(Corrects paragraphs 7 and 16 to state Francesco Papadia
retired as director general for market operations ECB six weeks
By Owen Sanderson
LONDON, Nov 14 (IFR) - An industry initiative to distinguish
top quality European securitisations from US subprime RMBS goes
live on Wednesday, amid hopes that regulators will make good on
their hints to spare these bonds from the most punishing effects
of Basel III and Solvency II.
The Prime Collateralized Securities initiative will certify
securitisations that meet set standards of transparency,
reporting quality and market best practice.
The initiative has been developed by the Association for
Financial Markets in Europe (Afme) and the European Financial
Services Roundtable (EFR), two banking and financial services
trade bodies, with the aim of distancing high quality European
consumer securitisation - with realised losses below 1% - from
US subprime mortgages, and demonstrating to regulators and
investors that the industry is willing to embrace moves to
The PCS organization will review the documents and reporting
procedures of new ABS issues it receives, granting or refusing
its endorsement. It will also monitor securities throughout
their life to ensure reporting remains up to standard.
Some version of the initiative has been under discussion
since at least 2009, but was only formally launched at the
beginning of the Global ABS conference in Brussels in June this
year. A chair, Ian Bell, formerly of S&P, was appointed for the
PCS Secretariat, the operational body handling day-to-day
However, further detail remained to be confirmed - including
membership of the PCS Board, the governing body of the
initiative, and final criteria for each European asset class.
PCS Board members will include Francesco Papadia, the former
Director General for Market Operations at the ECB and chair of
the Board, Professor Jose Manuel Campa, professor of financial
and economics at IESE business school and former Spanish
Secretary of State for Economic Affairs, Anneli Peshkoff, former
director of treasury at EIB, and Mirco Bianchi, head of group
finance at UniCredit.
Key industry figures include Gaelle Viriot, head of ABS at
Axa Investment Managers, Gregor Gruber, member of the investment
management board at Allianz IM, Richard Bartlett, head of EMEA
Corporate Finance at RBS, and Michaela Ulrici, chair of the
board of NautaDutilh, a Dutch law firm.
A final Rulebook for PCS will also be released Wednesday, as
well as three "screening partners" - organizations which will
handle the outsourced documentation and reporting review
required to grant 'PCS' status. These will be KPMG, True Sale
Initiative, and the Irish Stock Exchange.
The securitisation industry has been focused on the PCS as a
potential way of navigating a way out of two initiatives likely
to hurt the sector. Exclusion from bank liquid asset buffers
under CRD IV was set to squeeze bank treasury investment in
securitisations, while the capital charges for securitisations
under Solvency II were almost prohibitive for insurance
It is also hoped that PCS will help investors get credit
approval for more securitisations, or even pick up PCS-only
However, since the launch of the initiative, more optimism
has infected the industry irrespective of PCS. Bank treasuries
are now the major investors in securitisations, which have
tightened more than 100bp tighter since PCS was launched, and
some observers detect more optimistic tone from regulatory
The European Banking Authority has committed to look at
evidence of market-based liquidity when assessing assets for
bank regulatory liquidity, and has said it will look at RMBS,
equities, and gold as possible additions to liquidity buffers.
The European Central Bank's collateral policies are also a
focus for the industry. As it stands, even the best-quality,
most transparent securitisations attract a 16% haircut - far
more than comparably rated covered bonds.
A way to differentiate better quality, more transparent
securitisations may help the ECB reduce haircuts applied to ABS
- a move which could channel more than EUR100bn into peripheral
The presence of the former ECB head of market operations
Papadia -who left the central bank around six weeks ago - on the
PCS Board suggests support from the central bank for the
initiative, though not necessarily for lower haircuts.
"Europe needs a healthy securitisation market and we are
confident that this initiative, alongside regulatory changes,
will revitalise the market as a source of funding for the real
economy," said Papadia in a statement released on Wednesday.
Some elements of PCS have been well telegraphed ahead of
time. The backers of the project are keen for it not to be seen
as a rating, nor as an endorsement of credit quality.
However, some level of quality judgement is implicit in the
label. It explicitly excludes certain forms of securitisation,
including CMBS, CDOs, re-securitisations, and non-conforming
Irrespective of credit enhancement, only senior tranches of
securitisations will be PCS-eligible. Other conditions, such as
maximum LTV, are specific to each eligible asset class and
Further detail is expected Wednesday morning when the
Rulebook is sent out.
(Reporting by Owen Sanderson; Editing by Alex Chambers and