After its interim report 2019 already contained fundamental recommendations on the completion of the Capital Market Union up to a level playing field for ABS and covered bonds, the High Level Forum (HLF) on the Capital Market Union (CMU) is now making further progress.
On 10 June 2020 it presented its final report to the European Commission. In addition to a plea for a strong and unified capital market, it is clear that in view of the effects of the Covid 19 pandemic, an integrated and resilient capital market is now a top priority.
The report contains recommendations for a number of areas, including investment funds, insurers, digital assets, but also securitisation. In view of the EU Securitisation Regulation, which only came into force eighteen months ago, and the adjustments to the CRR that accompanied it, it remains to be seen whether the EU Commission, contrary to earlier statements, will already deal with this issue. But the Corona crisis shows that time is pressing. Seldom has rapid and targeted action by the EU Commission been as important as it is today.
The recommendations of the High Level Forum to strengthen the European securitisation market are therefore to be welcomed, and they include the following seven points in particular:
1. a clear set of rules and a uniform implementation of the SRT (Significant Risk Transfer) supports the capital management of banks especially in times of recession.
2. the recalibration of the capital requirements and reduction of the floor for senior tranches under the CRR as a consistent response to the extremely low default rates of European securitisations is of high importance
3. also a corresponding recalibration of the capital requirements for insurance companies under Solvency II in order to ensure equal treatment of banking and insurance investors.
4. the reduction of financing costs for SMEs through the creation of a European Single Access Point (ESAP), an idea of ESMA for a central European access point for company data, should be tackled as soon as possible
5. equal treatment of true sale and synthetic securitisations and introducing reduced capital weights for STS will help to strengthen the European banking sector and promote risk transfer to non-bank investors.
6. upgrading senior STS and non-STS positions in the Liquidity Coverage Ratio (LCR) as HQLA improves their liquidity and would be a further contribution to the level playing field with other asset classes.
7. A more distinguished differentiation of the disclosure requirements for public and private securitisations in the EU Securitisation Regulation would help to strengthen especially the financing of SMEs via private securitisation transactions and ABCP programmes
In addition to these substantive points, the final report is also distinguished by the fact that concrete proposals for implementation have already been made. However, the ABCP securitisations, which are important for corporate financing, are still not given sufficient consideration. This market segment, with a volume of around EUR 130-150 billion, was also not covered in the various liquidity measures taken by the ECB and national central banks in the EU (unlike in the USA, Canada, Japan and the UK). Here, too, the EU Commission would be called upon to adjust the legal basis accordingly.