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Stephen Moller, head of the London finance department at K&L Gates, discusses the short- and long-term implications of Brexit on the securitisation market.
The uncertainty in the run-up to the Brexit vote on 23 June 2016 did not seem to hold the securitisation market back. In fact, according to the Association of Financial Markets in Europe, the volume of securitised products issued in Europe in Q2 2016 (€74.5bn) was almost 50%. This was higher than in the comparable period in 2015, the single most popular asset class being UK residential mortgage-backed securities (RMBS).
Looking forward, it is simply too early to tell whether the immediate shock of the result will damage the market, particularly given the difficulty in distinguishing the effect of Brexit and the general summer slowdown in European capital markets. However, from what we hear from clients and others, investors’ appetite for structured finance has not been diminished by the Brexit vote. From a legal perspective, any potential changes in the legal and regulatory landscape as a result of Brexit would affect investors planning to invest in securitisations in the short term. After all, it will take a number of years for the terms of the UK’s exit to be negotiated and for the UK to put in place replacement legislation to deal with the various regulatory issues relevant to securitisation which are now covered by European legislation.
Even once UK legislation is in place, we think it is likely to be very similar to current European requirements, at least initially. By the time the regulatory landscape for securitisation in the UK and the EU begins to diverge (if that happens at all), many of the securitisation transactions now being issued will have been redeemed.
Moving beyond the legal and regulatory issues, the macroeconomic uncertainty caused by Brexit could
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1.Banking and finance lawyer with experience in derivatives, debt capital markets, securitisation and structured finance in London and Paris
2.Likes ballet, playing the harp and holidays
3.Thinks the law is always changing!
Emma trained and qualified at Allen & Overy LLP and worked in their derivatives and structured finance teams in London and Paris. She then joined the foreign exchange prime brokerage legal team at Deutsche Bank before spending 4 ½ years with Crédit Agricole CIB advising the fixed income and derivatives desk.
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