Synthetic securitisation: A closer look

22-06-2016

In September 2015, the European Commission adopted two legislative proposals: one that aims to develop an EU-wide framework for simple, transparent and standardised (STS) securitisations, and another that aims to make the capital treatment of securitisations for banks and investment firms more risk-sensitive by amending the Capital Requirements Regulation (CRR). While the European Commission did not include synthetic securitisations in the STS scheme, it left open the possibility for some of them to be included at a later stage. Similarly, while synthetic securitisations in general do not benefit from a different prudential treatment under the CRR, the Commission proposed that a specific category of synthetic transactions should – under specific conditions – benefit from an equivalent regime. The European Banking Authority (EBA), the Council of the EU and the European Central Bank (ECB) have all given their views on the matter and the debate has yet to conclude, as the two proposals are under discussion in the European Parliament's Committee on Economic and Monetary Affairs. The question of synthetic securitisations benefiting from a specific regime carries opportunities (by broadening the market for originators and freeing up capital to finance the real economy, notably SMEs) as well as risks, depending on the synthetic securitisation used and the final framing of the regime. Hence, this briefing gives a general introduction to the subject and outlines the positions of the Commission, the Council, the EBA and the ECB.

In September 2015, the European Commission adopted two legislative proposals: one that aims to develop an EU-wide framework for simple, transparent and standardised (STS) securitisations, and another that aims to make the capital treatment of securitisations for banks and investment firms more risk-sensitive by amending the Capital Requirements Regulation (CRR). While the European Commission did not include synthetic securitisations in the STS scheme, it left open the possibility for some of them to be included at a later stage. Similarly, while synthetic securitisations in general do not benefit from a different prudential treatment under the CRR, the Commission proposed that a specific category of synthetic transactions should – under specific conditions – benefit from an equivalent regime. The European Banking Authority (EBA), the Council of the EU and the European Central Bank (ECB) have all given their views on the matter and the debate has yet to conclude, as the two proposals are under discussion in the European Parliament's Committee on Economic and Monetary Affairs. The question of synthetic securitisations benefiting from a specific regime carries opportunities (by broadening the market for originators and freeing up capital to finance the real economy, notably SMEs) as well as risks, depending on the synthetic securitisation used and the final framing of the regime. Hence, this briefing gives a general introduction to the subject and outlines the positions of the Commission, the Council, the EBA and the ECB.