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13 February 2015

GFMA responds to BCBS/IOSCO on criteria for identifying simple, transparent and comparable securitisations

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Response from the Joint Associations of AFME, ASIFMA, SIFMA, ICMA, IIF and ISDA.

According to the Associations, the criteria should bear in mind the needs of investors but not at the cost of the needs of originators. There is an inferred emphasis in the criteria proposed on the benefit to the investor. This is right, in that reassuring investors regarding the simplicity, transparency and comparability of the securitisation assets that they invest in is invaluable in ensuring that the securitisation market can be re-invigorated.

The Associations are concerned, however, that the Consultative Document does not adequately emphasise the need also for benefits to the supply side of the securitisation markets. Balancing the emphasis of the proposed STC framework on investors with the benefits of securitisation to the originator (in particular ensuring that significant risk transfer, and the capital relief that goes with it, is possible in the context of an STC securitisation) is crucial to ensure a continuing healthy supply side of the securitisation market. Any framework that does not take adequate account of the need to provide capital relief to originators would frustrate the goal, and prevent the realisation of the fundamental benefits, of re-establishing a well-functioning and prudentially sound securitisation market.

The Associations stress that harmonisation of the requirements across jurisdictions should be a key goal. One important way of encouraging growth in the depth and liquidity of the securitisation markets is to facilitate cross-border investments in securitisation products. We believe that the STC framework is compatible with this objective, but only if it has the effect of harmonising the requirements for "qualifying" or STC securitisations across jurisdictions. It is also obvious that the criteria eventually adopted by the Authorities will need to be broad and principles-based in order to allow for appropriate implementation in each of the various jurisdictions that follow the Authorities' approach.

The Associations believe synthetic securitisations should be included in the STC criteria, subject to certain conditions. The members of the Joint Associations believe that, despite the poor performance of some types of synthetic securitisations during the financial crisis, there is justification for the inclusion of certain limited types of appropriately designed synthetic securitisations within the STC definition.

An alternative proposal that the Authorities may wish to consider if they decide against allowing synthetic securitisations to qualify is "deeming" any retained tranches of a synthetic securitisation to be STC for so long as they are retained. While the merits of this approach may not be intuitively obvious, it is logical when the purposes of the STC (simple, transparent, comparable) regime are taken into account. It is necessary to consider first the requirements for transparency, then simplicity and comparability.

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