Securitization – What To Expect In 2019

This article summarizes some of the key trends to watch in 2019 in the consumer asset-backed securities (non-mortgage) space, the mortgage and residential securitization space, and with respect to the Customer Due Diligence Requirements for Finance Institutions issued by the Financial Crimes Enforcement Network.

Consumer ABS Space

Unlike in years past, there are no new significant laws or rules in the United States that are taking effect in 2019 and that are targeted at the United States ("US") consumer asset-backed securities ("ABS") space. There are, however, a few items and trends to watch that will have an impact on the consumer ABS markets in the United States including: (i) the recently effective EU Securitization Regulation, (ii) the adoption of contractual provisions for LIBOR successor and replacement benchmark rates and (iii) the SF-3 renewal process.

EU SECURITIZATION REGULATION

The next phase of the European Union's (the "EU") new regulatory regime for securitizations took effect on January 1, 2019, pursuant to Regulation (EU) 2017/2402 (the "EU Securitization Regulation"). The EU Securitization Regulation revises and consolidates the existing rules relating to securitizations, including risk retention, disclosure and credit-granting standards.

Consistent with the old regulatory regime, the EU Securitization Regulation does not directly require compliance by US originators or sponsors (except in certain cases where they are subject to supervision on a consolidated basis under the Capital Requirements Regulation with an EU banking entity). However, the EU Securitization Regulation may indirectly result in US entities providing additional disclosures in order for certain EU investors to be able to invest in US securitizations.

Of particular note are the new transparency requirements on originators, sponsors and securitization special purpose entities, requiring that investors obtain specified information and transaction documents, including the requirement to provide investors with regular reports, including, among other items, loan-level information regarding the underlying assets provided on specified reporting templates.

These transparency requirements raise a key interpretive issue for US originators and sponsors, since the disclosures required under the new transparency rules, specifically with respect to loan-level information, vary from those required under the US Securities and Exchange Commission's ("SEC") Regulation AB disclosure regime. The EU Securitization Regulation does not specify the jurisdictional scope of these detailed transparency requirements. So, the key question for US originators and sponsors is, are they obligated to provide the information required under the transparency rules, including loan-level information, when...