The Commission put forward its proposal on 30 September as part of its Action Plan for the Capital Markets Union. Well-functioning securitisation markets are also an objective of the Investment Plan for Europe. They will allow banks to lend more to the European economy to support growth and investments. The proposal introduces criteria for determining if securitisation instruments qualify as "simple, transparent and standardised", and therefore whether they are eligible for more appropriate prudential treatment.
Jonathan Hill, Commissioner for Financial Stability, Financial Services and Capital Markets Union, said: "Safe, transparent and standardised securitisation can help diversify funding within the economy, and free up new lending from banks to support growth and jobs. This proposal has moved at record speed and reflects the urgency with which we want to make progress on the Capital Markets Union. We think this will provide the right incentives for the financial sector, and the right safeguards to ensure financial stability in the EU. It is an important part of our early steps to boost capital markets, investment and economic growth in the EU. I hope that the European Parliament will also be able to make quick progress so that we can have this in effect as soon as possible to support the economy."
Securitisation is a transaction that enables a lender – often a bank - to refinance a set of loans such as mortgages, auto loans or leases, consumer loans or credit cards by pooling them and converting them into financial instruments, or 'securities', that can be sold to other investors.
Today’s agreement by the Permanent Representatives’ Committee (Coreper) will be confirmed by the Council on 8 December 2015. Similarly to the Council, the European Parliament needs to agree its position to allow for a final agreement on the text between the two co-legislators.
The proposed securitisation framework is a package including:
- a Securitisation Regulation that will apply to all securitisations and include due diligence, risk retention and transparency rules together with criteria to identify Simple, Transparent and Standardised ("STS") securitisations;
- a proposal to amend the Capital Requirements Regulation (CRR) to make the capital treatment of securitisations for banks and investment firms more risk-sensitive and able to reflect properly the specific features of STS securitisations.
The agreement reached today applies to both elements of the package. The main objectives of the framework are:
- to relaunch markets and put them on a more sustainable basis so that STS securitisation can act as an effective funding channel to the economy;
- to allow for efficient and effective risk transfers to a broad set of institutional investors;
- to allow securitisation to function as an effective funding mechanism for some non-banks (such as insurance companies) as well as banks;
- to protect investors and to manage systemic risk.
The overall objective of the proposal is to promote a sustainable, deep, liquid and robust market for securitisation, which is able to attract a broader and more stable investor base to help allocate finance to where it is most needed in the economy.
The Commission’s proposal sought to differentiate between simpler and more transparent securitisation products and other products that do not satisfy such criteria.
The specific features of simple, transparent and standardised securitisation should help to restore and further develop an important funding channel for the EU economy without jeopardising financial stability. The market for such products is primarily institutional (rather than retail) investors; the Commission’s proposal should also further enhance the role of non-bank long-term investors such as insurance companies.
For more information:
CMU Action Plan Press Release: Capital Markets Union Action Plan
Securitisation Q&A: MEMO/15/5733