Securitisation Law: EU and US Disclosure Regulations

Securitisation Law: EU and US Disclosure Regulations
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Securitisation Law: EU and US Disclosure Regulations sets out the relevant regulations governing asset backed securities in the US and the EU. It provides the most up-to-date commentary and checklists alongside practical aids such as flow charts relating to disclosure regulations of asset backed securities governed by the EU prospectus directive and prospectus regulation, and the US Regulation AB. The book also contains a discussion on the latest case law (including case studies) and critical legal issues.

Why Securitisation Law: EU and US Disclosure Regulations is important

One of the unique features of this book is its international scope. Securitisation Law: EU and US Disclosure Regulations is intended to meet the demand of international practitioners, and also to set out a comparative methodology that will allow practitioners to decide regulatory compliance issues relating to a particular jurisdiction and to help determine whether a particular approach is sufficiently credible against comparative benchmarks, which is increasing pivotal in the current economic climate.

Foreword to Securitisation Law: EU and US Disclosure Regulations

Securitisation Law: EU and US Disclosure Regulations is an excellent and timely piece of work. This is possibly the first substantial and substantive practical and theoretical examination of the modern law of securitisation. The author has provided a great academic and professional service in bringing this forward.

The author adopts the US definition in the 2005 Final Rule of Securitisation as a series of security transactions backed by a discrete pool of self-liquidating financial assets. This involves the recognition and transfer of legal claims to assets with the payment for the underlying credit instruments being covered by the new notes or commercial paper issued by the special purpose vehicle. The author then provides a number of easy-to-follow diagrams that assist the reader with even the most complex structures. Major parts of the text are dedicated to explaining the content of all of the current laws and regulations that govern securitisation transactions in the US, the EU and elsewhere.

One of the key theoretical issues that the author identifies are the information asymmetries that arise both on initial transfer of assets (transaction asymmetry) and subsequent secondary trading (market asymmetry) with regulations focusing primarily on the first. A significant causal factor in the recent financial crisis has been the complexity of structured finance based on underlying securitisations and the inability of many parties to understand the products and risks involved.

Separate chapters deal with US definitions, EU securitisation, EU compliance, US and EU transactions and disclosures and servicing. Securitisation Law: EU and US Disclosure Regulations accordingly provides a solid and comprehensive coverage of all aspects of modern securitisation law in each of the principal markets concerned. This includes, in particular, the briefing information with the summary (or transaction summary) and the concept of risk or risk factors. An intelligent reading of the US Final Rule invites practitioners to provide a hierarchy or priority of relevant key risk factors and not simply to list all potential exposures. This nevertheless creates a conflict with professional advisors having to protect their clients and avoid client and professional liability. The text provides useful insight and comment on the resolution of this conflict and includes the provision of an analytical framework for risk assessment.

Securitisation remains one of the key modern forms of financing that will survive all of the recent financial crises and future crises whether or not collateralised debt obligations (CDOs) and other more complex forms of structured finance remain in favour. Securitisation Law: EU and US Disclosure Regulations accordingly provides an essential theoretical and professional treatment of this complex area but in a way that is at the same time complete and detailed but easy to follow, understand and appreciate. The author invites the reader to share his commitment and insight which makes the subject matter and treatment engaging and involved.

Securitisation Law: EU and US Disclosure Regulations is an important, relevant and highly timeous piece of work that should be on the library shelves of all serious finance professionals, officials, practitioners, relevant academics and students and other general interest readers. This is an excellent piece of work and a great credit to its author.

Professor George Walker, Centre for Commercial Law Studies, Queen Mary, University of London

1. Definition of Asset-backed Securities;

Introduction: US Term Asset-backed Securities Loan Fund (TALF);
Public-private Investment Program (PPIP);
Formal definition of asset-backed securities;
US Regulation AB §1101(c)(1) through (c)(3);
Depositor as passive owner;
Issuing entity;
Non-performing assets §1101(g);
Measurement date;
Residual value of physical property;
Master trusts;
Prefunding periods;
Revolving periods;
Delinquent asset - §1101(d);
Treatment of non-performing and delinquent assets;
Residual value thresholds;

2. EU Asset backed Securities;

Advice to compliance practitioners;
US Law in EU Law;
Legislative history of Prospectus Directive and Prospectus Regulation;
EU Definition of asset backed securities;
PR Article 2(5)(a) and (b);
Scope of rights and obligations;
Traditional versus synthetic securitisations;
Issuer discretion;
Building blocks of prospectus disclosures;
Appropriate information requirement;
Risk factors;

3. EU ABS Prospectus Disclosures;

Appropriate information;
Annex VII - ABS Registration Document;
Annex VIII - ABS Securities Note;
Annex XIII - Securities Note for Debt Securities more than EUR 50000;
Annex XII - Securities Note for Derivative Securities;
Annex V - Securities Note for Debt Securities less than EUR 50000;
Annex VI - Guarantees;
Annual Information Document;

4. US ABS Risk Symmetric Disclosures;

Policies: competition, promotion of efficiency and capital formation;
Transaction parties;
Transaction agreements;
Shelf registration;
Foreign ABS;
On-going reporting;
Form 8-K;
Form 10-D;
Comparison to EU approach;

5. Summary and Risks of ABS Transaction under US and EU Law;

Why prospectuses are important;
Summary and risk factors under EU;
Summary and risk factors under US Regulation;
Case examples;
Withholding Tax;
Selling restrictions;
Limited recourse;
Risk factors;
Attempted disavowals;
Risks related to issuer;
Risks related to notes;
Risks related to assets;
Risks related to counterparties;
Risks related to markets;

6. ABS Transaction Structure under US and EU Law;

Formal and substantive complexity;
EU Structure of Transaction PR Annex VIII, 3.1;
US Regulation §1113;
Distribution frequency and cash maintenance;
Fees and expenses;
Excess cash flow;
Master trusts;
Optional or mandatory redemption or termination;
Prepayment, maturity and yield;
Flow of funds example;
Sources of funds for distributions;
Priority of distributions;
Subordination risk;
Payment priorities risk;
Reserve fund risk;
Prepayments, losses and priority of distribution risks;
Control and conflicts risks;

7. Servicing Disclosures under US and EU Law;

EU post issuance reporting;
US ongoing reporting;
Regulation AB §1108 - Purpose and Policies of Servicer Disclosure;
Mechanics of servicer disclosure;
Multiple servicers;
Servicing agreements and practices;
Advances of funds;
Collection accounts;
Custodial responsibility;
Limitations on servicer?s liability;
Backup servicing;
Compliance with servicing criteria Regulation AB §1122;
Registered public accounting firm attestation reports;
Cash collection and administration;
Pool asset administration;
Funds held in trust;
Loss, mitigation and recovery;
External enhancement and other support;
Servicer Compliance Statement Regulation AB §1123


Joseph Tanega, BA Princeton, MPhil Oxon, Juris Doctor
Reader International Financial Law
University of Westminster, London
Former senior legal consultant to IFC on securitisation
Consultant Editor: Edmond Curtin, Former Managing Director in the Legal and Compliance Department of Credit Suisse, London

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