Cyprus: New Securitisation Regulations

Last Updated: 30 August 2019
Article by Ioannis Sidiropoulos and Achilleas Malliotis

Most Read Contributor in Cyprus, October 2019

Like most financial engineering techniques, securitisation is not without risk. The complexity inherent in securitisation can impair investors' ability to monitor risk, and competitive securitisation markets are prone to sharp declines in underwriting standards. Furthermore, off-balance sheet accounting treatment for securitisations coupled with guarantees from the issuer can make it challenging to assess exposures, encouraging issuers to take on excessive credit risk. Even the most ardent advocates of securitisation would accept that securitisation played an important role in the US subprime mortgage crisis that led to the global financial crisis of 2008.

As part of its project to safeguard the stability of financial markets and improve investor protection, in 2017, the EU enacted a package of legislative measures regulating securitisation and imposing minimum requirements. The central measures are Regulation (EU) 2017/2402 (Securitisation Regulation, or SR) and the ancillary Securitisation Prudential Regulation (EU) 2017/2401 (SPR), which amends the Capital Requirements Regulation (CRR). Together the SR and SPR are referred to as the updated risk retention rules.

The SR has had direct effect throughout the EU since January 1 2019, imposing due diligence, transparency, and risk retention rules on a range of institutional investors, which are broader than under the previous regime. The SR replaces the sector-specific regulatory approach that previously applied with a framework of rules which apply to all European securitisations. The SPR replaces the provisions of the CRR, which were relevant to the regulatory capital context of securitisation exposures held by EU credit institutions and investment firms.

For a transaction to qualify as a simple, transparent and standardised (STS) securitisation under the regulation and, thus, to enjoy preferential regulatory capital treatment, it must satisfy the requirements set out in the SR. These relate to issues such as homogeneity of the underlying assets and the availability of reliable historical performance data for the assets.

A fundamental principle that characterises the new regulatory framework is that the institutional investors must ensure that the originator, sponsor or original lender of a securitisation retains at least a five percent net economic interest in the securitisation.

The due diligence requirements which are included in provisions of various pieces of sectoral legislation (CRR, Solvency II Delegated Act and AIFMD) are replaced by a single provision requiring all regulated institutional investors to undertake the same prescribed due diligence procedures (Article 5(1) SR).

The regulation includes direct disclosure obligations (Article 7 SR), which apply irrespective of the regulatory status of the originator, sponsor or issuer. Investors must be provided, among other things, with regular reports on the credit quality and performance of underlying exposures, details of any important developments, and information about the risk retained.

Moreover, the Securitisation Regulation prohibits re-securitisations, subject to grandfathering provisions and limited exceptions (Point 8, preamble, Article 8 SR), (that is, asset-backed commercial paper structures). The new framework does not allow an originator to select assets for securitisation on the basis of a possible bargain on their prospective loss-making.

Undertakings for collective investments in transferable securities (UCITS) and non-EU alternative investment funds (AIFs) are also included in the regulated securitisation positions (Articles 2 and 29 SR). The SR replaces the provisions of the AIFMD (2011/61/EU) on due diligence, monitoring, and internal reporting requirements concerning securitisation positions. Under the new rules, AIFMs are deemed institutional investors (Article 2.12.d SR). Managers of Ucits may also be treated as institutional investors (Article 2.12.e SR) and are required to satisfy the due diligence, monitoring, and reporting requirements on securitisation positions. These include the establishment of sound and well-defined criteria, with effective systems to apply those criteria.

The STS framework has attracted some criticism for being vague and complicated. For example, there are various criteria that an asset-backed security (ABS) must satisfy to be classified as STS. There are concerns that the new European regulations risk creating conditions where issuance for some market sectors could cease. There is a disappointment expressed by some market players that a large number of securitisations, despite having a satisfactory record of performance (such as some synthetics), may continue to encounter some negative discrimination, compared to the more conventional security forms.

It would not be an exaggeration to say that there might also be problems for non-performing loans (NPLs). The level of disclosure is quite high and, in some cases, (that is, where the originator is not the original lender) the information can be entirely unavailable, a situation that is further complicated when the original lender becomes bankrupt.

In the case of new securitisations and legacy STS securitisations, compliance with the Securitisation Regulation will induce difficulties and challenges in the relevant field. Adaptations to pre-existing securitisations are considered to be quite time/cost-consuming and often subject to substantial expenses to be undertaken by the originator or sponsor.

The introduction of the regulation is, without doubt, an encouraging step towards financial stability in the EU. In the context of this new regulatory effort, the creation of a single market for investment services and the achievement of a high degree of harmonised protection for investors in financial instruments are fundamental in establishing a capital markets union. However, the fact that there are issues still pending is disappointing for a framework of legislation which has been drafted with the intention of promoting the recovery of the EU financial markets. The uncertainty created by those outstanding issues, and the vague and complex provisions referred to above, may be counterproductive. Policymakers and the industry should be encouraged to ensure that regulatory initiatives in this area do not have the effect of discouraging investors and securitising entities from engaging in securitisation deals and instead promote a more stable and transparent regime for the implementation of securitisation transactions.

Originally published by IFLR.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions