Unless the relevant competent authorities adopt a safe harbour regime in relation to differing opinions between regulators, certain occupational pension fund investors may need to follow the approach approved by more conservative of the regulators.
One potential concern to investors will be whether the determination by a competent authority in a different jurisdiction to the fund’s that there has been a breach of the regulation will also cause the relevant securitisation to be deemed to be in breach in the occupational fund’s jurisdiction as well, with potential implications for the ability of the fund to continue to hold that securitisation or for the solvency capital treatment of that securitisation.
It is slightly too early to say whether the second apparent ambition of the securitisation regulation will be met.
As mentioned above, each EU jurisdiction is to appoint competent authorities to act as regulators of investors and issuers within their jurisdiction.
There will in many cases be more than one such regulator in each jurisdiction and it is not clear that say, the insurance regulator (and thus the competent authority for insurance companies) will take the same view to compliance as the pension regulator.
Amongst other things, this may create artificial constraints on liquidity in the market (i.e. some investors may be able to treat a given transaction as compliant whereas others cannot).
In addition, little thought has been given to non-European issuers.
The degree of extra-territoriality applying in respect of the securitisation regulation is only likely to become clearer once the relevant sanctions regimes mandated by chapter four of the securitisation regulation have been published.
This will demonstrate the degree to which a non-EU located issuer will be expected to comply with the issuer obligations under the securitisation regulation.
The exclusion of non-EU issuers from the European securitisation market (were this to be the effect of the securitisation regulation) would not necessarily a positive for the European issuers – some investors might choose not to allocate funds to the asset class if they felt it was not sufficiently liquid and trading non-EU bonds when European issuance is quiet would be one way of maintaining liquidity and critical mass during quiet periods in Europe.
Due diligence
The due diligence requirements previously applying to banks under the capital requirements regulation will now apply to IORPs.
In addition, with the introduction of positive requirements for issuers, all investors will be required to verify the satisfaction of those positive issuer obligations by the issuer.
Thus various, quite detailed transaction structuring and documentation requirements that are supposed to be the responsibility of the issuer to implement will nevertheless be the responsibility of investors to double check.
