Assessing the implications of the European securitisation framework on small European states : a case study on Malta

Abstract

A decade ago, the financial world was taken by surprise, when prominent credit institutions filed for bankruptcy. Securitisation posed significant risks to the financial system, which led to severe repercussions. The financial crisis phenomena spurred the need for regulating the securitisation and enhancing the capital requirements framework. Indeed, the Basel Committee initiated the regulatory treatment for the Simple Transparent and Comparable Securitisation (STC Securitisation) and introduced capital requirements as a recommendation. The European Commission adopted a different approach to regulating securitisation. President Juncker proposed the idea of the Capital Markets Union, as a European strategy focusing on building a sustainable capital market. Nevertheless, securitisation was placed at the centre of this long-term strategy. Securitisation Regulation No. 2017/ 2402 seeks to address the causes and failures which were identified, following the aftermath of the financial crisis. One of the prominent regulatory features is the Simple Transparent Standardised securitisation (STS securitisation) which is in line with the one introduced by the Basel Committee recommendation. This procedure, focuses on a set of established criteria whereby the counterparties in a securitisation transaction must adhere. In order, to avoid any past mistakes, retention of five percent net economic interest in securitisation, must be maintained by one of the counterparties. On the other hand, competent authorities, are empowered to oversee the securitisation market and charge administrative sanctions for any failure to comply with regulatory obligations. The regulators are to maintain an adequate level of cooperation with the European Supervisory Authorities and with other competent authorities in the EU. Amendments in the EU Capital Requirements Regulation (CRR) illustrate that the regulation is in line with the Basel Securitisation Framework as well. This regulation establishes both quantitative and qualitative factors for an adequate capital requirement. The author aims to assess the implication of introducing strict obligations into the counterparties of STS securitisation transactions. Means of case study analysis illustrates a local securitisation context analysis and provide an insight into the prospective market development. Ultimately, an effective and efficient securitisation market is achieved by ensuring protecting investors, strict compliance with the STS securitisation criteria and proper overall supervision.