Structured Finance & Securitisation

GETTING THROUGH THE DEAL Structured Finance & Securitisation Structured Finance & Securitisation Finance Structured Contributing editor Patrick D Dolan 2017 2017 © Law Business Research 2017 Structured Finance & Securitisation 2017 Contributing editor Patrick D Dolan Norton Rose Fulbright US LLP Publisher Law The information provided in this publication is Gideon Roberton general and may not apply in a specific situation. [email protected] Business Legal advice should always be sought before taking Research any legal action based on the information provided. Subscriptions This information is not intended to create, nor does Sophie Pallier Published by receipt of it constitute, a lawyer–client relationship. [email protected] Law Business Research Ltd The publishers and authors accept no responsibility 87 Lancaster Road for any acts or omissions contained herein. 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Printed and distributed by First published 2015 Encompass Print Solutions Dan White Third edition Tel: 0844 2480 112 [email protected] ISSN 2058-5594 © Law Business Research 2017 CONTENTS Global overview 5 Japan 31 Patrick D Dolan Motohiro Yanagawa, Takashi Tsukioka and Yushi Hegawa Norton Rose Fulbright US LLP Nagashima Ohno & Tsunematsu Canada 6 Portugal 37 William (Bill) K Jenkins, Peter E Murphy and Dennis R Wiebe Paula Gomes Freire and Mariana Padinha Ribeiro Dentons Canada LLP VdA Vieira de Almeida Cayman Islands 11 Switzerland 44 James Burch and Shamar Ennis Lukas Wyss, Johannes Bürgi and Maurus Winzap Walkers Walder Wyss Ltd Denmark 15 Turkey 49 Michael Steen Jensen and Mikkel Fritsch Hakan Yazıcı and Pınar Başdan Gorrissen Federspiel YazıcıLegal France 21 United States 54 Olivier Hubert Patrick D Dolan De Pardieu Brocas Maffei Norton Rose Fulbright US LLP Devin Swaney and Andrew Bloom India 26 Dechert LLP Justin Bharucha Bharucha & Partners 2 Getting the Deal Through – Structured Finance & Securitisation 2017 © Law Business Research 2017 PREFACE Preface Structured Finance & Securitisation 2017 Third edition Getting the Deal Through is delighted to publish the third edition of Structured Finance & Securitisation, which is available in print, as an e-book and online at www.gettingthedealthrough.com. Getting the Deal Through provides international expert analysis in key areas of law, practice and regulation for corporate counsel, cross-border legal practitioners, and company directors and officers. Throughout this edition, and following the unique Getting the Deal Through format, the same key questions are answered by leading practitioners in each of the jurisdictions featured. Getting the Deal Through titles are published annually in print. Please ensure you are referring to the latest edition or to the online version at www.gettingthedealthrough.com. Every effort has been made to cover all matters of concern to readers. However, specific legal advice should always be sought from experienced local advisers. Getting the Deal Through gratefully acknowledges the efforts of all the contributors to this volume, who were chosen for their recognised expertise. We also extend special thanks to the contributing editor, Patrick D Dolan of Norton Rose Fulbright US LLP, for his continued assistance with this volume. London March 2017 www.gettingthedealthrough.com 3 © Law Business Research 2017 Norton Rose Fulbright US LLP GLOBAL OVERVIEW Global overview Patrick D Dolan* Norton Rose Fulbright US LLP The issues that appeared to attract the most attention in the US secu- and not the other asset types. The Financial Choice Act also calls for the ritisation industry during 2016 were (i) the Regulation AB II asset-level repeal of the Volcker Rule on the grounds that it is negatively impacting disclosure requirements for all asset types other than residential mortgage legitimate market-making activities on the part of underwriters and thus loans (that became subject to the Regulation AB II asset-level disclosure hindering liquidity and economic growth. requirements during 2015), which became effective in November 2016 for Given that President Trump seems focused on growing the US econ- registered offerings of asset-backed securities; and (ii) the risk retention omy and creating more jobs, the US securitisation industry could end up requirements, which became effective for both registered and unregis- being the beneficiary of significant statutory and regulatory relief during tered asset-backed securities offerings on 24 December 2016. While the 2017. It should be noted, however, as pointed out in the weekly newsletter collateralised loan obligation market has been focused on complying with of the Structured Finance Industry Group for the week of 23 January 2016, the risk retention requirements for the last few years, it seemed that 2016 whether a particular administrative agency’s rule or regulation affecting was when the commercial mortgage-backed securities (CMBS) market the securitisation industry would be repealed in the event that Dodd- started to focus intently on the risk retention requirements. Frank is repealed or modified may depend on whether the rule or regula- The traditional form of risk retention in CMBS securitisations has tion is based on the administrative agency’s own rule-making authority as been the B-piece. But under the new risk retention requirements for opposed to a particular section of Dodd-Frank. CMBS, the B-piece, because it is a form of horizontal risk retention, has In Europe, by contrast, it is less the imposition of new rules than the to be valued at fair value for US GAAP purposes. This requirement means delay in implementing already announced initiatives that has been a focus B-pieces are more expensive than what traditional B-piece buyers are of the asset-backed securities industry. The European Securities Market used to paying for them. As an alternative, at the end of 2016 a few of the Authority (ESMA) announced that it did not have statutory funding to larger banks active in the CMBS market used vertical risk retention to implement the reporting website required by the Credit Rating Agencies satisfy the risk retention requirements. These banks were also hoping to III directive (CRA III) and accordingly would not be establishing such receive favourable bank regulatory capital treatment for their vertical risk website. From January 2017, the reporting requirement under CRA III retention interest. applies to all structured finance transactions (effectively securitisations as That same year also saw many securitisation sponsors putting in defined under the European Capital Requirements Regulation, which is place the infrastructure to comply with the asset-level disclosure required the main prudential regulation of banks in Europe) whether or not rated. by Regulation AB II. The data points required for commercial mortgage The reporting requirement has not itself been revoked or suspended, loans and residential mortgage loans track data points compiled by related leaving issuers and sponsors in a somewhat uncomfortable position of industry trade organisations, so compliance for those two asset types being unable to comply with a regulatory requirement. ESMA’s preferred should be easier. However, there was initially some concern that securiti- solution appears to be to wait for the long-trailed European Securitisation sation sponsors in the subprime auto loan space would have difficulty com- Regulation (which would consolidate various European regulations cov- plying with the asset-level disclosure requirements for auto loans due to a ering securitisation, including the CRA III reporting requirement) to be lack of the necessary infrastructure to compile the required information implemented, at which point the lack of a statutory basis for funding data points, but those concerns seem to have receded by the November will be rectified. However, there is as yet no firm timetable for the imple- 2016 deadline. mentation of the Securitisation Regulation and it is currently delayed The early focus in 2017 has been on trying to anticipate which parts of by disagreements between the European Parliament and the European Dodd-Frank and the related rules and regulations the new Trump admin- Commission, both of whom need to approve it. Most issuers and spon- istration will try to repeal. In early January 2017, it seemed that financial sors have responded pragmatically to the current impasse, on the basis regulatory reform was not going to be a top priority for the Trump admin- that they cannot be held responsible for the failings of a regulator (and istration but during the first week of the new administration’s term in indeed, it does not appear that CRA III grants the regulator any power to office the President himself mentioned financial regulatory reform as a sanction issuers or sponsors). Brexit has also been a major theme in 2016, top priority. with many participants trying to establish how it will affect them and their While it is difficult to predict which parts of Dodd-Frank and the operations. However, the vote for Brexit itself does not appear to have related rules and regulations the Trump administration will focus

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