Yesterday, in their plenary session, the European Parliament passed long anticipated amendments to the existing STS Regulation and concomitant changes to the Capital Requirement Regulation (CRR). This vote, which had been expected earlier in the year, looked like it had been derailed by a dispute over some of the tax focused provisions which would have potentially cut off access to the European market to Australian issuers. But, after some last minute negotiations between the Australians, the Parliament and Member States, an acceptable compromise was reached.
To recap, the new securitisation rules contained in this legislative act allow certain synthetic on-balance sheet securitisations access to the “simple, transparent and standardised” (“STS”) status previously only available to “true sale” securitisations. To achieve this status though, a synthetic securitisation will need to thread a narrow needle made up of around 145 to 160 criteria (depending on the type of transaction). The new rules also amend certain provisions around non-performing loans securitisations (“NPLs”) correcting some unintended consequences in the original legislation. The full text of the securitisation amendments may be found here.
Together with new securitisation rules, the European Parliament voted a number of amendments to the CRR – which may be found here. These are consequential to the amendments of the securitisation rules in that they amend capital requirements for banks in line with the new rules.
These two legislative acts are not yet in force as they will first need to be approved by the Member States and published in the Official Journal. The first is a formality that can take place pretty much immediately. On the second, a small point worth noting is that usually laws only come into force twenty-one days following publication in the OJ. Maybe wishing to make up for lost time, the Parliament accelerated this by requiring only three days to pass after publication. This suggests that these reforms may well be in force before the end of April.
Although one can always quibble on details, these new rules – which reflect closely the proposals of the European Banking Authority – will be welcomed by the markets as being a step towards a more consistent regulatory framework for the European capital markets. These rules will, of course, not apply to financial institutions in the United Kingdom. Currently, we are not aware of any plans by the UK authorities to introduce similar amendments.