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December 28, 2017

EC published EU Regulation 2017/2402, which lays down a general framework for securitization and creates a specific framework for simple, transparent, and standardized (STS) securitization. This Regulation amends Directives 2009/65/EC, 2009/138/EC, and 2011/61/EU, in addition to Regulations (EC) No 1060/2009 and (EU) No 648/2012. This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. It shall apply from January 01, 2019.

This Regulation applies to institutional investors and to originators, sponsors, original lenders, and securitization special purpose entities (SSPEs). This Regulation only allows for "true-sale" securitizations to be designated as STS. In a true-sale securitization, the ownership of the underlying exposures is transferred or effectively assigned to an issuer entity, which is a SSPE. This Regulation introduces a ban on resecuritization, subject to derogations for certain cases of resecuritizations that are used for legitimate purposes and to clarifications as to whether asset-backed commercial paper (ABCP) programs are considered to be resecuritizations. Resecuritizations should only be permitted in specific instances as established by this Regulation. A more risk-sensitive prudential framework for STS securitizations is important to ensure that EU functions as a single market for STS securitizations and that it facilitates cross-border transactions. The development of STS securitization market also constitutes a building block of the Capital Markets Union.

The Regulation stipulates that, where a securitization no longer meets the STS requirements, the originator and sponsor should immediately notify ESMA and the relevant competent authority. Moreover, where a competent authority has imposed administrative sanctions with regard to a securitization notified as being STS, that competent authority should immediately notify ESMA for their inclusion on the STS notifications list allowing investors to be informed about such sanctions and about the reliability of STS notifications. The requirements for using the "STS" designation are new and will be further specified by EBA guidelines and supervisory practice over time. This Regulation should apply to securitizations, the securities of which are issued on or after January 01, 2019. For securitization positions outstanding as of January 01, 2019, originators, sponsors, and SSPEs should be able to use the designation "STS" provided that the securitization complies with the STS requirements, for certain requirements at the time of notification and for other requirements at the time of origination.

 

Related Link: EU Securitization Regulation

Effective Date: January 17, 2018

Keywords: Europe, EU, Banking, Securities, STS Securitization, Securitization Framework, Regulation 2017/2402, EC

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