The Impact Of The Securitisation Regulation On UCITS And AIFMs

Author:Mr Kevin Murphy, Tara O'Reilly, Sarah Cunniff, Dara Harrington, Cormac Commins and Ian Dillon
Profession:Arthur Cox
 
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The Securitisation Regulation (Regulation EU 2017/2401) came into force on 17 January 2018 and will be directly applicable across the EU from 1 January 2019. In this briefing we highlight some of its key provisions insofar as they impact UCITS and AIFMs.

THE NEW FRAMEWORK AND ITS APPLICATION

The Securitisation Regulation replaces the existing sector - specific approach to securitisation regulation with a new set of rules that apply to all European securitisations. Currently what determines which set of securitisation rules apply depends on the type of investor. For example, the securitisation provisions for AIFMs are those in Article 17 of AIFMD (Directive 2011/61/EU) and apply to EU AIFMs managing or marketing EU or non-EU AIFs (but do not currently apply to non-EU AIFMs managing or marketing EU or non-EU AIFs because the delegated acts contemplated in the transitional provisions have not been adopted).

However, currently there are no corresponding securitisation provisions in the UCITS Directive (Directive 2009/65/EC). This anomaly whereby UCITS are not currently subject to due diligence, transparency and risk retention requirements with respect to investments made in securitisations has been rectified in the Securitisation Regulation. The new due diligence requirements apply to all "institutional investors", which is defined to include AIFMs and UCITS (and credit institutions, investment firms, insurers and reinsurers).

DEFINITION OF SECURITISATION

The definition of "securitisation" is intended to capture any transaction or scheme where the credit risk associated with an exposure or a pool of exposures is tranched. Essentially, the definition includes any investment with tranches or classes where payments in the transaction or scheme are dependent on the performance of the exposure or of the pool of exposures and the participation in losses differs between the tranches during the life of the transaction or scheme. These types of investments are treated differently from notes or debt securities that may have classes that reflect differing terms (like payment dates or interest rates). Analysis will need to be done on a case by case basis to determine if a particular investment falls within the scope of the definition of securitisation in the Securitisation Regulation.

RISK RETENTION

Institutional investors must ensure that the originator, sponsor or original lender of a securitisation retains at least a 5% net economic interest in the...

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