BARCELONA, June 15 (IFR) - A raft of more stringent proposed securitisation rules could undermine Europe’s goal to spur lending to small- and medium-sized companies, members of the industry warned at a gathering on Wednesday.
Discussions remained focused on regulation on the second day of the Global ABS conference in Barcelona, after the European Parliament tabled a dramatic regulatory proposal for the securitisation industry last week.
Among the proposed changes, policymakers called for a hike to risk retention requirements to 20% from the present 5% requirement, an aspect that caused uproar in the market.
The draft, which was put forward by centre-left MEP Paul Tang, also suggested setting up a public registry of investor positions and restricting issuance to regulated entities, which could bar certain companies from accessing the market.
Industry experts warned, that if the rules are adopted, they could have deep consequences for SME lending, which lies at the heart of a number of EU initiatives and directives.
“This is an example of unintended consequences and huge collateral damage, when one of the main pillars of why regulators want to revive securitisation is to help the SME sector,” said Steve Gandy, head of DCM solutions at Santander.
“The way that these rules have been written will inadvertently wipe out about 80bn in financing for the SME sector. I’m sure it’s not intended, but that’s the effect.”
EU institutions have long pushed to revive lending to SMEs and boost securitisation in the asset class, outlining this as a transmission mechanism to the “real economy.”
However, market players noted the new rules would dampen issuance in the broader securitisation market, inadvertently cutting lending to corporates and SMEs.
An ABS banker told IFR that a funding official from “one of the largest issuers in our market” is planning to meet Paul Tang ahead of his speech on Thursday, to explain how the risk retention rules could knock the real economy.
“About 40% of its borrowers are SMEs, and this is where the real contradiction is,” the banker said.
Requiring investors to disclose their positions would also kill private placement, which dwarfs the public securitisation market and acts as a major source of alternative funding for SMEs.
“People do tend to get a bit fixated on the public market,” said Kevin Ingram, partner at Clifford Chance. “But a large bulk of deals never emerge into the public.”
“It will be unfortunate if this whole avenue of finance will be shut down inadvertently.”
Others said that restricting the sector to regulated institutions would work in direct opposition to the goals set out by EU policymakers.
“You end up with this tight, carefully monitored, exclusive, closely controlled market,” said Richard Hopkin, managing director of fixed income at AFME.
“How that sits alongside the idea of the Capital Markets Union that expands the universe of investment for corporates and SMEs is beyond me.”
Speakers also noted that SME lending could be under further pressure if CLO issuance is weighed by punitive risk retention requirements.
David Quirolo, partner at Cadwalader, Wickersham & Taft said that while it was easier for politicians to understand the “very tangible impact” of more mainstream securitisation, with CLOs “it’s been very difficult to make people see the real world effects”.
“There’s a small group in [the European] parliament who don’t get the benefit of ABS more generally, let alone CLOs,” he added.
While SME CLOs remain rare, broader demand from CLO managers for leveraged loans has spurred an overall rise in real-economy lending, speakers at the conference said on Wednesday.
Ultimately, the regulatory proposals were seen as yet another sign that regulators still view securitisation with mistrust, rather than as a tool for boosting the European economy.
“ has tried to do a number of things here that are, in his belief, the right steps to take,” said Rob Ford, portfolio manager at TwentyFour. “But he’s done that without necessarily knowing the full story.”
“And one of the problems... is that, despite all of the progress that we’ve made over the last few years to remove the stigma from our marketplace, there is still a very, very healthy level of distrust.” (Reporting by Mariana Ionova, editing by Robert Smith)