation to hedge the credit risks stemming from its loan book. Deutsche Bank established well-known securitisation programmes that systematically hedge risks and we consider these programmes as tools for supporting lending to both consumers and corporates.
Another example is securitisations that use two-tiered structures involving two SPVs, where the first SPV holds the assets, the second SPV issues the notes that fund the acquisition of the assets and where the funding is passed-on to the first SPV through a credit linked note. Most U.S. securitisations (including asset-backed commercial paper programs) are based on such a two-tiered structure. The reason for using two-tiered structures is to enhance investor’s rights and the bankruptcy remoteness of the SPVs. The two-tiered structures are usually viewed as true-sale transactions because they use an initial transfer of receivables to the asset holding SPV, which segregates these assets from the originator. The second transfer to the issuing SPV, which is achieved synthetically, should not disqualify these transactions.
We believe that simple synthetic securitisation structures as described in the first example bear a significant advantage with respect to the moral hazard problem involved in the separation of underwriting and risk bearing, which is typical for all forms of risk transfer, if the originating bank can ensure that underwriting staff and credit officers monitoring the exposure do not decide that the risk in fact should be sold via a securitisation transaction. Fulfilling this requirement should qualify a synthetic structure as qualifying.
We believe that private transactions are already subject to the correct level of disclosure and transparency.
The purpose of transparency and disclosure requirements is to allow investors to make an informed assessment of the risks they are taking. Article 409 of the Capital Requirements Regulation (CRR) provides for a fully comprehensive level of disclosure to private investors without disclosing sensitive information to the public that would make these deals unattractive to the investor and hence undermine securitistion issuance.
Private securitisation transactions represent core bank lending facilities similar to the providing of corporate loans. They can help relatively new and fast growing sectors to obtain funding without having to disclose sensitive information to the public. Excluding private transactions outright, on the basis that they are deemed as non-transparent, runs counter to the CRR and may potentially hinder accessing finance for some companies.
Such designation may provide an implicit subsidy to assets or institutions that qualify easily. Regulators should consider the policy implications of an increased flow of capital to those markets or institutions; and
It is important to consider what impact establishment of qualifying securitisations will have on perception of non-qualifying securitisations. We see it as necessary to support more junior tranches of safe and robust securitisation markets. In this regard, continuing to help improve the availability of data and analytics and seek to ensure that these are delivered as efficiently as possible, is key.
Question 2: Should synthetic securitisations be excluded from the framework for simple standard and transparent securitisations? If not, under which conditions/criteria could they be considered simple standard and transparent?
We disagree with the approach of preventing synthetic securitisations from being considered qualifying securitisations. This blanket approach would remove a large number of securitisations which, from a regulatory policy perspective, would otherwise be eligible.One example is securitisations of bank loan receivables. Here applicable bank secrecy, data protection and privacy laws prevent the bank from transferring the loans to an SPV. Contractual arrangements that would explicitly authorise the bank to assign and transfer loan receivables to a third party ( so-called “asset trading clauses”) may be common in some markets like large caps or auto financing; they are not used in consumer loans and loans to small and medium-size entities (SME). Consumer and SMEs view lending as a sensitive relationship and would normally not accept to face a third party as servicer. Banks use synthetic securitisation to hedge the credit risks stemming from its loan book. Deutsche Bank established well-known securitisation programmes that systematically hedge risks and we consider these programmes as tools for supporting lending to both consumers and corporates.
Another example is securitisations that use two-tiered structures involving two SPVs, where the first SPV holds the assets, the second SPV issues the notes that fund the acquisition of the assets and where the funding is passed-on to the first SPV through a credit linked note. Most U.S. securitisations (including asset-backed commercial paper programs) are based on such a two-tiered structure. The reason for using two-tiered structures is to enhance investor’s rights and the bankruptcy remoteness of the SPVs. The two-tiered structures are usually viewed as true-sale transactions because they use an initial transfer of receivables to the asset holding SPV, which segregates these assets from the originator. The second transfer to the issuing SPV, which is achieved synthetically, should not disqualify these transactions.
We believe that simple synthetic securitisation structures as described in the first example bear a significant advantage with respect to the moral hazard problem involved in the separation of underwriting and risk bearing, which is typical for all forms of risk transfer, if the originating bank can ensure that underwriting staff and credit officers monitoring the exposure do not decide that the risk in fact should be sold via a securitisation transaction. Fulfilling this requirement should qualify a synthetic structure as qualifying.
Question 3: Do you believe the default definition proposed under Criterion 5 (ii) above is appropriate? Would the default definition as per Article 178 of the CRR be more appropriate?
Please refer to AFME’s answer to this questionQuestion 4: Do you believe that, for the purposes of standardisation, there should be limits imposed on the type of jurisdiction (such as EEA only, EEA and non-EEA G10 countries, etc): i) the underlying assets are originated and/or ii) governing the acquisition process of the SSPE of the underlying assets is regulated and/or iii) where the originator or intermediary (if applicable) is established and/or iv) where the issuer/sponsor is established?
Please refer to AFME’s answer to this questionQuestion 5: Does the distribution of voting rights to the most senior tranches in the securitisation conflict with any national provision? Would this distribution deter investors in non-senior tranches and obstacle the structuring of transactions?
Please refer to AFME’s answer to this questionQuestion 6: Do you believe that, for the purposes of transparency, a specific timing of the disclosure of underlying transaction documentation should be required? Should this documentation be disclosed prior to issuance?
Please refer to AFME’s answer to this questionQuestion 7: Do you agree that granularity is a relevant factor determining the credit risk of the underlying? Does the threshold value proposed under Criterion B pose an obstacle to the structuring of securitisation transactions in any specific asset class? Would another threshold value be more appropriate?
Please refer to AFME’s answer to this questionQuestion 8: Do you agree with the proposed criteria defining simple standard and transparent securitisations? Do you agree with the proposed credit risk criteria? Should any other criteria be considered?
TransparencyWe believe that private transactions are already subject to the correct level of disclosure and transparency.
The purpose of transparency and disclosure requirements is to allow investors to make an informed assessment of the risks they are taking. Article 409 of the Capital Requirements Regulation (CRR) provides for a fully comprehensive level of disclosure to private investors without disclosing sensitive information to the public that would make these deals unattractive to the investor and hence undermine securitistion issuance.
Private securitisation transactions represent core bank lending facilities similar to the providing of corporate loans. They can help relatively new and fast growing sectors to obtain funding without having to disclose sensitive information to the public. Excluding private transactions outright, on the basis that they are deemed as non-transparent, runs counter to the CRR and may potentially hinder accessing finance for some companies.
Question 9: Do you envisage any potential adverse market consequences of introducing a qualifying securitisation framework for regulatory purposes?
Regulators and policy-makers should give due consideration to the risks that run as a consequence of designation of qualifying securitisations: Such designation may provide an implicit subsidy to assets or institutions that qualify easily. Regulators should consider the policy implications of an increased flow of capital to those markets or institutions; and
It is important to consider what impact establishment of qualifying securitisations will have on perception of non-qualifying securitisations. We see it as necessary to support more junior tranches of safe and robust securitisation markets. In this regard, continuing to help improve the availability of data and analytics and seek to ensure that these are delivered as efficiently as possible, is key.