Following the application of the 2018 European Union Securitisation Regulation from 1 January 2019, Ocorian's Director of Transaction Management, Chris Wilson, examines the practical impact on the provision of corporate services.
Designed to make the European securitisation market work more efficiently and in an effort to build a transparent and risk-reflective capital markets union, the EU transposed the Securitisation Regulation into EU law on January 17, 2018. The legislation applies to all securitisations completed after January 1, 2019.
In addition to outlining the general requirements for all securitisations in the EU, the legislation introduced a specific framework for STS (simple, transparent and standardised) securitisations.
What qualifies as an STS?
To qualify as an STS, transactions must first comply with the general rules of the Securitisation Regulation such as risk retention, transparency and due diligence requirements. The originators, sponsors and issuers then need to opt in to the regime and undergo a rigorous examination of their structure and notify European Securities and Markets Authority (ESMA) of their fulfilment. ESMA must also maintain a list of all qualifying STS securitisations.
The legislation does not differentiate according to the type of investor and the application date of January 1, 2019 can be extended to legacy securitisations outstanding on that date, depending on whether procedural and structural requirements are met at the time of notification to ESMA and at the time of origination (such as risk retention).
What is the impact?
Whilst the outcome on market liquidity remains to be seen, STS transactions may benefit from lower capital requirements for institutional investors. The thorough inspection procedure designating a structure as an STS may also increase visibility for the investors, in terms of understanding and assessing the risks of a securitisation investment, raising the appeal of an STS.
Key points to consider:
- Not every securitisation qualifies for STS treatment. There are extensive criteria but each transaction needs to be legally assessed in order to determine if it qualifies.
- Commercial Mortgage-Backed Securities (CMBS) transactions are uniformly excluded from the outset; other securitisations can potentially qualify with some limitations if they are loan backed.
- STS legislation applies to every transaction completed after 1 January 2019; legacy transactions can also apply if they meet certain criteria.
- If any of the originator, sponsor or Special Purpose Vehicle (SPV) is established outside of the EU, the transaction is excluded from the outset. In the case of an existing SPV, it will need to be re-domiciled to a qualifying jurisdiction within the EU to remain eligible for STS treatment.
Choosing a flexible corporate services provider
For a corporate services provider, it is the last of the above key points that garners the most attention. With the deadline for Brexit under six months away, U.K. based SPVs will render new and existing securitisations ineligible for STS treatment. Therefore, in order to qualify, the location of the issuing vehicle will need to be within the EU.
By way of example, if, as a result of Brexit, a U.K. based Special Purpose Vehicle (SPV) needs to be re-domiciled, Ocorian has fully developed corporate services capabilities in three alternative qualifying jurisdictions: Ireland, Netherlands and Luxembourg, all of which are EU member states.
Our experienced corporate services teams can assist EU originators and sponsors to make their securitisations STS compliant through the transitioning of their existing securitisation vehicles to these qualifying jurisdictions, as well as providing painless and efficient company incorporation for new transactions. Ocorian is capable of providing a full suite of services to holding companies and special purpose vehicles, including:
- Trustee, Share Trustee, Stichting
- Company Secretary
- Registered Office
- Office Leasing
- Financial Statements
- Account Bank Administration
- Board Pack
Originally published 20 May 2019
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.