Relief Provided for U.S. Securitizations as a Result of Recent Amendments to EU Securitization Regulations

By Kenda Tomes and Patrick Calland

As a result of a new securitization amendment (Regulation (EU) 2019/876) passed by the European Parliament and the Council of the European Union (EU), effective as of June 27, 2019, EU parent undertakings and their subsidiaries (EU regulated entities) that engage in securitizations are no longer required to comply with certain EU regulatory requirements relating to risk retention, transparency and credit-granting criteria. The new amendment provides much anticipated and welcome relief to EU Regulated Entities involved in U.S. securitizations as well as third party service providers, such as servicers and trustees.

In January 2019, pursuant to an amendment (Regulation (EU) 2017/2401) to Regulation (EU) No 575/2013, the EU regulatory body required EU regulated entities to comply with certain due diligence, risk retention, transparency and credit-granting criteria found in Chapter 2 of Regulation (EU) 2017/2402. This rule appeared to even require such EU regulated entities to comply with these requirements in connection with U.S. securitizations.

While regulators publishing the 2017 Rule intended it to benefit investors by requiring greater transparency and mandatory due diligence, the 2017 Rule created additional burdensome and onerous transparency requirements for U.S. securitizations. Part of the reason such transparency requirements were so burdensome and onerous is that U.S. commercial real estate securitizations already provide very detailed periodic investor reporting that is evaluated and improved by investors and U.S. securitization participants on a continual basis. The 2017 Rule added over a hundred new transparency fields gathering similar but slightly different information. This New EU Securitization Amendment relieves this burden by removing the additional transparency obligation for EU Regulated Entities.

While the reduction in scope of the new amendment went into effect on June 27, 2019, there is still some uncertainty as to whether U.S. securitizations that closed between January 1, 2019 (the effective date of the 2017 rule) and June 27, 2019 are required to continue to comply with the rule's risk retention, transparency and credit-granting criteria requirements throughout the life of those deals. Given that the new amendment does not specifically state that it applies to deals that close on or after the effective date of the amendment, it is possible that these requirements could (and arguably should) go away entirely for U.S. securitizations that closed during such interim period.


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