OpenLobby.EU
Explore

Prime Collateralised Securities (PCS) UK Limited

PCS

We are a not for profit initiative set up by stakeholders in the finance industry (both investors and issuers and other market participants) with the mission to assist in reviving a strong but safe securitisation market in Europe for the benefit of the European economy.

Lobbying Activity

Response to Draft Delegated Act amending the Commission Delegated Regulation on the Liquidity Coverage Ratio ('LCR')

21 Feb 2018

This consultation is more than a technical issue and has great importance for the success of STS regime and so CMU. This is an outline of a more substantive argument which can be found in the attached document and on our website: www.pcsmarket.org on the PCS Publications page. The basis for PCS’ recommendations are threefold: - STS securitisations will constitute, for LCR purposes, a more conservative category of instruments than the current level 2B securitisations. They have many more rules and are grounded, like covered bonds, in a law. They are underpinned by regulatory oversight and sanctions. They also appear on a public ESMA website making them immediately identifiable. As such they are, as was intended, a new standard asset class. As a result, they are more liquid, irrespective of any credit considerations and LCR rules focus on liquidity. - Based on PCS’ research, virtually no current level 2B securitisations will be STS and few may be able to achieve that status through grandfathering. A replacement of the former by the latter will therefore cause substantial losses to good faith investors and some messy unwinding of current LCR buffers as otherwise high-quality instruments fall out of eligibility. - The current rules were always more conservative than the data warranted. Although this is a legitimate choice for the Commission to have made when drafting the original LCR rules, it means that the current starting point is a very conservative one. However, no evidence has come to suggest that it is not conservative enough. This leads to three conclusions: - If current level 2B securitisations are satisfactory LCR eligible assets in the current conservative set of rules, there is no reason to remove them from eligibility, especially if this will cause losses to good faith investors. - STS securitisations are a more conservative asset class that did not exist when the current rules were crafted. So it is normal that they should now be inserted. Being more conservative an asset class than the existing eligible securitisation assets, it makes sense that their niche in the LCR hierarchy should be carved further up. - One must bear in mind the strategic goals on the EU: The STS regime is a key part of the CMU. It is designed to open up new channels of finance to fund European growth and reduce the continent’s systemic reliance on the banks. But to succeed, the costs and complexities involved in achieving STS status must be met, for issuers, with tangible benefits. Merely leaving this asset class at level 2B undermines the chances of success of STS as a whole and does not do credit to the years of work by the Commission and the co-legislators in creating this instrument. Based on those conclusions, PCS recommends that: - The current level 2B securitisations remain eligible on the same terms as in the current rules; - STS securitisations become eligible as 2A category assets with the same maximum share and haircuts as CQS2 covered bonds – the assets they now strongly resemble. In respect of the additional rules which an STS securitisation needs to meet, PCS’ recommendations are: - A ratings requirement should stay. But, taking into account the wholesale sovereign downgrades in Europe, it makes no sense to limit eligibility to CQS1. The existence of tight credit criteria also causes cliff effects if bonds are downgraded. These weaken the bank stability LCR is designed to enhance. The eligibility should be extended to CQS2 but with larger haircut (35%). - The seniority requirement should remain. - The asset class requirement, whilst not optimal, should remain.
Read full response

Meeting with Marlene Madsen (Cabinet of Vice-President Jyrki Katainen) and Fleishman-Hillard

21 Apr 2017 · Securitisation

Meeting with Tatyana Panova (Cabinet of Vice-President Valdis Dombrovskis)

3 Jul 2015 · Securitisation

Meeting with Ioana Diaconescu (Cabinet of Commissioner Pierre Moscovici)

3 Feb 2015 · Perspectives on a roadmap to revive Europe’s high quality securitisation market, taking into account the issues of the crisis

Meeting with Valérie Herzberg (Cabinet of Vice-President Jyrki Katainen) and European Express Association

9 Dec 2014 · Securitisation

Meeting with Jonathan Hill (Commissioner)

9 Dec 2014 · Securitisation aspects of CMU and CMU more broadly, PCS initiative