Securitisation is a financing technique that enables credit institutions and other lenders to refinance their credit portfolios by transforming their otherwise illiquid assets into tradeable securities. Soundly structured securitisation is considered critical to the effective operation of deep and efficient capital markets. It affords significant benefits to originators and investors alike by allowing banks to free up their balance sheets to support further lending to the economy, distributing credit risk exposure across the financial sector and providing additional investment opportunities to a wider investor base.
Ten years on from the financial crisis of 2008, on January 1, 2018, an EU Regulation consolidating the patchwork of sectoral legislation governing securitisation entered into force. The Securitisation Regulation (Regulation (EU) 2017/2042) introduces a unified and more risk-sensitive prudential framework for simple, transparent and standardised securitisation (‘STS’), with the aim of restoring investor confidence in securitisation transactions and restoring pre-crisis securitisation issuance volumes. In parallel, the Capital Requirements Regulation (Regulation (EU) 575/2013) (‘CRR’) was amended by Regulation (EU) 2017/2401 to recalibrate the calculation of risk weights for securitisation positions for credit institutions and investment firms.
Together, the STS/CRR legislative package, negotiated and agreed upon during Malta’s Presidency of the Council of the EU in 2017, represents one of the cornerstones of the EU’s Capital Markets Union (‘CMU’), the European Commission’s pivotal project aimed at building a more integrated market for capital in the EU.
As part of its CMU Action Plan, the European Commission intends to revive ‘high-quality’ securitisation as an effective alternative funding channel to the wider economy – the establishment of a single harmonised regime for EU securitisation lays the foundations for this initiative.
Malta has registered strong growth as a jurisdiction for structured finance and securitisation in recent years. Market participants welcome the implementation of the new regime and the increased degree of certainty that this will bring, building on that already provided by the Securitisation Act (Chapter 484 of the Laws of Malta) and local supporting legislation.
These and other salient developments shaping the capital markets will be discussed at Camilleri Preziosi’s Capital Markets Conference being held at the Corinthia Palace Hotel, Attard, on May 31 between 2 and 6pm. For more information, contact capitalmarkets@camilleripreziosi.com, call 2123 8989 or visit our website www.camilleripreziosi.com.