The Association for Financial Markets in Europe (AFME) has provided a five-point reform plan to revitalise the securitisation market in the EU.
The combined measures should increase both supply and demand for product, the association said, advocating for increased risk sensitivity within the bank prudential framework, an adjustment to how securitisation is treated within the liquidity coverage ratio and the revitalisation of demand from the insurance sector.
Also recommended is the introduction of proportionality for investors conducting regulatory due diligence, along with the fine-tuning of regulatory reporting requirements and a simplification of simple, transparent and standardised (STS) criteria for traditional and synthetic securitisations.
AFME emphasises the importance of maintaining existing securitisation safeguards put in place to prevent the proliferation of high leverage products under the label of securitisation.
Securitisation can be used in a number of ways to support growth and strategic objectives in the EU, the paper says, including enhancing competitiveness and providing an alternative source of funding for European companies.
It can also be used to provide long-term credit to underserved wholesale and consumer market segments, the association continued, help support the green and digital transitions and offer an alternative asset class to serve EU-based savers and investors.
Other benefits include enabling non-performing exposure (NPE) portfolios to be sold to non-bank investors who specialised in distressed debt assets, and providing a way for the European economy to use capital markets to their full potential rather than relying on financing through banks’ balance sheets. AFME adds that it will allow banks to lend more to the real economy, releasing capital and transferring credit risk through significant bank transfer outside the banking sector.
Commenting on the release, Adam Farkas, chief executive of AFME, said: “In recent months, we have been encouraged by the recognition shown by European policymakers of the vitally important role that securitisation can play in order for Europe to remain competitive and to be economically prosperous.
“We look forward to engaging with the European policy community and market participants to address and resolve current regulatory hurdles and support the return of a healthy securitisation market able to deliver the significant funding needs of Europe over the coming years.”
Shaun Baddeley, head of securitisation at the association, added: “As policy makers have come to acknowledge the valuable role that securitisation can play, there is increasing recognition that the combined effect of certain provisions within both the EU Securitisation Regulation and the EU Bank and Insurance Prudential Capital Frameworks have disincentivised EU investors and limited utility of the product as a funding tool by EU issuers. This consensus has grown in regard to the contribution securitisation can make to financing EU growth.”
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