Will EU Regulators Ever See the Forest Thru the Trees for Securitisation?

This week, Global Capital ran another good article about the seemingly never ending saga related to risk retention and other components of the EU’s Simple, Transparent and Standardised framework, also known as “STS”.  The article once again updates the market on the inability of regulators to get out of their own way when it comes to revitalizing the securitisation marketplace  in Europe.

We found one section to be particularly interesting.  Using the sub-title “What does the EU really want?”, we think the article asks the very basic question that few before have thought to ask.  So much time has been spent relying on big picture pronouncements by EU regulators and politicians about how important a healthy securitisation market is to the welfare of the EU capital markets, while very little time has been spent on evaluating what the regulators are actually doing, as a more accurate yardstick for measuring intentions.  Seven to eight years after the Credit Crisis should be more than enough time for pols and bureaucrats to understand structured finance, yet many of us continue to give them a pass and attribute the currently arcane EU rules to folks that simply do not understand securitisation.  Perhaps they understand perfectly well.  Maybe they really do not want a securitisation market for Europe.

Perhaps this is a harsh assessment but at some point, you would think that we have to rely more on their actions and less then on their words in assessing objectives and intentions.

One of the more recent “rationales” for holding up the process of improving the EU regulations is Brexit; the idea being that we need to better understand the impact of the British exit from the EU before making any substantive changes to the current rules.  That  argument sounds reasonable and safe; perhaps hard to challenge because does anyone really know how this will all shake out?  On the other hand, if the EU waits too long, could the UK eventually become the safe harbor for securitisation in the European theatre.  Certainly the UK regulators have a much more progressive track record, when it comes to creating a commercially attractive environment for innovation in the capital markets.  Perhaps the idea of the EU being left in the dust is not so far fetched.

About markferraris
Managing Principal Orchard Street Partners LLC

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