Structured Finance Still Subject to Rotation

April 18, 2012 by · Leave a Comment
Filed under: European Union 

Everyone including its author, Michel Barnier, the European Union’s Commissioner responsible for internal market and services, has largely abandoned the ill-fated recommendation that European debit issuers rotate rating agencies. However, as part of a compromise coming from the Ecofin committee, the requirement is still in place for structured deals. The industry was anticipating that it would be abandoned altogether.

The International Finance Review quotes a London-based industry observer as saying, “This change, as you can imagine, is going down like a bucket of cold sick … Structured finance – yet again – is being used as an expendable asset class that European regulators can experiment on.”

The draft regulation also includes specific disclosure requirements on structured deals that are intended to ensure investors do their own credit work. Since January 2011, structured deals in Europe have all required a combination of risk retention (skin-in-the-game), investor due diligence, and issuer transparency.

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