Securitisation Investor Due Diligence


Paper Abstract

The European securitisation market is unique with respect to mandatory due diligence. It is the only asset class which has a regulatory requirement for its investors to perform due diligence. This stemmed principally from the regulatory reaction to the subprime crisis, where a heavy reliance on credit ratings was prevalent among securitisation investors, and there was a perception among regulators that perhaps not enough due diligence was being conducted by investors on securitisation investments.

The post-crisis European regulatory reaction was to mandate securitisation due diligence in the Capital Requirements Directive (CRD). These requirements have evolved into their current incarnation found in the Capital Requirements Regulation (CRR), as well as their counterpart for fund managers found in the Alternative Investment Fund Managers Directive (AIFMD).

This paper seeks to demystify the regulatory requirement to perform due diligence prior to investing in securitisation transactions and illustrate how the requirements can be met in a relatively straightforward manner and should not be viewed as a barrier by an investor to entering the securitisation market.

This paper also considers the upcoming regulatory changes in the form of the forthcoming securitisation regulation which builds on the requirements in the CRR and AIFMD. We examine how the new rules introduce a number of additional requirements which investors and issuers must be ready to comply with from 1 January 2019. These include:

  • Differentiated due diligence treatment for investments in ABCP conduits with the focus firmly on the sponsor of the conduit rather than the originators
  • Renewed focus on the governance and record keeping in place at investor institutions
  • Clarification of how non-banks can satisfy the risk retention requirements on a consolidated basis

This paper will be of interest to current and prospective participants in the securitisation market, and seeks to provide useful insight to both investors and originators with regards to meeting their regulatory due diligence requirements.

If you wish to discuss anything in the paper or understand how Deloitte could support you with these changes please do not hesitate to get in touch with the authors of the paper.

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