Manuel González Escudero (Managing Director of Intermoney ABF CIMD Group) | On October 31st, the Bank of Spain, the Ministry of Economy, Trade, and Business, and the CNMV (Spanish Securities Market Commission) announced a strategic collaboration to strengthen the securitisation market, with the aim of improving business financing, especially for SMEs. During a financing conference, Minister Carlos Cuerpo and Governor José Luis Escrivá presented the creation of a European securitisation platform and a high-level working group co-chaired by the three institutions. The initiative is part of the European Competitiveness Lab, promoted by Spain to advance the integration of European capital markets. The future platform, in which France, Germany, Italy, and Luxembourg also participate, seeks to facilitate the entry of new issuers, reinforce the cross-border nature of securitisations, and simplify supervision. Along this line, the CNMV communicated on the same date certain simplifications in the registration of securitisation funds which will surely facilitate the complex closing processes of this type of operation. Overlaying this initiative is an ambitious plan for the reform of the regulatory framework at a European level, presented on June 17th by the European Commission, which affects several areas: on one hand, the simplification of both the regulatory requirements for the origination of transactions and the due diligence obligations for investors; on the other hand, the aim is to improve the regulatory capital treatment for both transaction originators and investors, which is as essential as, or more than, easing regulatory hurdles that arose under a punitive diagnosis of the tool by regulators and supervisors after the 2007 financial crisis.
“A European securitisation platform and a simplification of this tool are being announced, something which our supervisors have, until now, shown an incomprehensible reluctance towards.”
So much so that even some supervisors have described the treatment of securitisation in recent years as “excessive regulatory prudence.” It is appreciated that almost 20 years later, we are seeing a first determined attempt (so it seems) to overcome the stigma imposed on a financial tool that has only demonstrated its effectiveness despite the onerous conditions with which it has had to compete during that period.
We cannot forget that securitisation, along with public debt and covered bonds (Cédulas in Spain), was one of the most effective instruments for overcoming the liquidity crisis of banks in the midst of the storm, when issuance markets closed completely. If anyone reviews the transition matrices published by rating agencies for any class of securitised assets, they can confirm that the level of defaults in all rating categories is significantly lower than in other assessed segments. And how was this reality responded to? Good words and few actions. In those almost 20 years, expressions like “revitalisation,” “incentivisation,” and “fostering the development of” have been countered by increased regulatory capital charges for investors (be they banks, insurance companies, or regulated investment funds) and “over-demanding” due diligence requirements to invest in securitisation bonds. And that is on the demand side, because on the supply side, a thicket of overwhelmingly discouraging regulatory requirements was imposed on originators, along with approval procedures and economic demands to achieve recognition of the necessary significant risk transfer for the desired capital release, which were extremely difficult to meet or tremendously burdensome, if not uneconomical. This tone may seem bleak and pessimistic, but it is only realistic. And market operators are sceptical of announcements and fanfare with advertising overtones; we prefer to wait for the facts. Nevertheless, we do not lose hope, and we are anxious to see what they present, and, above all, how those announced measures will be applied: without a change in the mindset of supervisors in applying the reforms, the stigma will not be overcome, and we will have lost another opportunity.
“The complexities of this technique and regulatory hurdles slowed down securitisations. While over €710 billion were issued in Europe in 2008 (where they did not cause a problem), only €245 billion were issued in 2024.”
Bank supervisors might ask themselves why the private debt, asset-backed finance, and alternative financing markets have developed in recent years… The answer is obvious: on the one hand, investors, who are risking their own money—predominantly institutional—are highly capable of analysing and assuming risks without a regulator having to tell them how, and they have sufficient capital surpluses to tackle all levels of risk if the price is right; on the other hand, over-regulation and the difficulties imposed on banks to appeal to the public securitisation market have restricted the supply, capping a source of financing and capital management for banks that inevitably impacted the supply of credit to families and businesses; and, to close the circle, faced with this restriction, these companies and families have sought the necessary credit outside the banking sector. Thus, and to change the tone (every cloud has a silver lining), this development of alternative financing has been an opportunity to, for example, broaden the spectrum of originators that use tools as versatile as the securitisation fund for financing: this is the special purpose vehicle under Spanish legislation that allows non-bank companies and financiers to obtain funding for their activity, even appealing to public issuance markets, whether official or trading platforms like MARF.
It is all advantages… The problem lies with those who do not want to see them. Securitisation is a sophisticated and complex mechanism, but it is based on very clear and general principles: there are assets that have cash flows capable of sustaining their refinancing; there is a vehicle that provides adequate isolation of these assets even in case of the originator’s bankruptcy, and which has the necessary legal structure to appeal to financing markets, either in private or public format; and all of this is wrapped in a structure aimed at optimising the cost of financing and even allowing the transfer of the risk associated with those assets. Securitisation is the ideal tool for originators to finance themselves, free up capital, improve the qualities of their balance sheet by making it more liquid, or all three at once. And investors? Well, the truth is that there are many types: and the technique of tranching in a securitisation transaction allows the different risk appetites they may have to be satisfied. We are left with a third vertex: the supervisor; but securitisation, as a risk transfer instrument, is the ideal mechanism to favour its adequate distribution throughout the system; and it is a typical instrument of institutional markets, so the supervision of that distribution is easier and more controlled.
“Securitisation is the ideal tool for originators to obtain financing, free up capital, and make their balance sheets more liquid. And investors, who are risking their own money—mostly institutional—are highly capable of analyzing and assuming risks without a regulator having to tell them how, and they have sufficient capital surpluses to tackle all risk levels if the price is right.”
It is the complexities associated with this technique and the regulatory obstacles that have slowed down the use of this tool: in 2008, more than €710 billion were issued in Europe (€130 billion in Spain); by 2013, this figure did not reach €200 billion (€30 billion in Spain). The complexities are surmountable, or at least manageable due to the benefit they can entail; the regulatory obstacles are not—they are there, and they must be complied with. However, despite this, the volume is gradually recovering, and this year over €185 billion has been issued in Europe as of the close of Q3, approaching the €245 billion figure of 2024. In this context, the most relevant reforms are those affecting the regulation of capital consumption and risk transfer. Not only is a rapid adaptation of the CRR (Regulation 575/2013 on prudential requirements for credit institutions and investment firms) necessary, but also of Solvency II (Commission Delegated Regulation (EU) 2015/35 on the access to the activity of insurance and reinsurance), so that economically-based incentives move credit institutions to intensify the use of this tool, both in “cash” format, obtaining financing, and in synthetic format, where only the risks associated with the assets are transferred, and so that the bonds issued are not penalized compared to other investment alternatives. Only in this way will institutions free up the necessary regulatory capital to achieve the objective of facilitating financing to the market (especially to SMEs).
The second leg of the reforms (that of Regulation 2017/2402 on the general securitisation framework) is also important: simplifying regulatory requirements is always good for fostering the use of a tool; and relieving institutional operators—who already possess their own safe methodologies and processes for carrying out due diligence—of those obligations is sensible. One of the advantages of securitisation is that it is heavily dependent on transparency and information, not only regarding the backing assets but also the entire financial structure. We believe that, beyond the requirements aimed at fostering the simplicity, transparency, and standardisation of transactions, there should be greater incentives for the use of independent third parties to continuously monitor securitisation transactions (and not just at their launch): in this regard, a special mention must be made of the Spanish market, which, through the securitisation fund management companies, has elevated the level of public information and the quality of service to investors for transactions originated in our market. We await the new measures, and we hope that after testing the tool during one of the most intense crises in history—and with almost 20 years having passed without a single problem in the European market—the regulator will, this time, shed that incomprehensible caution that has hindered the development of this tool.
