PCS launch


Press Release – Embargoed until 1330 CEST (1230 GMT) Tuesday 12 June 2012

Finance Industry Launches ‘PCS’ Securitisation Label to Revitalise Market

The Association for Financial Markets in Europe (AFME) and the European Financial Services Round Table (EFR) today announce the launch of Prime Collateralised Securities (PCS) - an industry-led, nonprofit project to develop a label for high quality securitisations which meet best practice in terms of quality, transparency, simplicity, and standardisation.

With the first label expected to be granted by the PCS Secretariat towards the end of this year, a number of key milestones have been reached:

  • establishment of the PCS Association and the PCS Secretariat as bodies to respectively govern and
  • operationally administer the PCS label;
  • the appointment of the Head of the PCS Secretariat;
  • identification of asset classes and structures which are eligible and not eligible for the label;
  • compliance with required loan by loan reporting standards of the ECB and Bank of England;
  • the fundraising target was fully achieved.

Access to securitisation markets for issuers is becoming increasingly important to overcome a real economy funding shortfalll in Europe. Asset Backed Securities can be an important component of the instruments that investors have available to them, especially as they do not use up the same credit line capacity as other investments, such as corporate bonds and covered bonds.

Yet, despite the very strong underlying performance of European asset-backed securities since 2007, a smaller investor base and the reduced level of issuance over this period could have knock-on effects for companies reliant on capital markets funding, as well as Europe’s broader economic recovery.

The PCS initiative - developed by a broad group of market professionals comprising issuers, investors arrangers, and other market participants, in collaboration with other European industry associations, as well as observers such as the European Central Bank, European Investment Bank and Bank of England - will comprise a two-tier governance structure:

  • a PCS Association, comprising independent non-industry directors, as well as a mix of industry professionals;
  • a PCS Secretariat, led by experienced industry professional Ian Bell, responsible for the day-to-day administrative and managerial operations. The PCS Secretariat will grant the PCS label to securities, certify a transaction and monitor the label after it is issued.

PCS is more than just a positive label for eligible securitisations — it provides the basis for a definition of agreed market standards, as well as an enforcement mechanism of these agreed standards, based on a label which can be granted and withdrawn depending on compliance and as verified by the PCS Secretariat.

Rick Watson, I-lead of Capital Markets at AFME, commented:

"Investors and regulators need a clear reference point, setting out best practices around which to build investment guidelines and regulations, which, in turn, will encourage issuance as well as investment and support the real economy. Combining the expertise and market coverage of both AFME and EFR members has resulted in the ability to move forward on this very important initiative.

"PCS will bring added quality, transparency and standardisation to the market, which will deepen the securitisation investor base in Europe and, in turn, improve overall liquidity. Europe needs a healthy securitisation market and we are confident that this initiative, alongside regulatory changes, will provide a significant boost to the market."

Sebastian Fairhurst, the EFR‘s Secretary-General, commented:

"The PCS label will be awarded on a deal-by-deal basis and subjected to a verification process by the newly established PCS Secretariat It will be granted to transactions backed by asset classes that have performed extremely well through the financial crisis and are of direct relevance to the real economy, including European auto, residential mortgage, SME, consumer and credit loans.

"Issuers will need to provide high quality reporting on an ongoing basis, in accordance with the relevant ECB and Bank of England reporting standards."

Ian Bell, PCS‘s newly appointed Head of Secretariat, commented:

"It’s exciting to be part of such an important industry initiative, which has seen so much support from investors, issuers and policymakers alike. With commitments to fully fund PCS‘ first two years of operations from over 30 institutions in the industry, PCS demonstrates the seriousness of the industry's intent to establish a vibrant, yet robust European securitisation market capable of funding the growth Europe so badly needs."

James White +44 (0)20 7743 9367 [email protected]

1. AFME (Association for Financial Markets in Europe] promotes fair, orderly, and efficient European wholesale capital markets and provides leadership in advancing the interests of all market participants. AFME represents a broad array of European and global participants in the wholesale financial markets. lts members comprise pan-EU and global banks as well as key regional banks, brokers, law firms, investors and other financial market participants. AFME participates in a global alliance with the Securities Industry and Financial Markets Association (SlFMA] in the US, and the Asia Securities lndustry and Financial Markets Association through the GFMA (Global Financial Markets Association]. For more information please visit the AFME website, www.afme.eu

2. The European Financial Services Round Table (EFR] was formed in 2001. The Members of EFR are Chairmen and Chief Executive Officers of international banks or insurers with headquarters in Europe. EFR Members believe that a fully integrated EU financial market, a Single Market with consistent rules and requirements, combined with a strong, stable and competitive European financial services industry will lead to increased choice and better value for all users of financial services across the Member States of the European Union. An open and integrated market reflecting the diversity of banking and insurance business models will support investment and growth, expanding the overall soundness and competitiveness of the European economy. For more information please visit the EFR website, www.afme.eu

3. The PCS label has been followed by policymakers throughout its development. For example, Andrea Enria, Chairperson of the European Banking Authority provides the following comment:

‘EBA believes that the European securitisation market can play an important role in meeting the funding needs of the originators and the asset diversification needs in Europe in the future. The PCS label could be an important component to re-establish a sound and well controlled market job securitisation in Europe. The EBA will continue to monitor the securitisation market closely once the PCS label starts to be operational."

A further example includes a letter from Marlo Draghl, President of the European Central Bank which comments:

‘The ECB welcomes the initiative, which aims at increasing the attractiveness of asset-backed securities among investors and originating banks A well-fimctioning ABS market in the EU would allow investors to diversify their investments and thereby contribute to a smooth financing of the economy.

"The ECB has been able to follow this project since 2009 and we are pleased to see you are ready to launch the labeling process."

Fact Sheet


  • PCS is a market-led initiative developed to apply a label to securitisation issues which meet specific eligibility criteria with the aim of increasing the funding of real economy assets through securitisation thereby supporting the recovery and future growth of the European economy.
  • The PCS label is intended to be a simple way of communicating and identifying securitisations that meet predefined best practice standards with regard to quality, transparency and simplicity/standardisation. The aim of setting these standards is to increase the depth of the securitisation investor base so as to allow for an increase in primary issuance and improve secondary market liquidity.
  • PCS is not intended to replace investor due diligence or credit ratings or to act as an alternative form of credit analysis. PCS eligibility is, however, limited to the most senior tranches in a securitisation capital structure.
  • An independent, not-for-profit, organisation has been set up to develop, launch, promote and administer the PCS label. The PCS organisation will comprise the PCS Association which will own the label and the PCS Secretariat which will be responsible for day to day operations including label issuance and monitoring.
  • PCS will be governed by an independent Board made up of a mix of senior non-industry professionals and senior financial services industry professionals.
  • The PCS organisation will be a self-financing entity after an initial period of pre-funded operation.
  • PCS will appoint a small panel of specialist firms with extensive experience in documentation review, audit and checking to assist it with verifying whether a securitisation satisfies the PCS eligibility criteria.
  • PCS benefits from the support of large group of stakeholders including investors, public authority bodies, industry associations, Issuers and other securitisation industry participants. This diverse stakeholder group has developed PCS taking into account the views of a wide range of constituents from across Europe.

Eligible asset classes and requirements of PCS

  • The PCS label will only be awarded to securitisations that are backed by asset classes that have performed well through the financial crisis and also that are of direct relevance to the real economy. These include European auto loans and leases, residential mortgage loans, loans to small and medium enterprises, consumer loans and credit card receivables.
  • PCS has intentionally excluded certain asset classes from its eligibility criteria. These excluded asset classes currently include CMBS, CDOs, synthetic securitisations, re- securitisations and residential mortgages which do not meet defined quality criteria.
  • The PCS eligibility criteria may be adapted in the future, without ever compromising its quality standards, to allow it to cater for material developments in the European securitisation and financial markets. The PCS Board will govern any decisions to amend the PCS eligibility criteria (advised a by a Board sub-committee known as the Market Committee).
  • PCS eligibility criteria will include a requirement on issuers to meet certain ongoing obligations for PCS labelled securities (e.g. reporting standards). PCS will monitor these issuer obligations and will withdraw the PCS label from securities which do not comply with any of the ongoing PCS eligibility criteria.
  • PCS eligibility criteria have been developed to include existing market standards where these are considered by PCS to be current best practice (e.g. ECB, Bank of England and HFC reporting standards).
  • PCS will not replace credit ratings although the existing PCS eligibility criteria include the requirement for a security to have been rated by at least two credit rating agencies and to be the most senior tranche in a securitisation capital structure.
  • All securitisations which meet the PCS eligibility criteria at the time of request for a PCS label are in principle eligible. Therefore, securitisations issued prior to the creation of PCS are capable of obtaining a PCS label if they meet the PCS eligibility criteria.

Labelling process

  • The PCS label will be awarded on a deal by deal basis following a review of the relevant transaction documentation to ensure that an issue complies with the PCS eligibility criteria.
  • The PCS Secretariat will engage a small panel of respected specialist firms to assist it with verifying that a securitisation meets the PCS eligibility criteria. PCS has selected this outsourced model to ensure that it can respond to labelling requests promptly and so that it has the best possible expertise for documentation review, audit and checking at its disposal.
  • Granting of the PCS label will follow a strict, rigorous and standardised review procedure.
  • Issuers seeking a label for their securities will pay a fee in order for the PCS Secretariat to undertake the evaluation as to whether a security is PCS eligible. The fee remains payable irrespective of whether the security is found to be PCS eligible or not.

Corporate framework and governance

  • The PCS organisation will comprise the PCS Association and PCS Secretariat. The PCS Association will be based in Brussels, where the Board will also sit, and will own the PCS label. The PCS Secretariat will be based in London and be responsible for day to day operations including label issuance and monitoring.
  • The PCS Board will be the executive oversight body for PCS and will govern the activities of PCS.
  • The PCS Board will be made up of senior independent non-industry professionals as well as senior professionals in the financial services industry, with experience of securitisation and other financial instruments.
  • The PCS Board will appoint certain Board sub-committees which will specialise in advising the Board on certain topics (e.g. the Market Committee will advise on matters relating to the PCS eligibility criteria and the securitisation market in general, Audit Committee, External Affairs Committee). The Board sub-committees will be chaired by a PCS Board member and will include individuals from outside the PCS Board with specialist knowledge of the focus area of the sub-committee (e.g. in the case of the Market Committee, industry specialists including traders, investors, issuers, lawyers etc).

PCS Funding Members

1. Allen & Overy
2. Barclays
3. Bank of America Merrill Lynch
5. Bishopsfield Capital Partners
6. Bloomberg
7. BNP Paribas
8. BNY Mellon
9. Clifford Chance
10. Credit Suisse
11. Deutsche Bank
12. DNB Bank ASA
13. European Banking Federation
14. HSBC
15. ING
16. Intesa San Paolo
17. J P Morgan
18. Lewtan Technologies
19. Linklaters
20. Lloyds Banking Group
21. Nationwide
22. NIBC Bank
23. Obvion
24. Rabobank
25. Royal Bank of Scotland
26. Santander
27. Securitisation Services
28. Societe Generale
29. Twenty Four Asset Management
30. UBS
31. UniCredit
32. Weil, Gotshal & Manges

Additional supporters of PCS

A number of other institutions and associations have contributed their time and expertise to assist in
the development of PCS. These include:

2. Allianz SE
3. AXA Investment Management
5. EFR
7. Holland Financial Centre
8. Insurance Europe
9. RBS Asset Management
10. Swiss Re
11. True Sale International

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