AMENDMENTS EN United in diversity EN. European Parliament 2015/0226(COD) Draft report Paul Tang (PE583.

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1 European Parliament Committee on Economic and Monetary Affairs 2015/0226(COD) AMDMTS Draft report Paul Tang (PE v01-00) on the proposal for a regulation of the European Parliament and of the Council laying down common rules on securitisation and creating a European framework for simple, transparent and standardised securitisation and amending Directives 2009/65/EC, 2009/138/EC, 2011/61/EU and Regulations (EC) No 1060/2009 and (EU) No 648/2012 (COM(2015)0472 C8-0228/ /0226(COD)) AM\ doc PE v01-00 United in diversity

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3 109 Miguel Viegas, Rina Ronja Kari, Marisa Matias, Paloma López Bermejo, Matt Carthy - The European Parliament rejects the Commission s proposal. Or. pt Justification Whereas: i) securitisation has never affected the funding of SMEs, as consumption generates the need for the majority of securitised loans (house purchases, car purchases, higher education, etc.); ii) by securitising non-performing loans, securitisation has served, above all, to clean up the balance sheets of the financial institutions; iii) the so-called financial products created as a result of securitisation are by their very nature highly complex and opaque, as they are still subject to all manner of default and can entail wide-ranging and serious risks; iv) the real objective of the Commission proposal is to revive the European securitisation markets, which, owing to the fact that they were one of the most responsible for the 2007/2008 financial crisis, have recorded moderate growth since then; v) securitisation will never be the solution to job creation or fostering sustainable growth, but rather will serve as a profit lever for financial institutions and to stimulate financial speculation. 110 Notis Marias Recital 1 (1) Securitisation involves transactions that enable a lender typically a credit institution to refinance a set of loans or exposures such as loans for immovable property, auto leases, consumer loans or credit cards, by transforming them into tradable securities. The lender pools and repackages a portfolio of its loans, and (1) Securitisation involves transactions that enable a lender typically a credit institution to refinance a set of loans or exposures such as loans for immovable property, auto leases, consumer loans or credit cards, by transforming them into tradable securities. The lender pools and repackages a portfolio of its loans, and AM\ doc 3/138 PE v01-00

4 organises them into different risk categories for different investors, thus giving investors access to investments in loans and other exposures to which they normally would not have direct access. Returns to investors are generated from the cash flows of the underlying loans. organises them into different risk categories for different investors, thus giving investors access to investments in loans and other exposures to which they normally would not have direct access. Returns to investors are generated from the cash flows of the underlying loans. At the same time, the lender strengthens its liquidity level through the securitisation procedure. Or. el 111 Marco Zanni, Marco Valli Recital 2 (2) In the Investment Plan for Europe presented on 26 November 2014, the Commission announced its intention to restart high-quality securitisation markets, without repeating the mistakes made before the 2008 financial crisis. The development of a simple, transparent and standardised securitisation market constitutes a building block of the Capital Markets Union (CMU) and contributes to the Commission's priority objective to support job creation and a return to sustainable growth. deleted Or. it 112 Notis Marias PE v /138 AM\ doc

5 Recital 2 (2) In the Investment Plan for Europe presented on 26 November 2014, the Commission announced its intention to restart high quality securitisation markets, without repeating the mistakes made before the 2008 financial crisis. The development of a simple, transparent and standardised securitisation market constitutes a building block of the Capital Markets Union (CMU) and contributes to the Commission's priority objective to support job creation and a return to sustainable growth. (2) In the Investment Plan for Europe presented on 26 November 2014, the Commission announced its intention to restart high quality securitisation markets, without repeating the mistakes made before the 2008 financial crisis. The development of a simple, transparent and standardised securitisation market constitutes a building block of the Capital Markets Union (CMU) and must contribute to supporting job creation and a return to sustainable growth. Or. el 113 Molly Scott Cato on behalf of the Verts/ALE Group Recital 2 (2) In the Investment Plan for Europe presented on 26 November 2014, the Commission announced its intention to restart high quality securitisation markets, without repeating the mistakes made before the 2008 financial crisis. The development of a simple, transparent and standardised securitisation market constitutes a building block of the Capital Markets Union (CMU) and contributes to the Commission's priority objective to support job creation and a return to sustainable growth. (2) In the Investment Plan for Europe presented on 26 November 2014, the Commission announced its intention to restart high quality securitisation markets, without repeating the mistakes made before the 2008 financial crisis. The development of a simple, transparent and standardised securitisation market constitutes a building block of the Capital Markets Union (CMU). AM\ doc 5/138 PE v01-00

6 Justification there is no evidence that the current economic under performance can be addressed by supply side measures and plenty of evidence that it can be addressed by more enlightened fiscal stimulus. The inability of the EU to act in a coordinated way to stimulate the real economy should not be used as an excuse to stimulate the already bloated virtual economy 114 Marco Zanni, Marco Valli Recital 3 (3) The European Union does not intent to weaken the legislative framework implemented after the financial crisis to address the risks inherent in highly complex, opaque and risky securitisation. It is essential to ensure that rules are adopted to better differentiate simple, transparent and standardised products from complex, opaque and risky instruments and apply a more risksensitive prudential framework. (3) The European Union must strengthen the legislative framework implemented after the financial crisis to address the risks inherent in securitisation. It is essential to ensure that rules are adopted to apply a more risk-sensitive prudential framework; it is equally important to ban re-securitisation and to exclude synthetic securitisation from this Regulation. Or. it 115 Notis Marias Recital 3 (3) The European Union does not intent to weaken the legislative framework implemented after the financial crisis to address the risks inherent in highly complex, opaque and risky securitisation. It is essential to ensure that rules are adopted to better differentiate simple, transparent and standardised products from complex, (3) The European Union does not intent to weaken the legislative framework implemented after the financial crisis to address the risks inherent in highly complex, opaque and risky securitisation. It is essential to ensure that rules are adopted to better differentiate simple, transparent and standardised products from complex, PE v /138 AM\ doc

7 opaque and risky instruments and apply a more risk-sensitive prudential framework. opaque and risky financial instruments and apply a more risk-sensitive prudential framework. Or. el 116 Antonio Tajani Recital 3 (3) The European Union does not intend to weaken the legislative framework implemented after the financial crisis to address the risks inherent in highly complex, opaque and risky securitisation. It is essential to ensure that rules are adopted to better differentiate simple, transparent and standardised products from complex, opaque and risky instruments and apply a more risk-sensitive prudential framework. (3) The European Union aims to strengthen the legislative framework implemented after the financial crisis to address the risks inherent in highly complex, opaque and risky securitisation. It is essential to ensure that rules are adopted to better differentiate simple, transparent and standardised products from complex, opaque and risky instruments and apply a more risk-sensitive prudential framework. 117 Marco Zanni, Marco Valli Recital 4 (4) Securitisation is an important element of well-functioning financial markets. Soundly structured securitisation is an important channel for diversifying funding sources and allocating risk more efficiently within the Union financial system. It allows for a broader distribution of financial sector risk and can help to free up originator s balance sheets to allow for further lending to the economy. (4) It should be recalled that in the years prior to the financial crisis of 2008, an excessive and reckless use of securitised assets changed the business model of banks, thus encouraging the use of leverage that enabled banks to make high profits in a short period of time but with risks of significant losses: these were the preconditions for the outbreak of the 2008 financial crisis, which began in the AM\ doc 7/138 PE v01-00

8 Overall, it can improveefficiencies in the financial system and provide additional investment opportunities. Securitisation can create a bridge between credit institutions and capital markets with an indirect benefit for businesses and citizens (through, for example, less expensive loans, business financing, credits for immovable property and credit cards). US economy and then spread to others. Or. it 118 Molly Scott Cato on behalf of the Verts/ALE Group Recital 4 (4) Securitisation is an important element of well-functioning financial markets. Soundly structured securitisation is an important channel for diversifying funding sources and allocating risk more efficiently within the Union financial system. It allows for a broader distribution of financial sector risk and can help to free up originator's balance sheets to allow for further lending to the economy. Overall, it can improve efficiencies in the financial system and provide additional investment opportunities. Securitisation can create a bridge between credit institutions and capital markets with an indirect benefit for businesses and citizens (through, for example, less expensive loans and business financing, credits for immovable property and credit cards). (4) Soundly structured securitisation is a channel for diversifying funding sources and allocating risk more widely within the Union financial system. It allows for a broader distribution of financial sector risk and can help to free up originator's balance sheets. PE v /138 AM\ doc

9 119 Neena Gill Recital 4 (4) Securitisation is an important element of well-functioning financial markets. Soundly structured securitisation is an important channel for diversifying funding sources and allocating risk more efficiently within the Union financial system. It allows for a broader distribution of financial sector risk and can help to free up originator's balance sheets to allow for further lending to the economy. Overall, it can improve efficiencies in the financial system and provide additional investment opportunities. Securitisation can create a bridge between credit institutions and capital markets with an indirect benefit for businesses and citizens (through, for example, less expensive loans and business financing, credits for immovable property and credit cards). (4) Securitisation is an important element of well-functioning financial markets. Soundly structured securitisation is an important channel for diversifying funding sources and allocating risk more efficiently within the Union financial system. It allows for a broader distribution of financial sector risk and can help to free up originator's balance sheets to allow for further lending to the economy. Overall, it can improve efficiencies in the financial system and provide additional investment opportunities. Securitisation can create a bridge between credit institutions and capital markets with an indirect benefit for businesses and citizens (through, for example, less expensive loans and business financing, credits for immovable property and credit cards). Securitisation may also allow individual credit institutions to lower their balance sheet rigidities, to better manage their portfolio risk concentrations and to create simpler, long term financial instruments for investors. Those capabilities may collectively improve financial sector flexibility and encourage broader, long term investment in the real economy. At the same time, securitisation can raise the risks of increased interconnectedness and of excessive leverage. It also has the potential to encourage speculative, short term investment and for regulatory arbitrage. This Regulation therefore encourages the strict monitoring by competent authorities of a financial institution's participation in the market. AM\ doc 9/138 PE v01-00

10 120 Notis Marias Recital 4 (4) Securitisation is an important element of well-functioning financial markets. Soundly structured securitisation is an important channel for diversifying funding sources and allocating risk more efficiently within the Union financial system. It allows for a broader distribution of financial sector risk and can help to free up originator's balance sheets to allow for further lending to the economy. Overall, it can improve efficiencies in the financial system and provide additional investment opportunities. Securitisation can create a bridge between credit institutions and capital markets with an indirect benefit for businesses and citizens (through, for example, less expensive loans and business financing, credits for immovable property and credit cards). (4) Securitisation is an important element of well-functioning financial markets and helps to improve the financing of the economy. Soundly structured securitisation is an important channel for diversifying funding sources and allocating risk more efficiently within the Union financial system. It allows for a broader distribution of financial sector risk and can help to free up originator's balance sheets to allow for further lending to the economy. Overall, it can improve efficiencies in the financial system and provide additional investment opportunities. Securitisation can create a bridge between credit institutions and capital markets with an indirect benefit for businesses and citizens (through, for example, less expensive loans and business financing, credits for immovable property and credit cards). Or. el 121 Jonás Fernández Recital 4 (4) Securitisation is an important element of well-functioning financial markets. Soundly structured securitisation is an important channel for diversifying funding sources and allocating risk more efficiently within the Union financial system. It allows for a broader distribution (4) Securitisation is an important element of well-functioning financial markets. Soundly structured securitisation is an important channel for diversifying funding sources and allocating risk more efficiently within the Union financial system. It allows for a broader distribution PE v /138 AM\ doc

11 of financial sector risk and can help to free up originator's balance sheets to allow for further lending to the economy. Overall, it can improve efficiencies in the financial system and provide additional investment opportunities. Securitisation can create a bridge between credit institutions and capital markets with an indirect benefit for businesses and citizens (through, for example, less expensive loans and business financing, credits for immovable property and credit cards). of financial sector risk and can help to free up originator's balance sheets to allow for further lending to the real economy. Overall, it can improve efficiencies in the financial system and provide additional investment opportunities. Securitisation can create a bridge between credit institutions and capital markets with an indirect benefit for businesses and citizens (through, for example, less expensive loans and business financing, credits for immovable property and credit cards). Or. es 122 Pervenche Berès Recital 5 (5) Establishing a more risk-sensitive prudential framework for simple, transparent and standardised ("STS") securitisations requires that the Union clearly defines what a STS securitisation is, since otherwise the more risk-sensitive regulatory treatment for credit institutions and insurance companies would be available for different types of securitisations in different Member States. This would lead to an un-level playing field and to regulatory arbitrage. (5) Establishing a more risk-sensitive prudential framework for simple, transparent and standardised ("STS") securitisations as well as securitisations that include and support projects that contribute to the achievement of the UN's climate conference agreement COP 21 ("Sustainable STS") requires that the Union clearly defines what a STS securitisation is, since otherwise the more risk-sensitive regulatory treatment for credit institutions and insurance companies would be available for different types of securitisations in different Member States. This would lead to an un-level playing field and to regulatory arbitrage. 123 Jonás Fernández AM\ doc 11/138 PE v01-00

12 Recital 5 (5) Establishing a more risk-sensitive prudential framework for simple, transparent and standardised ("STS") securitisations requires that the Union clearly defines what a STS securitisation is, since otherwise the more risk-sensitive regulatory treatment for credit institutions and insurance companies would be available for different types of securitisations in different Member States. This would lead to an un-level playing field and to regulatory arbitrage. (5) Establishing a more risk-sensitive prudential framework for simple, transparent and standardised ("STS") securitisations requires that the Union clearly defines what a STS securitisation is, since otherwise the more risk-sensitive regulatory treatment for credit institutions and insurance companies would be available for different types of securitisations in different Member States. This would lead to an un-level playing field and to regulatory arbitrage, and it is important to ensure that Europe has a STS single market to simplify crossborder transactions. Or. es 124 Notis Marias Recital 5 (5) Establishing a more risk-sensitive prudential framework for simple, transparent and standardised ("STS") securitisations requires that the Union clearly defines what a STS securitisation is, since otherwise the more risk-sensitive regulatory treatment for credit institutions and insurance companies would be available for different types of securitisations in different Member States. This would lead to an un-level playing field and to regulatory arbitrage. (5) Establishing a more risk-sensitive prudential framework for simple, transparent and standardised ("STS") securitisations requires that the Union clearly defines what a STS securitisation is, since otherwise the more risk-sensitive regulatory treatment for credit institutions and insurance companies would be available for different types of securitisations in different Member States. This would lead to an un-level playing field and to regulatory arbitrage. Otherwise, many securitisations would not be sufficiently risk-sensitive, owing to the lack of suitable risk drivers across approaches in determining risk weights. PE v /138 AM\ doc

13 Or. el 125 Fabio De Masi, Rina Ronja Kari Recital 6 (6) It is appropriate to provide, in line with the existing definitions in Union sectoral legislation, definitions of all the key concepts of securitisation. In particular, a clear and encompassing definition of securitisation is needed to capture any transaction or scheme whereby the credit risk associated with an exposure or pool of exposures is tranched. An exposure that creates a direct payment obligation for a transaction or scheme used to finance or operate physical assets should not be considered an exposure to a securitisation, even if the transaction or scheme has payment obligations of different seniority. (6) It is appropriate to provide, in line with the existing definitions in Union sectoral legislation, definitions of all the key concepts of securitisation. In particular, a clear and encompassing definition of securitisation is needed to capture any transaction or scheme whereby the payments in the transaction or scheme are dependent on the performance of the exposures or pool of exposures. The economic transfer of the exposures being securitised should be achieved by the transfer of ownership of the securitised exposures from the originator institution to an SSPE or through sub-participation by an SSPE. An exposure that creates a direct payment obligation for a transaction or scheme used to finance or operate physical assets should not be considered an exposure to a securitisation, even if the transaction or scheme has payment obligations of different seniority. 126 Marco Zanni, Marco Valli Recital 6 (6) It is appropriate to provide, in line with the existing definitions in Union (6) It is appropriate to provide, in line with the existing definitions in Union AM\ doc 13/138 PE v01-00

14 sectoral legislation, definitions of all the key concepts of securitisation. In particular, a clear and encompassing definition of securitisation is needed to capture any transaction or scheme whereby the credit risk associated with an exposure or pool of exposures is tranched. An exposure that creates a direct payment obligation for a transaction or scheme used to finance or operate physical assets should not be considered an exposure to a securitisation, even if the transaction or scheme has payment obligations of different seniority. sectoral legislation, definitions of all the key concepts of securitisation. In particular, a clear and encompassing definition of securitisation is needed to capture any transaction or scheme. An exposure that creates a direct payment obligation for a transaction or scheme used to finance or operate physical assets should not be considered an exposure to a securitisation, even if the transaction or scheme has payment obligations of different seniority. Or. it 127 Morten Messerschmidt on behalf of the ECR Group Recital 6 a (new) (6 a) A sponsor should be able to delegate tasks to a servicer, but should remain responsible for all its obligations under this Regulation. 128 Notis Marias Recital 7 (7) At both the international and European level, much work has already been done to identify STS securitisation (7) At both the international and European level, more work must be done to identify STS securitisation, just as in PE v /138 AM\ doc

15 and in Commission Delegated Regulations (EU) 2015/61 22 and (EU) 2015/35 23, criteria have already been set out for simple, transparent and standardised securitisation for specific purposes, to which a more risk sensitive prudential treatment is attached. 22 Commission Delegated Regulation of 10 October 2014 to supplement Regulation (EU) No 575/2013 with regard to liquidity coverage requirement for Credit Institutions (OJ L 11, , p. 1). 23 Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (OJ L 12, , p. 1). Commission Delegated Regulations (EU) 2015/61 22 and (EU) 2015/35 23, criteria have already been set out for simple, transparent and standardised securitisation for specific purposes, to which a more risk sensitive prudential treatment is attached. 22 Commission Delegated Regulation of 10 October 2014 to supplement Regulation (EU) No 575/2013 with regard to liquidity coverage requirement for Credit Institutions (OJ L 11, , p. 1). 23 Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (OJ L 12, , p. 1). Or. el 129 Notis Marias Recital 8 (8) Based on the existing criteria, on the BCBS-IOSCO criteria adopted on 23 July 2015 for identifying simple, transparent and comparable securitisations and in particular the EBA Advice on qualifying securitisation published on 7 July 2015, it is essential to establish a general and cross-sectorally applicable definition of STS securitisation. (8) Based on the existing criteria, on the BCBS-IOSCO criteria adopted on 23 July 2015 for identifying simple, transparent and comparable securitisations, in the framework of capital sufficiency for securitisations, and in particular the EBA Advice on qualifying securitisation published on 7 July 2015, it is essential to establish a general and cross-sectorally applicable definition of STS securitisation. Or. el AM\ doc 15/138 PE v01-00

16 130 Notis Marias Recital 9 (9) Implementation of the "STS criteria throughout the EU should not lead to divergent approaches. Those approaches would create potential barriers for crossborder investors by constraining them to enter into the details of the Member State frameworks and thus undermining investor confidence in the STS criteria. (9) Implementation of the "STS criteria throughout the EU should not lead to divergent approaches but, instead, to the development of a safe securitisation market. Those approaches would create potential barriers for cross-border investors by constraining them to enter into the details of the Member State frameworks and thus undermining investor confidence in the STS criteria. Or. el 131 Cora van Nieuwenhuizen Recital 10 (10) It is essential that competent authorities work closely together to ensure a common and consistent understanding of the STS requirements throughout the Union and to address potential interpretation issues. In the light of this objective the three ESAs should, in the framework of the Joint Committee of the European Supervisory Authorities, coordinate their work and that of the competent authorities to ensure crosssectoral consistency and assess practical issues which may arise with regards to STS securitisations. In doing so, the views of market participants should also be requested and taken into account to the extent possible. The outcome of these discussions should be made public on the (10) It is essential that a European supervisory body operates a third-party certification system in order to ensure a common and consistent understanding of the STS requirements throughout the Union and to address potential interpretation issues. In the light of this objective, the assigned regulatory body, along with the two other ESAs should, in the framework of the Joint Committee of the European Supervisory Authorities, coordinate their work and that of the competent authorities to ensure crosssectoral consistency and assess practical issues which may arise with regards to STS securitisations. In doing so, the views of market participants should also be requested and taken into account to the PE v /138 AM\ doc

17 websites of the ESAs so as to help originators, sponsors, SSPEs and investors assess STS securitisations before issuing or investing in such positions. Such a coordination mechanism would be particularly important in the period leading to the implementation of this Regulation. extent possible. The outcome of these discussions should be made public on the websites of the ESAs so as to help originators, sponsors, SSPEs and investors assess STS securitisations before issuing or investing in such positions. Such a coordination mechanism would be particularly important in the period leading to the implementation of this Regulation. 132 Petr Ježek, Michael Theurer, Sylvie Goulard Recital 10 (10) It is essential that competent authorities work closely together to ensure a common and consistent understanding of the STS requirements throughout the Union and to address potential interpretation issues. In the light of this objective the three ESAs should, in the framework of the Joint Committee of the European Supervisory Authorities, coordinate their work and that of the competent authorities to ensure crosssectoral consistency and assess practical issues which may arise with regards to STS securitisations. In doing so, the views of market participants should also be requested and taken into account to the extent possible. The outcome of these discussions should be made public on the websites of the ESAs so as to help originators, sponsors, SSPEs and investors assess STS securitisations before issuing or investing in such positions. Such a coordination mechanism would be particularly important in the period leading to the implementation of this Regulation. (10) It is essential that competent authorities work closely together to ensure a common and consistent understanding of the STS requirements throughout the Union and to address potential interpretation issues. In the light of this objective, the three ESAs should, in the framework of the Joint Committee of the European Supervisory Authorities within which a new securitisation committee shall be set up, coordinate their work and that of the competent authorities to ensure cross-sectoral consistency and assess practical issues which may arise with regards to STS securitisations. In doing so, the views of market participants should also be requested and taken into account to the extent possible. The outcome of these discussions should be made public on the websites of the ESAs so as to help originators, sponsors, SSPEs and investors assess STS securitisations before issuing or investing in such positions. Such a coordination mechanism would be particularly important in the period leading to the implementation of this Regulation. AM\ doc 17/138 PE v01-00

18 133 Neena Gill Recital 11 (11) Investments in or exposures to securitisations will not only expose the investor to credit risks of the underlying loans or exposures, but the structuring process of securitisations could also lead to other risks such as agency risks, model risk, legal and operational risk, counterparty risk, servicing risk, liquidity risk, concentration risk and risks of operational nature. Therefore, it is essential that institutional investors are subject to proportionate due diligence requirements ensuring that they properly assess the risks arising from all types of securitisations, to the benefit of end investors. Due diligence can thus also enhance confidence in the market and between individual originators, sponsors and investors. It is necessary that investors also exercise appropriate due diligence with regard to STS securitisations.. They can inform themselves with the information disclosed by the securitising parties, in particular the STS notification and the related information disclosed in this context, which should provide investors with all the relevant information on the way STS criteria are met. Institutional investors should be able to place appropriate reliance on the STS notification and the information disclosed by the originator, sponsor and SSPE on whether a securitisation meets the STS requirements. (11) Investments in or exposures to securitisations will not only expose the investor to credit risks of the underlying loans or exposures, but the structuring process of securitisations could also lead to other risks such as agency risks, model risk, legal and operational risk, counterparty risk, servicing risk, liquidity risk, concentration risk and risks of operational nature. Therefore, it is essential that institutional investors, including asset managers, are subject to proportionate due diligence requirements ensuring that they properly assess the risks arising from all types of securitisations, to the benefit of end investors. Due diligence can thus also enhance confidence in the market and between individual originators, sponsors and investors. It is necessary that investors also exercise appropriate due diligence with regard to STS securitisations.. They can inform themselves with the information disclosed by the securitising parties, in particular the STS notification and the related information disclosed in this context, which should provide investors with all the relevant information on the way STS criteria are met. Institutional investors should be able to place appropriate reliance on the STS notification and the information disclosed by the originator, sponsor and SSPE on whether a securitisation meets the STS requirements. PE v /138 AM\ doc

19 134 Cora van Nieuwenhuizen Recital 11 (11) Investments in or exposures to securitisations will not only expose the investor to credit risks of the underlying loans or exposures, but the structuring process of securitisations could also lead to other risks such as agency risks, model risk, legal and operational risk, counterparty risk, servicing risk, liquidity risk, concentration risk and risks of operational nature. Therefore, it is essential that institutional investors are subject to proportionate due diligence requirements ensuring that they properly assess the risks arising from all types of securitisations, to the benefit of end investors. Due diligence can thus also enhance confidence in the market and between individual originators, sponsors and investors. It is necessary that investors also exercise appropriate due diligence with regard to STS securitisations.. They can inform themselves with the information disclosed by the securitising parties, in particular the STS notification and the related information disclosed in this context, which should provide investors with all the relevant information on the way STS criteria are met. Institutional investors should be able to place appropriate reliance on the STS notification and the information disclosed by the originator, sponsor and SSPE on whether a securitisation meets the STS requirements. (11) Investments in or exposures to securitisations will not only expose the investor to credit risks of the underlying loans or exposures, but the structuring process of securitisations could also lead to other risks such as agency risks, model risk, legal and operational risk, counterparty risk, servicing risk, liquidity risk, concentration risk and risks of operational nature. Therefore, it is essential that institutional investors are subject to proportionate due diligence requirements ensuring that they properly assess the risks arising from all types of securitisations, to the benefit of end investors. Due diligence can thus also enhance confidence in the market and between individual originators, sponsors and investors. It is necessary that investors also exercise appropriate due diligence with regard to STS securitisations. They can inform themselves with the information disclosed by the securitising parties, in particular the STS notification and the related information disclosed in this context, which should provide investors with all the relevant information on the way STS criteria are met. Institutional investors should be able to place appropriate reliance on the respective third-party certification agent for STS notification and the information disclosed by the originator, sponsor and SSPE on whether a securitisation meets the STS requirements. AM\ doc 19/138 PE v01-00

20 135 Molly Scott Cato on behalf of the Verts/ALE Group Recital 12 (12) It is important that the interests of originators, sponsors and original lenders that transform exposures into tradable securities and investors are aligned. To achieve this, the originator, sponsor or original lender should retain a significant interest in the underlying exposures of the securitisation. It is therefore important for the originators or the sponsors to retain a material net economic exposure to the underlying risks in question. More generally, securitisation transactions should not be structured in such a way so as to avoid the application of the retention requirement. That requirement should be applicable in all situations where the economic substance of a securitisation is applicable, whatever legal structures or instruments are used. There is no need for multiple applications of the retention requirement. For any given securitisation, it suffices that only the originator, the sponsor or the original lender is subject to the requirement. Similarly, where securitisation transactions contain other securitisations positions as underlying exposures, the retention requirement should be applied only to the securitisation which is subject to the investment. The STS notification indicate to investors that originators are retaining a material net economic exposure to the underlying risks. Certain exceptions should be made for cases when securitised exposures are fully, unconditionally and irrevocably guaranteed by in particular public authorities. In case support from public resources provided in the form of guarantees or by other means, any provisions in this Regulation are without (12) It is important that the interests of originators, sponsors and original lenders that transform exposures into tradable securities and investors are aligned. To achieve this, the originator, sponsor or original lender should retain a significant interest in the underlying exposures of the securitisation, that exposures included in securitisations are not qualitatively different to those retained on the originators balance sheet and that, prior to being included in a securitisation, the exposures have been on the originators balance sheet for a significant proportion of their contractual tenor. It is therefore important for the originators or the sponsors to retain a material net economic exposure to the underlying risks in question both for a significant period prior to securitisation and following securitisation. More generally, securitisation transactions should not be structured in such a way so as to avoid the application of the retention requirement. That requirement should be applicable in all situations where the economic substance of a securitisation is applicable, whatever legal structures or instruments are used. There is no need for multiple applications of the retention requirement. For any given securitisation, it suffices that only the originator, the sponsor or the original lender is subject to the requirement. The STS notification should indicate to investors that originators have previously retained and will in the future retain a material net economic exposure to the underlying risks. Certain exceptions should be made for cases when securitised exposures are fully, unconditionally and PE v /138 AM\ doc

21 prejudice to State aid rules. irrevocably guaranteed by in particular public authorities. In case support from public resources provided in the form of guarantees or by other means, any provisions in this Regulation are without prejudice to State aid rules. 136 Marco Zanni, Marco Valli Recital 12 (12) It is important that the interests of originators, sponsors and original lenders that transform exposures into tradable securities and investors are aligned. To achieve this, the originator, sponsor or original lender should retain a significant interest in the underlying exposures of the securitisation. It is therefore important for the originators or the sponsors to retain a material net economic exposure to the underlying risks in question. More generally, securitisation transactions should not be structured in such a way so as to avoid the application of the retention requirement. That requirement should be applicable in all situations where the economic substance of a securitisation is applicable, whatever legal structures or instruments are used. There is no need for multiple applications of the retention requirement. For any given securitisation, it suffices that only the originator, the sponsor or the original lender is subject to the requirement. Similarly, where securitisation transactions contain other securitisations positions as underlying exposures, the retention requirement should be applied only to the securitisation which is subject to the investment. The STS notification indicate (12) It is important that the interests of originators, sponsors and original lenders that transform exposures into tradable securities and investors are aligned. To achieve this, the originator, sponsor or original lender should retain a significant interest in the underlying exposures of the securitisation. It is therefore important for the originators or the sponsors to retain a material net economic exposure to the underlying risks in question. More generally, securitisation transactions should not be structured in such a way so as to avoid the application of the retention requirement. That requirement should be applicable in all situations where the economic substance of a securitisation is applicable, whatever legal structures or instruments are used. There is no need for multiple applications of the retention requirement. For any given securitisation, it suffices that only the originator, the sponsor or the original lender is subject to the requirement. The STS notification indicate to investors that originators are retaining a material net economic exposure to the underlying risks. Certain exceptions should be made for cases when securitised exposures are fully, unconditionally and irrevocably guaranteed by in particular AM\ doc 21/138 PE v01-00

22 to investors that originators are retaining a material net economic exposure to the underlying risks. Certain exceptions should be made for cases when securitised exposures are fully, unconditionally and irrevocably guaranteed by in particular public authorities. In case support from public resources provided in the form of guarantees or by other means, any provisions in this Regulation are without prejudice to State aid rules. public authorities. In case support from public resources provided in the form of guarantees or by other means, any provisions in this Regulation are without prejudice to State aid rules. Or. it 137 Paul Tang Recital 12 (12) It is important that the interests of originators, sponsors and original lenders that transform exposures into tradable securities and investors are aligned. To achieve this, the originator, sponsor or original lender should retain a significant interest in the underlying exposures of the securitisation. It is therefore important for the originators or the sponsors to retain a material net economic exposure to the underlying risks in question. More generally, securitisation transactions should not be structured in such a way so as to avoid the application of the retention requirement. That requirement should be applicable in all situations where the economic substance of a securitisation is applicable, whatever legal structures or instruments are used. There is no need for multiple applications of the retention requirement. For any given securitisation, it suffices that only the originator, the sponsor or the original lender is subject to the requirement. Similarly, where securitisation transactions contain other (12) It is important that the interests of originators, sponsors and original lenders that transform exposures into tradable securities and investors are aligned. To achieve this, the originator, sponsor or original lender should retain a significant interest in the underlying exposures of the securitisation. It is therefore important for the originators or the sponsors to retain a material net economic exposure to the underlying risks in question. It should be possible for the European Systemic Risk Board to propose to the competent authorities a lower risk retention rate for the securitisation market as a whole or for certain segments of that market by way of draft regulatory technical standards. When so doing, the ESRB should justify how it took into account the need for alignment of risk and the macroprudential aspects of lowering the retention rate. More generally, securitisation transactions should not be structured in such a way so as to avoid the application of the retention requirement. PE v /138 AM\ doc

23 securitisations positions as underlying exposures, the retention requirement should be applied only to the securitisation which is subject to the investment. The STS notification indicate to investors that originators are retaining a material net economic exposure to the underlying risks. Certain exceptions should be made for cases when securitised exposures are fully, unconditionally and irrevocably guaranteed by in particular public authorities. In case support from public resources provided in the form of guarantees or by other means, any provisions in this Regulation are without prejudice to State aid rules. That requirement should be applicable in all situations where the economic substance of a securitisation is applicable, whatever legal structures or instruments are used. There is no need for multiple applications of the retention requirement. For any given securitisation, it suffices that only the originator, the sponsor or the original lender is subject to the requirement. Similarly, where securitisation transactions contain other securitisations positions as underlying exposures, the retention requirement should be applied only to the securitisation which is subject to the investment. The STS notification indicate to investors that originators are retaining a material net economic exposure to the underlying risks. Certain exceptions should be made for cases when securitised exposures are fully, unconditionally and irrevocably guaranteed by in particular public authorities. In case support from public resources provided in the form of guarantees or by other means, any provisions in this Regulation are without prejudice to State aid rules. 138 Morten Messerschmidt Recital 12 (12) It is important that the interests of originators, sponsors and original lenders that transform exposures into tradable securities and investors are aligned. To achieve this, the originator, sponsor or original lender should retain a significant interest in the underlying exposures of the securitisation. It is therefore important for the originators or the sponsors to retain a material net economic exposure to the (12) It is important that the interests of originators, sponsors and original lenders that are involved in a securitisation and investors are aligned. To achieve this, the originator, sponsor or original lender should retain a significant interest in the underlying exposures of the securitisation. It is therefore important for the originators or the sponsors to retain a material net economic exposure to the underlying risks AM\ doc 23/138 PE v01-00

24 underlying risks in question. More generally, securitisation transactions should not be structured in such a way so as to avoid the application of the retention requirement. That requirement should be applicable in all situations where the economic substance of a securitisation is applicable, whatever legal structures or instruments are used. There is no need for multiple applications of the retention requirement. For any given securitisation, it suffices that only the originator, the sponsor or the original lender is subject to the requirement. Similarly, where securitisation transactions contain other securitisations positions as underlying exposures, the retention requirement should be applied only to the securitisation which is subject to the investment. The STS notification indicate to investors that originators are retaining a material net economic exposure to the underlying risks. Certain exceptions should be made for cases when securitised exposures are fully, unconditionally and irrevocably guaranteed by in particular public authorities. In case support from public resources provided in the form of guarantees or by other means, any provisions in this Regulation are without prejudice to State aid rules. in question. More generally, securitisation transactions should not be structured in such a way so as to avoid the application of the retention requirement. That requirement should be applicable in all situations where the economic substance of a securitisation is applicable, whatever legal structures or instruments are used. There is no need for multiple applications of the retention requirement. For any given securitisation, it suffices that only the originator, the sponsor or the original lender is subject to the requirement. Similarly, where securitisation transactions contain other securitisations positions as underlying exposures, the retention requirement should be applied only to the securitisation which is subject to the investment. Justification The securitisation definition is very broad and extends to a range of scenarios involving credit risk tranching and not just those where such tranching is in the form of tradable securities in whole or in part. Accordingly, in order to avoid confusion, we would suggest that the reference to transforming exposures into tradable securities is removed. 139 Burkhard Balz PE v /138 AM\ doc

25 Recital 12 (12) It is important that the interests of originators, sponsors and original lenders that transform exposures into tradable securities and investors are aligned. To achieve this, the originator, sponsor or original lender should retain a significant interest in the underlying exposures of the securitisation. It is therefore important for the originators or the sponsors to retain a material net economic exposure to the underlying risks in question. More generally, securitisation transactions should not be structured in such a way so as to avoid the application of the retention requirement. That requirement should be applicable in all situations where the economic substance of a securitisation is applicable, whatever legal structures or instruments are used. There is no need for multiple applications of the retention requirement. For any given securitisation, it suffices that only the originator, the sponsor or the original lender is subject to the requirement. Similarly, where securitisation transactions contain other securitisations positions as underlying exposures, the retention requirement should be applied only to the securitisation which is subject to the investment. The STS notification indicate to investors that originators are retaining a material net economic exposure to the underlying risks. Certain exceptions should be made for cases when securitised exposures are fully, unconditionally and irrevocably guaranteed by in particular public authorities. In case support from public resources provided in the form of guarantees or by other means, any provisions in this Regulation are without prejudice to State aid rules. (12) It is important that the interests of originators, sponsors and original lenders that transform exposures into tradable securities and investors are aligned. To achieve this, the originator, sponsor or original lender should retain a significant interest in the underlying exposures of the securitisation. It is therefore important for the originators or the sponsors to retain a material net economic exposure to the underlying risks in question which is determined at a level of 5 %. More generally, securitisation transactions should not be structured in such a way so as to avoid the application of the retention requirement. That requirement should be applicable in all situations where the economic substance of a securitisation is applicable, whatever legal structures or instruments are used. There is no need for multiple applications of the retention requirement. For any given securitisation, it suffices that only the originator, the sponsor or the original lender is subject to the requirement. Similarly, where securitisation transactions contain other securitisations positions as underlying exposures, the retention requirement should be applied only to the securitisation which is subject to the investment. The STS notification indicate to investors that originators are retaining a material net economic exposure to the underlying risks. Certain exceptions should be made for cases when securitised exposures are fully, unconditionally and irrevocably guaranteed by in particular public authorities. In case support from public resources provided in the form of guarantees or by other means, any provisions in this Regulation are without prejudice to State aid rules. AM\ doc 25/138 PE v01-00