Complex business transactions: Securitisation: ‘simple, transparent, standardised’
With the aim of extending the financing basis of European companies, in 2015 the EU Commission published a draft proposal for a new framework for securitisation designed to be ‘simple, transparent, standardised’ (STS) and subject to appropriate regulation. Securitisation involves bundling assets such as car or consumer loans and structuring them as a financial instrument which can then be purchased by investors. The objective is to address a large number of investors, thus boosting liquidity and freeing up the banks’ capital for new loans.
US securitisations are regarded as contributing towards the financial market crisis of 2008, above all because their risks were seriously underestimated due to manipulated ratings. The EU Commission is now seeking to rehabilitate the securitisation instrument, and distinguish between simple, transparent and standardised (STS) securitisations and other papers. Banks and insurers will not need to back up transactions with STS products with as much equity capital as other securitisations: for a product to be acknowledged as STS, the ‘packaged’ loans or asset values need to be homogeneous, ownership of the securitised loans must have been transferred to the issuer, and securitisation of securitisations is prohibited. And a minimum retention of risk of at least five per cent is required.
BDO is the first network of auditors and consultants to have founded a pan-European team specifically for STS securitisations in order to support originators of STS securitisations (banks and companies) from preparation through to implementation from a single source. The objective is to collaborate with sponsors (typically securities companies) to define an optimal securitisation structure that is compliant with the future STS criteria and also attractively meets the expectations of potential investors. This includes, for example, auditing and consultancy in fiscal and balance-sheet-related questions on the services offered.