PCS was glad to respond to the EBA’s consultation on the possibility of introducing an STS regime for synthetic securitisations. It may be found here.

Notwithstanding that this topic may seem highly technical and of interest only for the hard-core enthusiast, we believe that it is – in fact – possibly one of the most important financial files in front of policy makers today.  Even if you have little interest in the detailed responses to the specific proposals, we would invite everyone to read our general comments at the start of our response. (They are only three pages long).

Broadly, the EBA discussion paper is a good starting point and much in the approach is to be commended.  Where PCS has some concerns are first the importation of significant risk transfer (SRT) requirements when these erode the quality of the STS standard without commensurate benefit for the integrity of the prudential regime and secondly the, for us, inexplicable lack of any proposal for an appropriate capital benefit when such benefit is fully justified both by the data and by the fundamental analysis.

We look forward though in further discussions with the regulatory community on this important topic.

PCS has filed a response to the EBA’s consultation on the “homogeneity” criterion in the STS Regulation.

The EBA’s general approach as disclosed by the consultative document is broadly sound and sensible.  There is however some concern over how the fourth part of their suggested test (the “risk factors”) would work.  In particular, PCS has some concerns over how issuers, investors and third party certification agents will be able to achieve a sufficient level of confidence in the choice of the relevant risk factor or risk factors. Our response does provide a possible solution which we think is both workable and reasonable.  In addition, PCS has suggested some clarification regarding some key terms.

PCS has also filed a response to the ESMA’s consultation on the information to be provided by entities seeking to be regulated as third party certification agents. Since PCS has made no secret of its intention to become such a regulated third party certification agent, we have a direct interest in the outcome of this particular consultation.  As with the EBA consultation on homogeneity, PCS feels ESMA’s overall approach is sound and our response is mainly concerned with technical aspects.

PCS has filed a response to the European Commission’s consultation on possible changes to the Liquidity Coverage Ratio regime.  The heart of the Commission’s proposal is the replacement of the current Level 2 securitisation assets with STS securitisations.

As outlined in PCS’s response, this seems to us a disappointing suggestion.  It is one that is difficult to reconcile with the intrinsic quality of STS securitisations on which the Commission itself and the European Parliaments and Council have worked so hard  and with the desire of the European Union, through the Capital Markets’ Union project, to revitalise securitisation to fund European growth.  PCS is also concerned that, as currently envisaged the proposal could damage investors and the still weak European securitisation market without a discernible commensurate regulator benefit.

However, we are grateful for, and heartened by, the fact that the Commission has launched this consultative process.  We are therefore optimistic that, working together with the Commission and stakeholders, solutions can be found that both reinforce the prudential framework for the banking sector and the prospects for the new STS regime.

Last week, the PCS response to the Commission's securitisation consultation was filed.  PCS is strongly supportive of the Commission's approach.  In our response we recommend that the process of crafting the definition of "simple, transparent and standardised" securitisation be anchored in the excellent work of the European Banking Authority.  Our response also focuses on the issue broached by the Commission regarding the operationalisation of the potential new regulatory scheme.  PCS had expressed the view that the success of the new regulatory scheme in revitalising a European securitisation market on a safe basis would depend not only on the definitions and rules of such scheme but on the practical issues of how the scheme could be operated.  In particular, the regulatory framework should not  unnecessarily deter investors from investing.  Following our earlier paper, "the illusory promise of self-attestation", we have set out in great detail how the proposed regulatory scheme could be made to work in an annex to our response.  In particular, in the section entitled "Questions that should be frequently asked", we deal with some of the legitimate concerns with our proposals.

PCS files its response to the BCBS/IOSCO consultation on simple, transparent and comparable securitisations.  We view this work stream by the Basel Committee and IOSCO as a major and positive move towards a global approach to securitisation that is in line with our own analysis and the positions taken by the European stakeholders in the asset class, including many European policy makers.  PCS very much hopes that this work will lead to a new global regulatory approach to securitisation that will help in the return of a strong worldwide securitisation market free from the build up of systemic risk that occurred prior to 2007.  Such a market would facilitate the cross-border mobilisation of capital to fund the real economy and growth.

PCS filed yesterday its response to the EBA consultation on simple, standardised and transparent securitisations.

This consultation marks a very strong and positive step towards the creation of a robust regulatory framework built around a definition of high quality securitisations.  PCS welcomes the consultation and is supportive of the approach outlined by the EBA.

Last Friday, PCS filed its response to the ECB and Bank of England's excellent joint consultative document.  The PCS Response to BoE/ECB consultation welcomes the proposed approach of defining high quality securitisation and providing some role for such a definition in the regulatory schemes.  PCS also is broadly supportive of the principled based approach adopted by the Bank of England and the ECB.  However, PCS also expressed its concern that the very weak securitisation market needs urgently a sense that new regulatory proposals are progressing in the right direction. Although we understand that the process of crafting regulations is a time consuming one and we further understand that some of the forthcoming rule making (such as Solvency 2 and the LCR requirements) may have to be enacted in sub-optimal form due to timing constraints, it is vital for the survival of the securitisation market that policy makers indicate clearly that these rules are effectively in an interim stage and that further work will be done, with all required speed, to create a safe regulatory environment that reflects the intrinsic strengths of quality securitisations.

Following a general request from the European Commission, the PCS has sent its response to the EBA's report of December 2013 on the definition of High Quality Liquid Assets (HQLA) that may be included in a bank's liquidity cover ratio buffers.  In the report, and following the lead of the Basel Committee on Banking Supervision, the EBA did not admit any securitisations as HQLA save a sub-set of RMBS.  PCS felt that there were a number of fundamental issues with the approach adopted by the EBA as well as some flaws in the methodological choices which combined to discriminate  unfairly against high quality securitisations.  PCS strongly recommends in its response that a definition of "high quality securitisations", based on the PCS principles and similar to that provided by EIOPA in the context of Solvency II, should be crafted and that such securitisations be allowed as HQLAs.  The PCS response may be found here.

PCS files its response to the European Commission's Green Paper on Long-Term Finance.  The paper very much seeks to focus on clear and actionable plans.  It re-iterates the importance of creating a robust yet reasonable prudential regulatory framework around securitisation in Europe and how this can be done by inserting a definition of "high quality securitisation" in all the European legislation and then calibrating this asset class against its actual excellent performance.  In the context of SME finance, PCS also puts forward a substantial proposal that would  harness the public sector to revive the SME securitisation market and channel much needed funds to a sector that is likely to suffer disproportionately from bank deleveraging.  Our full response can be found here.