The turn of every year since 20101 has seen new developments in European risk retention regulation and 2014 is no exception; year-end brought a double-helping of this annual bonanza, with new developments in both the United States and in Europe.
In the United States, the six federal agencies2 published their joint final rule to implement the credit risk retention requirement of section 15G of the Securities Exchange Act of 1934 on 24 December 20143. These U.S. risk retention rules will formally take effect from 24 December 2015 for RMBS and from 24 December 2016 for other types of securitisation transactions.
In Europe, risk retention rules have applied since 1 January 2011. On 22 December 2014,as mandated by legislation and at the further request of the European Commission, the European Banking Authority (the "EBA") published its report and opinion on the application and effectiveness of the European risk retention rules implemented by the EU Capital Requirements Regulation and incorporating the EBA's recommendations for future reform. The EBA report is generally positive as to the application of necessary supervisory measures and degree of market compliance with the risk retention framework, albeit with some caution as regards whether national competent authorities have sufficient dedicated and prioritised resources to monitor compliance. With one notable exception (in its sixth recommendation, discussed below), the EBA report generally advocates maintaining the status quo. In light of this limited call for action, the potential desire for a new Parliament to move on from risk retention and take some of the more concrete measures necessary to bolster a stuttering European economy, as well as the admitted budgetary challenges facing Europe's regulators and the multiplicity of other priorities juggling for their attention, there must also be some speculation as to whether the EBA report necessitates further legislative action; perhaps 2015 will be the year when the securitisation market finally takes a break from discussing new European risk retention initiatives.
In the remainder of this alert we briefly analyse the ten recommendations proposed in the EBA publications, with the four most significant proposals that are likely to be of particular relevance to the CLO industry being addressed first.
Footnotes
1 The final CEBS Guidelines on Article 122a were published on 31 December 2010 in anticipation of the new Article 122a of CRD2, which was implemented by Directive 2009/111/EC taking effect from 1 January 2011.
2 The Office of the Comptroller of the Currency of the Department of the Treasury, the Federal Reserve System, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the Securities and Exchange Commission and the Department of Housing and Urban Development.
3 https://www.federalregister.gov/articles/2014/12/24/2014-29256/credit-risk-retention
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