PensionsEurope has given its support to the European Commission’s initiative to review the EU framework for simple, transparent and standardised securitisation.
In a response to the EC, the association said there is interest from IORPs to increase their investments in securitisation. It also said it favours any beneficial revision of existing regulations to boost the EU's financial market competitiveness.
“Securitisation has been recognised in the EU as an important building block of the capital markets union (CMU) and an essential tool in post-pandemic recovery,” PensionsEurope stated.
However, there is still a certain degree of negativity towards this financial instrument among the regulators.
“PensionsEurope supports the commission’s initiative to review the EU framework for simple, transparent and standardized securitisation. We believe that securitisation may further provide long-term investors, such as pension funds, with a broader pool of assets that are genuinely low-risk from a credit perspective, alongside government bonds,” is stated.
The association raised three points on how a revised framework should look. Firstly, it said the framework should be “internationally consistent”.
Secondly, PensionsEurope said the existence of different insolvency regimes in each member state makes Europe-wide securitisation very difficult. Therefore, it believes a harmonisation of tax treatments and bankruptcy law could be helpful, whilst also having a beneficial impact on other aspects of the CMU as well.
Thirdly, the association said the revised framework must enhance the transparency of data and their availability for investors, especially considering the complexity of financial products.
“It is a fact that not many IORPs invest directly in securitisations. However, some pension funds invest in synthetic on-the-balance-sheet securitisations. Through these transactions banks can free up capital and counterparty credit limits, which creates new lending capacity,” the association said.
“By doing so, CRS can transfer capital from investors, through banks, toward the real economy. These types of deals are, by definition, bespoke and bilateral deals that are more suited to larger and more sophisticated investors, that are able to do due diligence in-house. These IORPs see scope for increasing the role of synthetic on-the-balance-sheet securitisations, as it provides an interesting risk-return profiles while boosting banks’ ability to provide finance.”
On the IORP Directive, PensionsEurope said it is a “directive of minimum harmonisation”.
“Therefore, as long as the fiduciary duty and the prudent person principle are respected, the directive provides enough flexibility to invest in securitisations,” PensionsEurope stated.
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