New EU securitisation regulation came into force yesterday, creating common EU-wide rules to ensure simple, transparent and standardised securitisation.
The new rules form part of the Capital Markets Union, a European Commission initiative to mobilise and integrate capital across Europe. The EU securitisation regulation, which draws on the work of the international supervisory community, is geared towards promoting investor protection and financial stability while streamlining the process of issuing and investing in securitisations in the EU.
Securitisation – the process by which banks pool assets such as loans to create a financial instrument to be purchased by investors – can boost banks’ access to a greater range of investors, increase liquidity and make extra funds available to the bank for further lending. The European Commission described the new EU securitisation regulation as “restor[ing] an important funding channel for the EU economy without endangering financial stability”.
The terms of the EU securitisation regulation emphasise the importance of a high degree of standardisation of products, which should in turn result in high standards of process, legal consistency and comparability across instruments of securitisation. Particular attention is also paid by the regulation to ensuring transparency and immediate availability of key information for investors, allowing potential investors to perform due diligence and select securitisation products which will best match their diversification, return and duration needs.
Valdis Dombrovskis, the European Commission’s Vice-President for Financial Stability, Financial Services and Capital Markets Union, said: “[The EU securitisation regulation] is one of the cornerstones of the Capital Markets Union, the Commission’s pivotal project to build a single market for capital in the EU. It will help build a sound and safe securitisation market in the EU, bringing real benefits to investment, jobs and growth. It will free up bank lending so that more financing can go towards supporting our companies and households.”